<PAGE>
Filed Pursuant to Rule 424(b)5
Registration No. 333-78841
PROSPECTUS SUPPLEMENT
(To prospectus dated December 8, 1999)
300,000 Capital Securities
ACE CAPITAL TRUST II
[ACE LOGO]
9.70% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
Fully and Unconditionally Guaranteed by
ACE LIMITED
----------------
The Trust:
ACE Capital Trust II is a Delaware business trust which will:
. sell capital securities to the public;
. sell common securities to ACE INA Holdings Inc., a subsidiary of ACE
Limited;
. use the proceeds from these sales to buy an equal principal amount of
9.70% Junior Subordinated Deferrable Interest Debentures due 2030 of ACE
INA; and
. distribute the cash payments it receives from ACE INA on the debentures
to the holders of the capital securities and the common securities.
Distributions:
. For each capital security that you own, you will receive cumulative cash
distributions, accumulating from March 31, 2000 at an annual rate of 9.70%
of the liquidation amount of $1,000 per capital security, on April 1 and
October 1 of each year, beginning October 1, 2000.
. ACE INA may defer interest payments on the debentures at any time, and from
time to time, for up to 10 consecutive semiannual periods. If ACE INA does
defer interest payments, the Trust will also defer payment of distributions
on the capital and common securities. However, deferred distributions will
themselves accumulate distributions at an annual rate of 9.70%, to the
extent permitted by law.
Redemption:
. ACE INA may redeem all of the debentures upon the occurrence of specified
changes in law at a redemption price calculated as described in this
prospectus supplement. If ACE INA does redeem the debentures, the Trust will
use the cash it receives on redemption of the debentures to redeem the
capital securities and the common securities.
ACE Limited:
. ACE will effectively guarantee, fully and unconditionally, the payment by
the Trust of amounts due on the capital securities as discussed in this
prospectus supplement and the accompanying prospectus.
Investing in the capital securities involves certain risks which are
described in the "Risk Factors" section beginning on page S-8 of this
prospectus supplement.
----------------
<TABLE>
<CAPTION>
Per
Capital
Security Total
-------- -----
<S> <C> <C>
Public offering price (1)............................ $998.35 $299,505,000
Underwriting commission to be paid by ACE INA........ $10.00 $3,000,000
Proceeds, before expenses, to the Trust.............. $998.35 $299,505,000
</TABLE>
(1) Plus accumulated distributions from March 31, 2000, if settlement
occurs after that date
The underwriters may also purchase up to an additional 45,000 capital
securities at the public offering price within 30 days after the date of this
prospectus supplement to cover over-allotments. ACE INA will pay the
underwriting commission for each additional capital security purchased.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The capital securities will be ready for delivery in book-entry form
through The Depository Trust Company on or about March 31, 2000.
----------------
Merrill Lynch & Co.
Chase Securities Inc. __ First Union Securities, Inc. ___ Salomon Smith Barney
Banc of America Securities LLC ______ Morgan Stanley Dean Witter ______ SG Cowen
----------------
The date of this prospectus supplement is March 29, 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements............................................... S-3
Prospectus Supplement Summary............................................ S-4
Risk Factors............................................................. S-8
ACE Capital Trust II..................................................... S-11
ACE Limited.............................................................. S-13
Use of Proceeds.......................................................... S-19
Capitalization of ACE.................................................... S-19
Unaudited Pro Forma Condensed Consolidated Financial Information of ACE.. S-20
Management............................................................... S-24
Certain Terms of the Capital Securities.................................. S-27
Certain Terms of the Debentures.......................................... S-31
Material United States Federal Income Tax Considerations................. S-36
Underwriting............................................................. S-41
Legal Matters............................................................ S-43
Experts.................................................................. S-43
Prospectus
About this Prospectus.................................................... 2
ACE Limited.............................................................. 3
ACE INA.................................................................. 3
The ACE Trusts........................................................... 4
Use of Proceeds.......................................................... 5
Ratio of Earnings to Fixed Charges and Preferred Share Dividends of ACE.. 5
General Description of the Offered Securities............................ 6
Description of ACE Capital Stock......................................... 6
Description of the Depositary Shares..................................... 19
Description of ACE Debt Securities....................................... 22
Description of ACE INA Debt Securities and ACE Guarantee................. 37
Description of the Warrants to Purchase Ordinary Shares or Preferred
Shares.................................................................. 56
Description of the Warrants to Purchase Debt Securities.................. 58
Description of Preferred Securities...................................... 59
Description of Preferred Securities Guarantees........................... 70
Description of Stock Purchase Contracts and Stock Purchase Units......... 75
Plan of Distribution..................................................... 75
Legal Opinions........................................................... 77
Experts.................................................................. 77
Enforcement of Civil Liabilities Under United States Federal Securities
Laws.................................................................... 78
Where You Can Find More Information...................................... 78
</TABLE>
-----------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
prospectus is accurate as of the date on the cover of this prospectus
supplement only. Our business, financial condition, results of operations and
prospects may have changed since that date.
S-2
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Any written or oral statements made by
us or on our behalf may include forward-looking statements which reflect our
current views with respect to future events and financial performance. These
forward-looking statements are subject to uncertainties and other factors that
could cause actual results to differ materially from such statements. These
uncertainties and other factors (which we describe in more detail elsewhere in
this prospectus supplement and the accompanying prospectus and in our SEC
filings that we have incorporated by reference) include, but are not limited
to:
. uncertainties relating to government and regulatory policies (such
as subjecting us to insurance regulation or taxation in additional
jurisdictions or amending or revoking any laws, regulations or
treaties affecting our current operations);
. the occurrence of catastrophic events or other insured or
reinsured events with a frequency or severity exceeding our
estimates;
. legal developments;
. the uncertainties of the loss reserving process including the
difficulties associated with assessing environmental and latent
injuries;
. the actual amount of new and renewal business;
. the loss of the services of any of our executive officers;
. changing rates of inflation and other economic conditions;
. losses due to foreign currency exchange rate fluctuations;
. the ability to collect reinsurance recoverables;
. the competitive environment in which we operate, related trends
and associated pricing pressures and developments;
. the impact of mergers and acquisitions, including the ability to
successfully integrate acquired businesses and achieve cost
savings, competing demands for ACE's capital, and the risk of
undisclosed liabilities;
. the development of significant Year 2000 related claims or
liabilities;
. developments in and risks associated with global financial markets
which could affect our investment portfolio and financing plans;
and
. risks associated with the introduction of new products and
services.
The words "believe," "anticipate," "estimate," "project," "plan,"
"expect," "intend," "hope," "will likely result" or "will continue" and
variations thereof and similar expressions identify forward-looking statements.
We caution readers not to place undue reliance on these forward-looking
statements, which speak only as of their dates. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information about ACE Limited, ACE INA
Holdings Inc., ACE Capital Trust II and this offering. It does not contain all
of the information that may be important to you in deciding whether to purchase
capital securities. We encourage you to read the entire prospectus supplement,
the accompanying prospectus and the documents that we have filed with the SEC
that are incorporated by reference, prior to deciding whether to purchase
capital securities. You should pay special attention to the "Risk Factors"
section beginning on page S-8 of this prospectus supplement to determine
whether an investment in the capital securities is appropriate for you. Unless
the context otherwise requires, the terms "ACE," "we," "our" and "us" and other
similar terms mean ACE Limited and all of its subsidiaries, and the term "ACE
INA" means ACE INA Holdings Inc. and all of its subsidiaries. Capitalized terms
used in this prospectus supplement that are not otherwise defined have the same
meanings as in the accompanying prospectus. Except as otherwise noted, all
information in this prospectus supplement assumes no exercise of the
underwriters' over-allotment option.
On July 2, 1999, ACE acquired CIGNA Corporation's domestic property and
casualty insurance operations and its international property and casualty
insurance companies and branches, including most of the accident and health
business written through those companies. These businesses are now operated as
subsidiaries of ACE INA. For convenience of reference, we refer to this
acquisition and the businesses acquired as the "ACE INA acquisition" and the
"ACE INA businesses," respectively.
THE OFFERING--Q&A
What are the capital securities?
Each capital security represents an undivided beneficial interest in the
assets of the Trust. The underwriters are offering 300,000 capital securities
at a public offering price of $998.35 for each capital security. The
underwriters may also purchase up to an additional 45,000 capital securities at
the public offering price within 30 days after the date of this prospectus
supplement to cover any over-allotments.
Who is the Trust?
ACE Capital Trust II is a Delaware business trust. The Trust will sell its
capital securities to the public and its common securities to ACE INA. The
Trust will use the proceeds from these sales to buy a series of 9.70% Junior
Subordinated Deferrable Interest Debentures due 2030 (the "debentures") from
ACE INA with the same economic terms as the capital securities. ACE will fully
and unconditionally guarantee payments of principal and interest on the
debentures.
There are four trustees of the Trust. Two of the trustees are officers of
ACE (the "administrative trustees"). Bank One Trust Company, National
Association will act as the property trustee of the Trust and Bank One
Delaware, Inc. will act as the Delaware trustee.
Who are ACE and ACE INA?
ACE is a holding company incorporated with limited liability in the Cayman
Islands. ACE maintains its business office in Bermuda and, through its
subsidiaries, provides a broad range of specialty property and casualty
insurance and reinsurance products to a diverse group of clients worldwide. ACE
INA is a subsidiary of ACE which, on July 2, 1999, acquired the ACE INA
businesses from CIGNA Corporation. ACE INA operates in 47 countries providing
property and casualty insurance to businesses and individuals on a global
basis.
On February 16, 1999, we announced our operating results for the three
months and year ended December 31, 1999. For the three months ended December
31, 1999, we reported net earned premiums of $947.2 million and net income of
$152.0 million. For the year ended December 31, 1999, we reported net earned
premiums of $2.49 billion and net income of $365.0 million. At December 31,
1999, we had cash and investments of $12.9 billion, total assets of $30.1
billion and shareholders' equity of $4.5 billion.
S-4
<PAGE>
When will you receive distributions on the capital securities?
If you purchase the capital securities, you will be entitled to receive
cumulative cash distributions at an annual rate of 9.70% of the liquidation
amount of $1,000 per capital security. Distributions will accumulate from March
31, 2000 and will be payable semiannually in arrears on April 1 and October 1
of each year, beginning October 1, 2000.
When can payment of your distributions be deferred?
ACE INA may, on one or more occasions, defer interest payments on the
debentures for up to 10 consecutive semiannual periods unless an event of
default under the debentures has occurred and is continuing. A deferral of
interest payments cannot extend beyond the stated maturity date of the
debentures (which is April 1, 2030).
If ACE INA defers interest payments on the debentures, the Trust will also
defer its distributions on the capital securities. During this deferral period,
distributions will continue to accumulate on the capital securities at an
annual rate of 9.70% of the liquidation amount of $1,000 per capital security.
Also, the deferred distributions will themselves accumulate distributions at an
annual rate of 9.70%, to the extent permitted by law. Once ACE INA makes all
deferred interest payments on the debentures, with accrued interest, it may
again defer interest payments on the debentures if no event of default under
the debentures has occurred and is continuing.
During any period in which ACE INA defers interest payments on the
debentures, ACE INA and ACE will not be permitted to, and neither will permit
any of its subsidiaries to (with certain exceptions described on page S-32):
. declare or pay a dividend or distribution on any of the outstanding
capital stock of ACE INA or ACE, as the case may be;
. redeem, purchase, acquire or make a liquidation payment with respect
to any of the outstanding capital stock of ACE INA or ACE, as the
case may be;
. make a principal, premium or interest payment on, or repay,
repurchase or redeem, any debt security of ACE INA or ACE that ranks
junior to the debentures or ACE's guarantee of the debentures (the
"debenture guarantee"), as the case may be; or
. make any guarantee payments with respect to any guarantee by ACE INA
or ACE of the debt securities of any subsidiary of ACE INA or ACE,
as the case may be, if such guarantee ranks junior to the debentures
or the debenture guarantee, as the case may be.
If ACE INA defers interest payments on the debentures, you will be
required to accrue interest income for United States federal income tax
purposes before you receive cash distributions.
When will the Trust redeem the capital securities?
The Trust will redeem all of the outstanding capital securities when the
debentures are paid at maturity on April 1, 2030. In addition, if ACE INA
redeems the debentures before their maturity, the Trust will use the cash it
receives on the redemption of the debentures to redeem, on a pro rata basis,
capital securities and common securities having an aggregate liquidation amount
equal to the aggregate principal amount of the debentures redeemed, unless an
event of default under the amended and restated trust agreement of the Trust
(the "restated trust agreement") has occurred and is continuing, in which case
the capital securities will be redeemed before any common securities. The
redemption price per trust security will be equal to $1,000 plus any
accumulated and unpaid distributions on that trust security, plus the related
amount of any premium and/or additional amounts paid by ACE INA or ACE upon the
concurrent redemption of the corresponding debentures.
S-5
<PAGE>
If certain changes in tax or investment company law occur (each of which
is referred to as a "Special Event" and each of which is more fully described
under "Description of ACE INA Debt Securities and ACE Guarantee--Redemption" on
page 44 of the accompanying prospectus), ACE INA may redeem the debentures, in
whole but not in part, within 90 days of the occurence of the Special Event, at
a redemption price calculated as described under "Certain Terms of the Capital
Securities--Special Event Redemption" on page S-28 of this prospectus
supplement.
What is the nature of ACE's guarantee of the capital securities?
ACE will fully and unconditionally guarantee the capital securities based
on:
. its obligations under the ACE INA subordinated indenture, including
the debenture guarantee;
. its obligations under its guarantee of the capital securities (the
"capital securities guarantee"); and
. its obligations under the expense agreement entered into pursuant to
the restated trust agreement.
If ACE INA or ACE does not make a required payment on the debentures, the
Trust will not have sufficient funds to make the related payment on the capital
securities. The capital securities guarantee does not cover payments on the
capital securities when the Trust does not have sufficient funds to make such
payments. ACE's obligations under the capital securities guarantee are junior
in right of payment to all Senior Indebtedness (as defined under "Description
of Preferred Securities Guarantees--Status of the Preferred Securities
Guarantee" on page 72 of the accompanying prospectus) of ACE, and ACE's
obligations under the debenture guarantee are junior in right of payment to all
ACE Senior Indebtedness (as defined under "Description of ACE INA Debt
Securities and ACE Guarantee--Subordination of ACE Guarantee of ACE INA
Subordinated Debt Securities" on page 55 of the accompanying prospectus),
except in each case as discussed elsewhere in this prospectus supplement and
the accompanying prospectus.
When can the debentures be distributed to you?
ACE INA, as the sponsor of the Trust, has the right to dissolve the Trust
at any time. If ACE INA exercises this right to dissolve the Trust, after
satisfaction of any creditors of the Trust, the Trust will be liquidated by
distribution of the debentures to holders of the capital securities and the
common securities.
Will the capital securities be listed on a stock exchange?
We do not intend to apply for listing of the capital securities on any
national securities exchange or for quotation of the capital securities on any
automated dealer quotation system. The underwriters have advised us that they
presently intend to make a market in the capital securities after completion of
this offering. However, they are under no obligation to do so and may
discontinue any market-making activities at any time without any notice.
In what form will the capital securities be issued?
The capital securities will be represented by one or more global
securities that will be deposited with, and registered in the name of, The
Depository Trust Company, New York, New York ("DTC") or its nominee. This means
that you will not receive a certificate for your capital securities but,
instead, will hold your interest through DTC's system. The capital securities
will be ready for delivery through DTC on or about March 31, 2000.
S-6
<PAGE>
Summary Historical Consolidated Financial Data of ACE
The following table sets forth summary historical consolidated financial and
other data of ACE. The year-end financial data have been derived from our
audited financial statements. The financial data for the interim periods have
been derived from our unaudited financial statements and include, in the
opinion of our management, all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial data. The results
for the interim periods do not necessarily indicate the results to be expected
for the full fiscal year. On July 2, 1999, we completed the acquisition of
CIGNA's property and casualty business. The actual results of those operations
since the acquisition date have been included in our results for the year ended
December 31, 1999. On July 9, 1998, we completed the acquisition of Tarquin
Limited, which we accounted for on a pooling-of-interests basis. We have
restated all prior financial information presented to include the results of
operations and financial position of the combined entities. For the historical
annual periods prior to 1999 presented below, our fiscal year ended on
September 30. From and after July 2, 1999, our fiscal year was changed to
December 31. You should read the following information in conjunction with our
financial statements and the related notes and the other financial and
statistical information that we include or incorporate by reference in this
prospectus supplement and the accompanying prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, Year Ended September 30,
December 31, ------------------ ----------------------------------------------
1999 1998 1997 1998 1997 1996 1995
---------------- -------- -------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations data:
Net premiums written.... $ 2,495,348 $154,103 $153,149 $ 880,973 $ 789,773 $ 781,884 $ 544,880
Net premiums earned..... 2,485,737 218,007 205,330 894,303 805,372 755,840 473,133
Net investment income... 493,337 85,095 63,672 324,254 253,440 213,701 184,041
Net realized gain on
investments............ 37,916 130,154 27,493 188,385 127,702 55,229 50,765
Losses and loss
expenses............... 1,639,543 111,169 122,255 516,892 486,140 520,277 366,322
Acquisition costs,
administrative and
other expenses......... 833,312 69,030 44,630 271,566 153,486 138,343 81,976
Amortization of
goodwill............... 45,350 4,435 2,271 12,834 7,325 1,507 (437)
Interest expense........ 105,138 4,741 1,361 25,459 11,657 10,481 5,036
Income taxes............ 28,684 5,342 3,768 20,040 25,181 26,543 7,673
----------- --- -------- -------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 364,963 $238,539 $122,210 $ 560,151 $ 502,725 $ 327,619 $ 247,369
=========== === ======== ======== ========== ========== ========== ==========
Balance sheet data (at
end of period):
Total investments and
cash................... $12,875,535 NM NM $6,201,074 $4,787,916 $4,342,781 $3,225,786
Total assets............ 30,122,888 NM NM 8,788,753 5,647,596 5,077,780 3,514,946
Net unpaid losses and
loss expenses.......... 8,908,817 NM NM 2,678,341 2,006,873 1,892,302 1,452,299
Total shareholders'
equity................. 4,450,560 NM NM 3,714,270 2,785,155 2,367,003 1,524,123
Selected Other Data:
Loss and loss expense
ratio.................. 66.0% 51.0% 59.5% 57.8% 60.4% 68.8% 77.4%
Underwriting and
administrative expense
ratio(1)............... 33.5% 31.7% 21.7% 25.0% 19.0% 18.3% 17.2%
Combined ratio(1)....... 99.5% 82.7% 81.2% 82.8% 79.4% 87.1% 94.6%
Net loss reserves to
capital and surplus
ratio.................. 200.2% NM NM 72.1% 72.1% 79.9% 95.3%
Net premiums written to
capital and surplus
ratio.................. 56.1% NM NM 23.7% 28.4% 33.0% 35.8%
</TABLE>
- -------
NM--Not meaningful
(1) Excluding non-recurring and non-insurance expenses.
S-7
<PAGE>
RISK FACTORS
Your investment in the capital securities will involve certain risks. You
should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in this prospectus supplement
and the accompanying prospectus, before deciding whether an investment in the
capital securities is suitable for you.
ACE's obligations under the capital securities guarantee and the debenture
guarantee, and ACE INA's obligations under the debentures, are subordinated
ACE's obligations under the capital securities guarantee will be
unsecured and will rank junior in priority of payment to all other Indebtedness
(as defined in the capital securities guarantee) of ACE outstanding at any
time, except:
. Indebtedness (including other capital securities guarantees issued
by ACE on behalf of holders of capital securities or other similar
securities of any other trust, partnership or other entity
affiliated with ACE which is a financing vehicle of ACE or an
affiliate of ACE) made equal with or junior to the capital
securities guarantee by its terms;
. Indebtedness of ACE to one of its affiliates;
. interest accruing after the filing of a petition initiating any
bankruptcy, insolvency or similar proceeding unless such interest
is an allowed claim enforceable against ACE in a proceeding under
federal or state bankruptcy laws; and
. trade accounts payable.
This means that ACE cannot make any payments on the capital securities
guarantee if it defaults on a payment of any of its other Indebtedness, except
as described above. In the event of the bankruptcy, liquidation or dissolution
of ACE, its assets would be available to pay obligations under the capital
securities guarantee only after all payments had been made on its other
Indebtedness, except as described above.
ACE INA's obligations under the debentures will be unsecured and will
rank junior in priority of payment to all ACE INA Senior Indebtedness (as
defined under "Certain Terms of the Debentures--Ranking" on page S-34). This
means that ACE INA cannot make any payments of principal, including redemption
payments, or interest on the debentures if it defaults on a payment on any ACE
INA Senior Indebtedness. In addition, upon any payment or distribution of
assets of ACE INA of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution, winding-up, liquidation or
reorganization of ACE INA, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership or other proceedings, all amounts due upon all ACE INA
Senior Indebtedness will first be paid in full, or payment provided for in
money in accordance with its terms, before the holders of debentures are
entitled to receive or retain any payment on account of the debentures.
ACE's obligations under the debenture guarantee will be unsecured and
will rank junior in priority of payment to all ACE Senior Indebtedness (as
defined under "Certain Terms of the Debentures--Ranking" on page S-35). This
means that ACE cannot make any payments on account of the debenture guarantee
if it defaults on a payment on any ACE Senior Indebtedness. In addition, upon
any payment or distribution of assets of ACE of any kind or character, whether
in cash, property or securities, to creditors upon any dissolution, winding-up,
liquidation or reorganization of ACE, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due upon
all ACE Senior Indebtedness will first be paid in full, or payment provided for
in money in accordance with its terms, before the holders of debentures are
entitled to receive or retain any payment from ACE on account of the debenture
guarantee.
S-8
<PAGE>
Both ACE and ACE INA conduct their operations through subsidiaries, which
generate a substantial portion of their respective operating income and cash
flow. As a result, distributions or advances from subsidiaries of ACE INA and
ACE are a major source of funds necessary to meet their respective debt service
and other obligations. Contractual provisions, laws or regulations, as well as
a subsidiary's financial condition and operating requirements, may limit the
ability of ACE INA or ACE to obtain cash required to pay ACE INA's debt service
obligations, including payments on the debentures, or ACE's payment obligations
under the capital securities guarantee or the debenture guarantee.
The debentures will be structurally subordinated to all obligations of
ACE INA's subsidiaries, including claims with respect to trade payables. The
debenture guarantee and the capital securities guarantee will be structurally
subordinated to all obligations of ACE's subsidiaries, including claims with
respect to trade payables. This means that holders of debentures, including the
Trust, will have a junior position to the claims of creditors of ACE INA's
subsidiaries on their assets and earnings and, with respect to the debenture
guarantee and the capital securities guarantee, will have a junior position to
the claims of creditors of ACE's subsidiaries on their assets and earnings.
Except in the case of certain secured indebtedness, neither the capital
securities guarantee nor the ACE INA subordinated indenture limits or prohibits
ACE INA, ACE or their respective subsidiaries from incurring additional
indebtedness, including indebtedness that ranks senior in priority of payment
to the debentures, the debenture guarantee and the capital securities
guarantee.
As of February 29, 2000, on a pro forma basis as if on that date the
Trust and ACE INA had issued and sold the capital securities and the debentures
and applied the estimated net proceeds (after deducting estimated offering
expenses), approximately $296 million, to repay a portion of the commercial
paper indebtedness ACE INA incurred to finance the acquisition of the ACE INA
businesses, (1) the total amount of ACE INA Senior Indebtedness and the total
amount of indebtedness of ACE INA's subsidiaries that would have effectively
ranked senior to the debentures would have been approximately $979 million and
(2) the total amount of ACE Senior Indebtedness and the total amount of
indebtedness of ACE's subsidiaries that would have effectively ranked senior to
the debenture guarantee and the capital securities guarantee would have been
approximately $2.25 billion.
Capital securities guarantee covers payments only if the Trust has cash
available
The ability of the Trust to pay distributions on the capital securities,
the redemption price of the capital securities and the liquidation amount of
each capital security is solely dependent upon ACE INA or ACE making the
related payments on the debentures when due.
If ACE INA defaults on its obligation to pay principal, including
redemption payments, or interest on the debentures, and ACE defaults on its
obligation to make such payments under the debenture guarantee, the Trust will
not have sufficient funds to pay distributions, the redemption price or the
liquidation amount of each capital security. In those circumstances, you will
not be able to rely upon the capital securities guarantee for payment of these
amounts because the capital securities guarantee covers such payment only when
the Trust has sufficient funds on hand but fails to make such payment.
Instead, you may:
. seek legal redress against ACE INA or ACE directly or seek other
remedies to collect your pro rata share of payments owed; or
. rely on the property trustee to enforce the Trust's rights under
the debentures and the debenture guarantee.
Ability to defer distributions has tax consequences for you and may affect the
trading price of the capital securities
So long as no event of default under the debentures has occurred and is
continuing, ACE INA may, on one or more occasions, defer interest payments to
the Trust on the debentures as described in
S-9
<PAGE>
this prospectus supplement. If ACE INA defers interest payments on the
debentures, the Trust will defer distributions on the capital securities during
any deferral period.
If ACE INA defers interest payments on the debentures, you will be
required to accrue interest income as original issue discount ("OID") in
respect of the deferred stated interest allocable to your share of the capital
securities for United States federal income tax purposes. As a result, you will
include such income in gross income for United States federal income tax
purposes prior to the receipt of any cash distributions. In addition, you will
not receive cash from the Trust related to such income if you dispose of your
capital securities prior to the record date on which distributions of such
amounts are made.
If ACE INA exercises its right to defer interest payments on the
debentures, the capital securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest on the debentures. If you sell
the capital securities during an interest deferral period, you may not receive
the same return on investment as someone else who continues to hold the capital
securities. In addition, the existence of ACE INA's right to defer payments of
interest on the debentures may mean that the market price for the capital
securities (which represent an undivided beneficial interest in the debentures)
may be more volatile than other securities that do not have this right.
Capital securities may be redeemed if a Special Event occurs
Upon the occurrence of a Special Event, ACE INA may redeem the
debentures, in whole but not in part, within 90 days of the occurrence of the
Special Event at a redemption price calculated as described under "Certain
Terms of the Capital Securities--Special Event Redemption" on page S-28 of this
prospectus supplement. The Trust will use the cash it receives on any such
redemption of the debentures to redeem an equivalent liquidation amount of the
capital securities and the common securities on a pro rata basis, unless an
event of default under the restated trust agreement has occurred and is
continuing, in which case the capital securities will be redeemed before any
common securities.
Distribution of debentures may have a possible adverse effect on trading price
ACE INA has the right to dissolve the Trust at any time. If ACE INA
dissolves the Trust, after satisfaction of any creditors of the Trust, the
Trust will be liquidated by distribution of the debentures to holders of the
capital securities and the common securities.
Under current United States federal income tax laws, a distribution of
debentures to you upon the dissolution of the Trust would not be a taxable
event to you. Nevertheless, if the Trust is classified for United States
federal income tax purposes as an association taxable as a corporation at the
time it is dissolved, the distribution of debentures to you would be a taxable
event to you. In addition, if there is a change in law, a distribution of
debentures to you upon the dissolution of the Trust could also be a taxable
event to you.
ACE INA cannot predict the market prices for the debentures that may be
distributed. Accordingly, the debentures that you receive upon a distribution,
or the capital securities you hold pending such a distribution, may trade at a
discount to the price that you paid to purchase the capital securities.
Because you may receive debentures, you should make an investment
decision with regard to the debentures in addition to the capital securities.
You should carefully review all the information regarding the debentures
contained in this prospectus supplement and the accompanying prospectus.
Limited voting rights
You will have limited voting rights. In general, unless an event of
default under the restated trust agreement has occurred and is continuing, only
ACE INA may elect or remove any of the trustees, and in no event may holders of
the capital securities remove the administrative trustees.
S-10
<PAGE>
ACE CAPITAL TRUST II
ACE Capital Trust II is a statutory business trust formed under Delaware
law pursuant to (1) a trust agreement executed by ACE, as original sponsor of
the Trust, and the trustees of the Trust and (2) the filing of a certificate of
trust with the Delaware Secretary of State on May 19, 1999. On August 5, 1999,
ACE assigned its rights and obligations as sponsor of the Trust to ACE INA.
This trust agreement will be amended and restated in its entirety substantially
in the form filed as an exhibit to the registration statement of which this
prospectus supplement and the accompanying prospectus form a part. The restated
trust agreement will be qualified as an indenture under the Trust Indenture Act
of 1939.
The Trust exists for the exclusive purposes of:
(1) issuing and selling the trust securities representing undivided
beneficial ownership interests in the assets of the Trust;
(2) using the gross proceeds from the sale of the trust securities to
acquire the debentures; and
(3) engaging in only those activities necessary, convenient or
incidental to the issuance and sale of the trust securities and the
purchase of the debentures.
ACE INA will directly or indirectly own all of the common securities of
the Trust. The common securities of the Trust will rank equally, and payments
will be made thereon pro rata, with the capital securities, except that, if an
event of default under the restated trust agreement resulting from an event of
default under the debentures has occurred and is continuing, the rights of the
holder of the common securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the capital securities. ACE INA will, directly or
indirectly, acquire common securities in an aggregate liquidation amount equal
to at least 3% of the total capital of the Trust.
The Trust has a term of approximately 55 years, but may dissolve earlier
as provided in the restated trust agreement. The Trust's business and affairs
will be conducted by the trustees. Initially there will be four trustees. Two
of the trustees, referred to as the administrative trustees, are persons who
are employees or officers of or affiliated with ACE. Under the restated trust
agreement, the third trustee will be a financial institution that is not
affiliated with ACE INA and has a minimum amount of combined capital and
surplus of not less than $50,000,000. This trustee, referred to as the property
trustee, will serve as property trustee under the restated trust agreement and
as indenture trustee for the purposes of compliance with the provisions of the
Trust Indenture Act. Initially, Bank One Trust Company, National Association, a
national banking association duly organized and existing under the laws of the
United States, will be the property trustee until removed or replaced by the
holder of the common securities. The fourth trustee, referred to as the
Delaware trustee, will be a financial institution that is not affiliated with
ACE INA and is resident in the State of Delaware for purposes of the Delaware
Business Trust Act (the "Trust Act"). Initially, Bank One Delaware, Inc., a
Delaware corporation, will be the Delaware trustee until removed or replaced by
the holder of the common securities. For purposes of compliance with the
provisions of the Trust Indenture Act, Bank One Trust Company, National
Association, will also act as the guarantee trustee.
The property trustee will hold title to the debentures for the benefit of
the holders of the trust securities and the property trustee will have the
power to exercise all rights, powers and privileges under the ACE INA
subordinated indenture as the holder of the debentures. In addition, the
property trustee will maintain exclusive control of a segregated noninterest
bearing bank account (the "property account") to hold all payments made in
respect of the debentures for the benefit of the holders of the trust
securities. The property trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the trust
securities out of funds from the property account. The guarantee trustee will
hold the guarantee for the benefit of the holders of the capital securities.
ACE INA, as the direct or indirect holder of all the common securities,
will have the right to appoint, remove or replace any trustee and to increase
or decrease the number of trustees. However, the
S-11
<PAGE>
number of trustees shall be at least two, at least one of which shall be an
administrative trustee. ACE will pay all fees and expenses related to the Trust
and the offering of the trust securities.
The rights of the holders of the capital securities, including economic
rights, rights to information and voting rights, are provided in the restated
trust agreement, the Trust Act and the Trust Indenture Act.
The office of the Delaware trustee currently is Bank One Delaware, Inc.,
Three Christina Centre, 201 North Walnut Street, Wilmington, Delaware 19801.
The principal executive offices of the Trust are c/o ACE INA Holdings Inc., Two
Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101 and its
telephone number is (215) 640-1000.
Accounting Treatment
The financial statements of the Trust will be reflected in our
consolidated financial statements, with the capital securities shown on our
balance sheet as "Trust preferred securities." The financial statement
footnotes to our consolidated financial statements will reflect that the sole
asset of the Trust will be the debentures. Distributions on the capital
securities will be reflected as a charge to our consolidated income, whether
paid or accumulated, and included in loan interest expense.
S-12
<PAGE>
ACE Limited
General
ACE Limited is a holding company incorporated with limited liability in
the Cayman Islands which maintains its business office in Bermuda. We provide a
broad range of specialty property and casualty insurance and reinsurance
products to a diverse group of clients worldwide. Our long-term business
strategy focuses on achieving underwriting profits and providing value to our
clients and shareholders through the utilization of our growing capital base
within the insurance and reinsurance markets. To date, we have achieved this
objective through a combination of product and geographic diversification as
well as through a number of strategic acquisitions. The ACE INA acquisition was
a significant step forward in this strategy and makes us one of a handful of
truly global insurance enterprises. We now operate in 47 countries.
Strategy
Our long-term business strategy focuses on achieving underwriting profits
and providing value to our clients and shareholders through the utilization of
our substantial capital base within the global insurance and reinsurance
markets. To date, we have achieved this objective through a combination of
product and geographic diversification as well as through a number of strategic
acquisitions. The ACE INA acquisition was a significant step forward in this
strategy and makes us one of only a handful of truly global insurance
enterprises.
For an acquired company to be strategic, it must be operationally
accretive in addition to being financially accretive. The ACE INA acquisition
provides ACE with a considerably expanded competitive profile in the U.S.
market and a significant international presence in 46 other countries. The ACE
INA acquisition provides ACE with attractive opportunities for growth not only
in the U.S. but also in Europe, Asia and Latin America. The ACE INA businesses
complement the other businesses of ACE, resulting in significant further
diversification benefits. This diversification is important to accommodate the
needs of ACE's expanding, global client base of multinational clients in a
dynamic insurance marketplace.
Our Operating Subsidiaries
ACE Bermuda
ACE Bermuda provides property and casualty insurance and reinsurance
coverage across a broad range of business including: excess liability,
professional lines, satellite, tailored risk solutions, aviation, excess
property and political risk. The nature of the coverage provided is generally
expected to result in low frequency but high severity of individual losses. We
use reinsurance market as an integral part of the risk management strategy of
ACE Bermuda and we have secured reinsurance coverage on all of our major lines
of business.
ACE Bermuda also conducts its business through the following joint
ventures:
Sovereign Risk Insurance Limited, a Bermuda-based managing general
agency, issues subscription policies for political risk insurance coverage,
with ACE Bermuda assuming 50 percent of each risk underwritten with a 10
percent retrocession. ACE Bermuda also participates, on a quota share basis, in
two other political risk programs; co-reinsurance of MIGA (the insurance arm of
the World Bank) and Exporter's Credit, which is reinsurance of trade credit
risks.
In March 1998, ACE Bermuda formed two companies with Capital Re
Corporation ("Capital Re"): ACE Capital Re International and ACE Capital Re
Managers Ltd. ACE Capital Re International, a Bermuda-domiciled insurance
company, writes both traditional and custom-designed programs covering
financial guaranty, mortgage guaranty and a broad range of financial risks.
Operations are underwritten and managed in Bermuda by a managing agency, ACE
Capital Re Managers Ltd. During the year ended December 31, 1999, ACE Bermuda
purchased Capital Re's share of ACE Capital Re International and provided
further capital of $85 million. On December 30, 1999, ACE acquired Capital Re.
S-13
<PAGE>
In March 1999, ACE Bermuda, together with a major broker and a UK based
insurance company, formed a joint venture named Intrepid Re Limited. The joint
venture underwrites alternative risk business.
ACE INA
On July 2, 1999, we acquired the ACE INA businesses from CIGNA. ACE INA
operates in 47 countries providing property and casualty insurance to
businesses and individuals on a global basis. One of ACE INA's primary domestic
insurance companies, Insurance Company of North America, traces its origins to
1792. Today, ACE INA benefits from significant domestic and international brand
recognition, long-standing domestic and international operations and the
accumulated results of CIGNA's marketing and promotional efforts. For the
twelve months ended December 31, 1998, ACE INA had gross written premiums of
$4.4 billion, net written premiums of $3.0 billion, net income of $74 million,
total assets of $21.9 billion and stockholder's equity of $2.0 billion.
The ACE INA acquisition provides us with a number of strategic benefits
and growth opportunities. Most importantly, the ACE INA acquisition
significantly furthers our strategy of diversifying both geographically and by
product line. Prior to the acquisition, we operated from our bases in Bermuda,
the United States, the United Kingdom and Ireland. With the acquisition, we
have become one of a very few truly global property and casualty insurance
companies, with operations in 47 countries and all 50 states. This global
presence has been built over a significant period of time and would be
difficult, if not impossible, to duplicate cost and time effectively.
In addition, the ACE INA acquisition greatly expands our product range
and our customer base. This product line diversification allows us to diversify
our risk and income streams and to offer a wider product range to a broader
customer base worldwide. This diversification should also decrease the
volatility of our revenues and income.
ACE INA is organized into two operating segments, ACE USA and ACE
International.
ACE USA
The principal business of ACE USA is the combined business of ACE US
Holdings, which we acquired in 1998, and the domestic operations of ACE INA,
which we acquired on July 2, 1999. The domestic operations of ACE INA include
ongoing domestic operations as well as the run-off operations of Brandywine
Holdings, Inc., which does not write new policies. The ongoing operations
provide specialty property and casualty products and services including:
aerospace, diversified products, marine, professional risk services, property,
special risk, U.S., international, warranty, Westchester Specialty and "other"
operations. The other operations include all remaining insurance operations of
ACE USA and insurance related operations. The business unit's insurance results
include residual market workers' compensation business, pools and syndicates
not attributable to a single business unit and the runoff of open market
facilities business. Insurance related operations include those of ESIS Inc.
("ESIS"), our in-house third party claims administrator, and Recovery Services
International ("RSI"), which sells salvage, subrogation, and premium collection
services.
During 1999, we sold all of the renewal rights to the Commercial
Insurance Services business, a business unit acquired as part of the ACE INA
acquisition, under two separate agreements. In October, 1999, we reached an
agreement with Wausau Commercial Insurance, to sell the renewal rights to the
CIS Middle Market, Commercial Business as well as non-California workers
compensation business. In November 1999, we reached an agreement with Superior
National Insurance Group to sell the renewal rights to the CIS California
Worker's Compensation business. We have not yet sold the existing insurance
reserves for the CIS book.
The Brandywine run-off operation was created in 1995 by the restructuring
of ACE INA's domestic operations into two separate operations, ongoing and run-
off. Brandywine contains substantially all of ACE INA's asbestos and
environmental exposures as well as various run-off insurance and reinsurance
businesses. The run-off operations do not actively sell insurance products, but
are responsible for the management of run-off policies and environmental
pollution exposures.
S-14
<PAGE>
ACE International
ACE International's operations provide insurance coverage and services on
a worldwide basis excluding the United States. The principal business
operations are property & casualty and accident & health. Operating management
is carried out through four regional teams: Europe, Far East, Asia/Pacific and
Latin America.
Our international property and casualty operations are conducted through
a specialist insurance organization offering capacity and technical expertise
in the underwriting of large and unique risks for targeted commercial customer
segments, as well as individual coverages in selected markets. Our property
insurance products include traditional commercial fire coverage as well as
energy industry-related and other technical coverages. Our principal casualty
products are commercial general liability and liability coverage for
multinational organizations. Marine cargo and hull coverages are written in the
London market as well as in marine markets throughout the world. Our
international operations also design and implement risk-financing alternatives
for customers whose approach to risk management includes some form of self-
insurance.
Our international accident and health insurance operations provide
products that are designed to meet the insurance needs of individuals and
groups outside of U.S. insurance markets. These products include accidental
death, medical, hospital indemnity and income protection coverages.
We reduce our exposure to economic loss arising from foreign exchange
fluctuations in ACE International by maintaining invested assets abroad in the
same currency as the related liabilities.
ACE Global Markets
ACE Global Markets primarily encompasses our operations in the Lloyd's
market. We own five managing agencies that operate in Lloyd's. These managing
agencies receive fees and profit commissions in respect of the underwriting and
administrative services they provide to the syndicates. For the calendar 2000
year of account, our managing agencies will manage two active syndicates with
total capacity under management of approximately $1 billion. As our
participation in the syndicates under management grows, the amount of third
party fees and profit commissions received by our managing agencies will
decrease.
We also provide funds at Lloyd's to support underwriting by Lloyd's
syndicates managed by our managing agencies. For the 1999 year of account,
through four corporate members, we participated on all four of the ACE managed
syndicates which together had an underwriting capacity of approximately $725
million out of the total $1.05 billion of capacity. Included in the four
syndicates is Syndicate 2488, a dedicated corporate syndicate whose capital is
provided solely by us, and which underwrites in parallel with Syndicate 488
comprising capacity provided by Names and other corporate members. The
syndicates on which we participate provide liability, specialty marine,
property, casualty and aviation insurance.
For the 2000 year of account, we have merged our syndicates in one so
that only Syndicate 2488 will underwrite in 2000. This does not include the
syndicates managed by Capital Re's Lloyds operations which we discuss below.
The capacity of this syndicate will be approximately $990 million of which
approximately 84 percent, or $829 million, will be provided by our corporate
members.
On December 30, 1999, we acquired RGB Underwriting Agency Limited
("RGBUA") as part of the acquisition of Capital Re. Capital Re also owns a
corporate member at Lloyd's through which it participates on two syndicates
managed by RGBUA for the 1999 year of account. Prior to our acquisition of
Capital Re, one of the syndicates was ceased, such that for the 2000 year of
account the Capital Re corporate member will participate in the remaining
active syndicate. During 2000, it is envisaged the Lloyd's operations of
Capital Re will transfer to ACE Global Markets.
S-15
<PAGE>
ACE Global Reinsurance
The principal business of our ACE Global Reinsurance segment is the
operations of Tempest Reinsurance Company Limited ("Tempest Re") which provides
property catastrophe reinsurance worldwide to insurers of commercial and
personal property. Property catastrophe reinsurance protects a ceding company
against an accumulation of losses covered by the insurance policies it has
issued arising from a common event or "occurrence." Tempest Re underwrites
reinsurance principally on an excess of loss basis.
On April 1, 1998, we acquired CAT Limited, another Bermuda-based property
catastrophe reinsurer. CAT's underwriting operations were immediately combined
with those of Tempest Re, and on January 1, 1999 CAT was merged into Tempest
Re.
In early 2000, Tempest Re initiated plans to expand its operations to
become a multiline global reinsurer. This expansion is expected to reduce
volatility and enable Tempest Re to diversify its business and offer integrated
risk solutions to satisfy client demand. We consider such an integrated
approach vital to capturing an increasing share of the future reinsurance
market.
Business growth will require expansion outside of Bermuda, with our
initial emphasis on the major markets of the United States and the United
Kingdom. We may consider further global expansion in a subsequent phase of this
strategy. We will seek business development opportunities by combining the
strengths of our client relationship skills, underwriting expertise, rational
pricing and capital base. We will add new lines of business in accordance with
our strategy to offer risk protection across all lines of insurance and to be
able to package insurance risk with financial, investment and operational risk.
ACE Financial Services
Our ACE Financial Services segment primarily includes the companies
acquired in the Capital Re acquisition, on December 30, 1999, and ACE Capital
Re International, a subsidiary of ACE Bermuda. Following the acquisition,
Capital Re was renamed ACE Financial Services. The companies in our ACE
Financial Services segment provide value-added insurance and reinsurance
products in several specialty insurance markets which emphasize protection from
credit or financial risks through financial guaranty coverages and financial
risk coverages. The financial guaranty business is composed of municipal and
non-municipal financial guaranty reinsurance and credit default swaps. The
financial risks business is composed of mortgage guaranty reinsurance, trade
credit reinsurance, title reinsurance and financial solutions.
ACE Financial Services' financial guaranty division is dedicated to
serving the U.S. domestic and international financial guaranty insurance
markets and has established itself as a leading specialty reinsurer (by market
share) of financial guaranties of investment grade debt obligations,
principally municipal and non-municipal debt obligations.
Financial guaranty insurance is a type of credit enhancement in the form
of a surety or insurance which is regulated under the insurance laws of various
jurisdictions. The insurance provides an unconditional and irrevocable guaranty
which indemnifies the insured against nonpayment of principal and interest when
due by an obligor on an insured debt obligation. Additionally, the financial
guaranty business sells municipal and non-municipal credit risk protection on a
facultative basis to a wide variety of counterparties through credit default
swap transactions. Although structured as financial derivatives, credit default
swaps are functionally equivalent to financial guaranty insurance.
The financial risk solutions business is focused on providing highly
structured solutions to problems of financial and risk management through
reinsurance, including credit enhancement, excess of loss and surplus
management covers.
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The financial risk solutions business includes the reinsurance of
mortgage guaranty insurance, trade credit reinsurance, and title insurance.
Mortgage guaranty insurance is a specialized class of credit insurance,
providing protection to mortgage lending institutions against the default of
borrowers on mortgage loans which at the time of the advance had a loan-to-
value ("LTV") ratio in excess of 80 percent. Trade credit insurance protects
sellers of goods and services from the risk of non-payment of trade receivables
and is a large, well-established specialty insurance product, particularly in
Western Europe. Policyholders are generally covered for short-term exposures
(generally less than 180 days and averaging 60-90 days) to insolvency or
payment defaults by domestic and/or foreign buyers. Some export credit policies
also cover political events which can disrupt either the flow of goods and
services or payment for goods and services. Title insurance essentially
provides the acquirer or the mortgagee of real property with two forms of
coverage: the first assures that the search and examination of the real estate
records upon which the acquirer or mortgagee is relying for good and clean
title was properly performed, and the second form of coverage assures that all
previously existing mortgages and liens will be paid off from the proceeds of
the sale or refinancing of the property.
We Compete Vigorously in Our Various Markets
Competitive forces in the international property and casualty insurance
and reinsurance business are substantial. Results are a function of
underwriting and investment performance, direct costs associated with the
delivery of insurance products, including the costs of regulation, the
frequency and severity of both natural and man-made disasters, as well as
inflation (actual, social and judicial), which impact loss costs. Decisions
made by insurers concerning their mix of business (offering certain types of
coverage but declining to write other types), their methods of operations and
the quality and allocation of their assets (including any reinsurance
recoverable balances) will all affect their competitive position. The relative
size and reputation of insurers may influence purchasing decisions of present
and prospective customers and will contribute to both geographic and industrial
sector market penetration. Oversupply of available capital has historically had
the effect of encouraging competition and depressing prices. ACE's competitive
position in the property and casualty insurance industry is influenced by all
of these factors.
We Enjoy Strong Insurance Ratings
All of our operating subsidiaries have received ratings from A.M. Best
Company ("A.M. Best") and Standard & Poors Rating Service ("S&P"), except for
our Financial Services companies and our Ireland-based companies. The Lloyd's
market has also received ratings from A.M. Best and S&P. These ratings are
based upon factors relevant to policyholders, agents and intermediaries and are
not directed toward the protection of investors. Such ratings are not
recommendations to buy, sell or hold securities. ACE Bermuda has received a
group rating of A+ from A.M. Best and an A+ claims paying ability rating from
S&P. ACE INA has received a group rating of A- from A.M. Best and an A+ claims
paying ability rating from S&P. The Lloyd's market, including ACE Global
Markets, has received a rating of A from A.M. Best and a claims paying ability
rating of A+ from S&P. Tempest Re and ACE USA's insurance subsidiaries have
received ratings of A from A.M. Best and claims paying ability ratings of A+
from S&P. The financial strength of ACE Guaranty Re Company, the primary
reinsurance company in the Financial Services group, is rated AAA by S&P and
Aa2 by Moody's Investors Services Inc. The financial strength of Capital
Mortgage Reinsurance Company, ACE Capital Re Bermuda Ltd. and ACE Capital Title
Reinsurance Company, three other companies in the Financial Services group, are
rated AA by S&P.
How We Estimate and Provide For Unpaid Losses and Loss Expenses
We are required to make provisions in our financial statements for the
estimated unpaid liability for losses and loss expenses for claims made against
us under the terms of our policies and agreements. Estimating the ultimate
liability for losses and loss expenses is an imprecise science subject to
variables that are influenced by both internal and external factors. This is
true because claim settlements to be made in the future may be impacted by
changing rates of inflation and other economic conditions, changing
legislative, judicial and social environments and changes in our claims
handling procedures. In
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any liability cases, significant periods of time, ranging up to several years
or more, may elapse between the occurrence of an insured loss, the reporting of
the loss to us and the settlement of our liability for that loss.
Losses and loss expenses are charged to income as incurred. The reserve
for unpaid losses and loss expenses represents the estimated ultimate losses
and loss expenses less paid losses and loss expenses and is composed of case
reserves, loss expense reserves and IBNR loss reserves. During the loss
settlement period, which can be many years in duration, additional facts
regarding individual claims and trends often will become known. As these become
apparent, case reserves may be adjusted by allocation from the IBNR loss
reserve without any change in the overall reserve. In addition, application of
statistical and actuarial methods may require the adjustment of the overall
reserves upward or downward from time to time. The final liability nonetheless
may be significantly greater than or less than the prior estimates.
At December 31, 1999, the net reserve for unpaid losses including IBNR
loss reserves was $8.9 billion. We continually evaluate our reserves in light
of developing information and in light of discussions and negotiations with our
insureds. While we are unable at this time to determine whether additional
reserves (which could have a material adverse effect upon our financial
condition, results of operations and cash flows) may be necessary in the
future, we believe that our reserve for unpaid losses and loss expenses are
adequate as of December 31, 1999.
How We Invest Our Assets
Our primary investment objectives are to ensure that funds will be
available to meet our insurance and reinsurance obligations and then, to
maximize our rate of return on invested funds within specifically approved
constraints as to credit quality, liquidity and volatility. Accordingly, our
investment portfolio is invested primarily in fixed income instruments of high
credit quality.
Written investment guidelines, approved by the Finance Committee of our
Board of Directors, document standards to ensure portfolio liquidity and
diversification, maintain credit quality, and limit volatility within approved
asset allocation guidelines. The use of financial futures, forwards and options
contracts, as well as certain mortgage derivative securities which do not
provide a planned stable structure of principal and interest payments, require
prior approval from the Finance Committee.
Our consolidated investment portfolio is divided into three segments.
Assets which are required to match and offset certain specifically identified
liabilities are segregated in an asset-liability management segment. The second
segment, the core portfolio, supports the current general insurance exposures
and is structured to have low to moderate investment risk. The remainder of the
portfolio, the discretionary segment, is invested to enhance total return and
return on equity by taking on additional investment risks within prudent
limits. The core and discretionary portfolios are managed by professional
outside managers whose performance is measured against certain recognized broad
market indices.
Funds are invested in both U.S. and non-U.S. dollar denominated high-
quality fixed maturity and equity securities. The approved asset allocation
targets 20 percent of the consolidated investment portfolio to have an exposure
to equities, with international equities limited to no more than 35 percent of
total equities. The asset allocation target allows 5 percent of the
consolidated investment portfolio (excluding the assets of ACE INA) to be
invested in alternative investments. The remainder of the consolidated
portfolio is to be invested predominantly in U.S. dollar fixed income
securities.
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USE OF PROCEEDS
All of the proceeds from the sale of the capital securities, together
with the proceeds from the sale of the common securities to ACE INA, will be
invested by the Trust in the debentures. ACE INA intends to use the net
proceeds from the issuance of the debentures, estimated to be approximately
$296 million (after deducting estimated offering expenses), to repay a portion
of the commercial paper indebtedness ACE INA incurred to finance our
acquisition of the ACE INA businesses. At December 31, 1999, ACE INA had
outstanding approximately $625 million of commercial paper, with a weighted
average maturity of approximately 22 days and bearing a weighted average
interest rate of approximately 6.3%.
CAPITALIZATION OF ACE
The following table sets forth, as of December 31, 1999, our short-term
debt and capitalization (1) on a historical basis, and (2) as adjusted to give
effect to the sale of the capital securities offered hereby, and the
application of the estimated net proceeds from such sales to repay short-term
debt. You should read this table in conjunction with our historical
consolidated financial statements and the related notes and the historical
combined financial statements of ACE INA and the related notes and our
unaudited pro forma condensed consolidated financial information.
<TABLE>
<CAPTION>
As of December 31,
1999
----------------------
As
Actual Adjusted
---------- ----------
(dollars in
thousands)
<S> <C> <C>
Short-Term Debt........................................ $1,074,585 $ 778,585
========== ==========
Long-Term Debt:
7.75% debentures due 2002............................ 74,894 74,894
8.20% notes due 2004................................. 400,000 400,000
8.30% notes due 2006................................. 299,334 299,334
8.63% notes due 2008................................. 250,000 250,000
8.875% debentures due 2029........................... 100,000 100,000
11.2% notes due 2009................................. 300,000 300,000
---------- ----------
Total long-term debt............................... 1,424,228 1,424,228
Hybrid trust preferred securities...................... 575,000 575,000
Preferred securities offered hereby.................... -- 300,000
Shareholders' equity:
Ordinary Shares (par value $0.041666667; 300,000,000
shares authorized, 217,460,515 shares issued and
outstanding)........................................ 9,061 9,061
Additional paid-in capital........................... 2,214,989 2,214,989
Unearned stock grant compensation.................... (28,908) (28,908)
Accumulated other comprehensive loss................. (66,152) (66,152)
Retained earnings.................................... 2,321,570 2,321,570
---------- ----------
Total shareholders' equity......................... 4,450,560 4,450,560
---------- ----------
Total capitalization............................... $6,449,788 $6,749,788
========== ==========
</TABLE>
S-19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION OF ACE
On July 2, 1999, ACE purchased the international and domestic property
and casualty businesses of CIGNA for $3.45 billion in cash. Under the terms of
the acquisition agreement, ACE acquired CIGNA's domestic property and casualty
insurance operations and also its international property and casualty insurance
companies and branches, including most of the accident and health business
written through those companies. National Indemnity Company, a subsidiary of
Berkshire Hathaway Inc., provided $1.25 billion of reinsurance against
unanticipated increases in recorded reserves for insurance losses and loss
adjustment expenses of certain subsidiaries being acquired by ACE. ACE financed
this acquisition with available cash and the proceeds from the issuance of a
hybrid trust preferred security and commercial paper. We repaid a portion of
the commercial paper with the proceeds from the sale of $800 million principal
amount of senior debt in August 1999, $100 million of trust preferred
securities in December 1999 and $300 million of notes in December 1999. We
intend to repay the remaining commercial paper with proceeds from the sale of a
combination of newly issued ACE ordinary shares and trust preferred securities,
including the capital securities offered hereby.
On October 26, 1999, ACE, Capital Re and CapRe Acquisition Corp. entered
into an amended and restated merger agreement. This agreement replaced the
original merger agreement entered into by ACE and Capital Re on June 10, 1999.
Under the new agreement, Capital Re stockholders received 0.65 ordinary shares
of ACE for each share of common stock of Capital Re at closing plus a cash
payment equal to $3.4456. The transaction was completed on December 30, 1999.
The unaudited pro forma condensed consolidated statements of operations
for the twelve months ended December 31, 1999, present operating results of ACE
as if these acquisitions had occurred on January 1, 1999. These amounts do not
include ACE's estimate of the expected annual operating expense savings from
the acquisition of CIGNA's property and casualty businesses.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with ACE's consolidated financial statements
included in ACE's Annual Report on Form 10-K for the year ended December 31,
1999, the audited combined financial statements of CIGNA's property and
casualty businesses for the year ended December 31, 1998 previously filed as
exhibit 99.1 to a Form 8-K filed by ACE dated May 19, 1999, the consolidated
financial statements of Capital Re included in the Capital Re Annual Report on
Form 10-K for the year ended December 31, 1998 and the unaudited consolidated
financial statements of Capital Re included in the Capital Re Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999. The unaudited pro forma
condensed consolidated financial information is not intended to be indicative
of the consolidated results of operations or financial position of ACE that
would have been reported if these acquisitions had occurred at the dates
indicated or of the consolidated results of future operations or of future
financial position.
The acquisitions of CIGNA's property and casualty businesses and Capital
Re have both been accounted for as purchases, in accordance with generally
accepted accounting principles. Under purchase accounting, the total purchase
price is allocated to the acquired assets and liabilities based on their fair
values.
S-20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1999
---------------------------------------------------------------------------------------------------------
Pro Forma
Pro Forma Combined for
Combined CIGNA
for CIGNA P&C and
CIGNA Pro Forma P&C Pro forma Capital
ACE(1) P&C(2) Adjustments Notes Acquisition Capital Re(8) Adjustments Notes Re Acquisition
----------- ------- ----------- ------ ----------- -------------- ----------- ------- --------------
(In million of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Premiums
Written......... $ 2,495 $ 1,448 $ $ 3,943 $ 165 $ 4,108
Net Premiums
Earned.......... 2,486 1,411 3,897 157 4,054
Net investment
income.......... 493 268 (71) (3)(4) 690 69 (6) (12) 753
Other revenues... 136 136 5 141
Losses and loss
expenses........ (1,640) (1,073) 41 (4) (2,672) (250) (2,922)
Acquisition costs
and
administrative
expenses........ (833) (845) (1,678) (87) (1,765)
Other expenses... (150) (16) (120) (5)(6) (286) (7) (4) (11) (297)
Income tax....... (29) 28 87 (7) 86 37 123
----------- ------- ----- ----------- ----- ---------- -----------
Income (loss)
excluding net
realized gains
(losses) and the
cumulative
effect of
accounting
change.......... 327 (91) (63) 173 (76) (10) 87
Net realized
gains (losses)
on investments.. 38 48 86 (6) 80
Cumulative effect
of accounting
change for
guaranty fund
and other
insurance
related
assessments, net
of taxes........ (85) (85) (85)
----------- ------- ----- ----------- ----- ---------- -----------
Income (loss)
from continuing
operations...... 365 (128) (63) 174 (82) (10) 82
Loss from
discontinued
operations, net
of tax.......... (71) (71)
----------- ------- ----- ----------- ----- ---------- -----------
Net Income
(loss).......... $ 365 $ (128) $ (63) $ 174 $(153) $ (10) $ 11
=========== ======= ===== =========== ===== ========== ===========
Basic earnings
per share from
continuing
operations,
excluding net
realized gains
(losses) and
cumulative
effect of
accounting
change.......... $ 1.66 $ .89 0.07
=========== =========== ===========
Basic earnings
per share from
continuing
operations...... $ 1.88 $ .90 $ .38
=========== =========== ===========
Basic earnings
per share....... $ 1.88 $ .90 $ .05
=========== =========== ===========
Weighted average
shares
outstanding--
basic........... 194,028,374 194,028,374 20,807,836 (9) 214,836,210
=========== =========== ========== ===========
Diluted earnings
per share from
continuing
operations,
excluding net
realized gains
(losses) and
cumulative
effect of
accounting
change.......... $ 1.66 $ .88 $ 0.07
=========== =========== ===========
Diluted earnings
per share from
continuing
operations...... $ 1.85 $ .88 $ .37
=========== =========== ===========
Diluted earnings
per share....... $ 1.85 $ .88 $ .05
=========== =========== ===========
Weighted average
shares
outstanding--
diluted......... 197,626,354 197,626,354 22,064,080 (9)(10) 219,640,434
=========== =========== ========== ===========
</TABLE>
S-21
<PAGE>
PRO FORMA FOOTNOTES FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(1) On July 2, 1999, ACE changed its fiscal year-end from September 30 to
December 31. This change was implemented retroactively.
(2) The actual results of operations have been included with ACE since the
acquisition date (July 2, 1999). Therefore the combined statements of
operations of CIGNA's property and casualty businesses reflect its results
of operations for the six months ended June 30, 1999.
(3) ACE funded part of the purchase price with $1.025 billion of cash on hand.
The estimated investment income on this $1.025 billion of the purchase
price has been eliminated (based on a yield of 5.8% that approximates the
yield on the ACE portfolio for the fiscal year ended September 30, 1998).
(4) Under the terms of the acquisition agreement, CIGNA agreed to provide a
guarantee to ACE to indemnify against unanticipated increases in recorded
reserves for losses and loss adjustment expenses of certain subsidiaries
being acquired by ACE. CIGNA had the option to replace its guarantee with
reinsurance obtained from a mutually agreed upon third party reinsurer.
Contemporaneous with the consummation of the acquisition, CIGNA exercised
its option and replaced its guarantee with reinsurance by directing
certain subsidiaries being acquired to transfer $1.25 billion of
investments to a reinsurer for aggregate coverage of $2.5 billion. Such
coverage attached at an amount equal to the net recorded reserves of the
certain subsidiaries acquired, on the closing date, minus $1.25 billion.
The estimated investment income on this $1.25 billion has been eliminated
(based on a yield of 6.5% that approximates the yield on the applicable
portion of the acquired businesses' portfolio for the fiscal year ended
December 31, 1998). The pro forma adjustment to losses and loss expenses
reflects the estimated historical adverse development recorded during the
period on the guaranteed reserves.
(5) In addition to the $1.025 billion of cash on hand, ACE funded the purchase
price with $400 million from a hybrid trust preferred security and the
remainder with commercial paper (the "initial financing"). Interest on the
hybrid trust preferred security and commercial paper has been calculated
at rates of 8.5% and 5.3%, respectively. A portion of the commercial paper
was repaid with the proceeds from the sale of $800 million principal
amount of senior debt in August 1999, $100 million of trust preferred
securities in December 1999 and $300 million of senior notes in December
1999. We intend to repay the remaining commercial paper with proceeds from
the sale of a combination of newly issued ACE ordinary shares and trust
preferred securities, including the capital securities offered hereby
(together the "permanent financing"). These pro forma financial statements
reflect the initial financing described above.
(6) Any excess between the purchase price and the fair value of acquired net
tangible assets will be allocated to goodwill. These pro forma financial
statements reflect all of the excess purchase price over net tangible
assets as goodwill. This entry reflects the amortization of goodwill for
the period.
(7) The estimated income tax savings is based on the estimated reduction in
net income before tax as a result of interest expense on the initial
financing.
(8) The Capital Re consolidated statements of operations reflect its results
of operations for the twelve months ended December 31, 1999.
(9) The amended and restated merger agreement among Capital Re, ACE and Cap Re
Acquisition Corp. dated October 26, 1999 provides that, at the effective
time of the merger, each Capital Re common share issued and outstanding
immediately prior to the effective time will be converted into the right
to receive 0.65 ACE ordinary shares plus a cash payment equal to the
greater of $1.30 and the difference (if positive) between the market value
of 0.65 of an ACE ordinary share and $14.00, subject to a maximum amount
of cash of $4.68 per Capital Re share. On December 30, 1999, ACE issued
(with a total value of $368 million) 20,865,000 shares which were recorded
at a share price of $17.625. The actual cash consideration, which was
based on the average closing price of an ACE share on the New York Stock
Exchanges as reported in the Wall Street Journal (NYC edition) for the
five consecutive trading days ending three trading days prior to the
closing date, subject to the limits noted above, was $110 million.
S-22
<PAGE>
(10) All of the outstanding options to purchase Capital Re common shares were
cancelled and replaced with options to purchase ACE ordinary shares. This
adjustment represents the weighted average number of ordinary share
equivalents outstanding related to the newly issued ACE options.
(11) Amortization of goodwill created by the acquisition of Capital Re,
amounting to $105 million, is being amortized over 25 years.
(12) ACE funded part of the Capital Re purchase with $110 million of cash.
Estimated investment income on the $110 million of the purchase price has
been eliminated (based on a yield of 5.8% which approximates the yield on
the ACE portfolio for the fiscal year ended December 31, 1999).
S-23
<PAGE>
MANAGEMENT
The table below sets forth the names and positions of ACE's executive
officers.
<TABLE>
<CAPTION>
Name Position
---- --- --------
<C> <C> <S>
Brian Duperreault........ Chairman, Chief Executive Officer & Director
Donald Kramer............ Vice Chairman and Director
Dominic J. Frederico..... President and Chief Operating Officer
John Charman............. Chief Executive Officer of ACE Global Markets
John Engestrom........... President and Chief Executive Officer, Tempest
Reinsurance Company Limited
Jerome F. Jurschak....... President and Chief Executive Officer, Capital
Re Corporation
Dennis B. Reding......... President and Chief Executive Officer of ACE USA
Gary Schmalzriedt........ President and Chief Executive Officer of ACE
Bermuda Insurance, Ltd.
B. Kingsley Schubert..... President and Chief Executive Officer of ACE
International
Christopher Z. Marshall.. Chief Financial Officer
Peter N. Mear............ General Counsel & Secretary
Keith P. White........... Chief Administration Officer
Robert Blee.............. Chief Accounting Officer
John C. Burville......... Chief Actuary
Robin J.W. Masters....... Chief Investment Officer (through May 31, 2000)
</TABLE>
Brian Duperreault has been a director of ACE since October 1994. Mr.
Duperreault has served as Chairman and Chief Executive Officer of ACE since
November 1999 and as Chairman, President and Chief Executive Officer of ACE
from October 1994 through November 1999. Prior to joining ACE, Mr. Duperreault
had been employed with American International Group ("AIG") since 1973 and
served in various senior executive positions with AIG and its affiliates from
1978 until September 1994, most recently as Executive Vice President, Foreign
General Insurance and, concurrently, as Chairman and Chief Executive Officer of
American International Underwriters Inc., a subsidiary of AIG, from April 1994
to September 1994. Mr. Duperreault was President of American International
Underwriters Inc. from 1991 to April 1994, and Chief Executive Officer of AIG
affiliates in Japan and Korea from 1989 until 1991.
Donald Kramer has been a director and Vice Chairman of ACE since July
1996 following the acquisition of Tempest. Mr. Kramer served as Chairman or Co-
Chairman of the Board of Tempest from its formation in September 1993 until
July 1996. Tempest was acquired by the Company on 1 July 1996. Prior to the
formation of Tempest, he was President of Kramer Capital Corporation (venture
capital investments) from March to September 1993, President of Carteret
Federal Savings Bank (banking) from
S-24
<PAGE>
August 1991 to March 1993, Chairman of the Board of NAC Re Corporation
(reinsurance) from June 1985 to June 1993, Chairman of the Board and Chief
Executive Officer of KCP Holding Company (insurance) from July 1986 to August
1991 and of its affiliates, KCC Capital Managers (insurance investments) and
Kramer Capital Consultants, Inc. (insurance investments), as well as Chairman
of the Board of its subsidiary, National American Insurance Company of
California (insurance) from September 1988 to August 1991.
Dominic J. Frederico has served as President and Chief Operating Officer
of ACE and Chairman of ACE INA since November 1999. Mr. Frederico has also
served as Chairman, President and Chief Executive Officer of ACE INA from May
1999 through November 1999. Mr. Frederico previously served as President of ACE
Bermuda since July 1997, Executive Vice President, Underwriting since December
1996, and as Executive Vice President, Financial Lines from January 1995 to
December 1996. Mr. Frederico served in various capacities at AIG in Europe and
the U.S. from 1982 to January 1995, most recently as Senior Vice President and
Chief Financial Officer of an AIG subsidiary, with multi-regional general
management responsibilities.
John Charman has served as Chief Executive Officer of ACE Global Markets
since July 1998, and continues to act as Active Underwriter to Lloyd's
Syndicate 488/2488. Mr. Charman has been the Active Underwriter of Syndicate
488 since July 1986. Mr. Charman previously served as Managing Director of
Charman Underwriting Agencies Limited, and since 1994, as Chief Executive of
Tarquin Underwriters Limited, the corporate capital provider of Syndicate 2488.
John Engestrom has served as President and Chief Executive Officer of
Tempest Re since May 1999. From 1997 to May 1999, Mr. Engestrom served as Chief
Executive Officer of Liberty Re in London. From 1992 to 1997, Mr. Engestrom
served as Group Chief Executive of Mercantile and General Reinsurance Company.
Mr. Engestrom began his reinsurance career at Skandia where he held various
positions including Chief Operating Officer Treaty division Europe, Chief
Underwriting Officer North America and finally head of Reinsurance Skandia
Group worldwide.
Jerome F. Jurschak joined ACE in December 1999 as President and Chief
Executive Officer of ACE Financial Services when ACE acquired Capital Re. Mr.
Jurschak previously served as Chief Executive Officer and President of Capital
Re from 1998 to 1999. Mr. Jurschak joined Capital Re in 1987 and served as its
Chief Underwriting Officer from 1987 to 1998. Prior to joining Capital Re, Mr
Jurschak was Senior Vice President and Chief Underwriting Officer of financial
guaranty reinsurance for Guaranty Holdings Corporation, a subsidiary of the Old
Republic Insurance Company.
Dennis B. Reding joined ACE in 1998 as President and Chief Executive
Officer of ACE USA when the company acquired Westchester Specialty Group Inc.
("WSG"). In July 1999 his role as President and Chief Executive Officer of ACE
USA expanded to include the domestic operations of ACE INA. Mr. Reding
previously served as President and Chief Executive Officer of WSG, a position
he held since July 1993. Prior to joining WSG, Mr. Reding served in various
senior positions at Fireman's Fund Insurance Company.
Gary Schmalzriedt has been President and Chief Executive Officer of ACE
Bermuda since July 1999. Since 1991, Mr. Schmalzriedt has served in several
senior capacities with CIGNA, most recently, since 1998, serving as Chairman
and Chief Executive Officer of CIGNA Europe. Mr. Schmalzriedt originally joined
CIGNA as Senior Vice President, Property Underwriting and later became
responsible for managing CIGNA International's property and casualty related
businesses. Prior to joining CIGNA, Mr. Schmalzriedt spent nearly 20 years in
various positions of increasing responsibility with AIG, including assignments
in the U.K. and South Africa and most recently, Senior Vice President and
Senior Underwriting Officer of American International Underwriters, where he
managed AIG's foreign operations.
B. Kingsley Schubert has served as President and Chief Executive Officer
of ACE International since July 1999. Mr. Schubert previously served as
President of CIGNA International Property and
S-25
<PAGE>
Casualty since January 1999, and as President of CIGNA International from
February 1996 to January 1999. Mr. Schubert served as Senior Vice President of
CIGNA International (Asia-Pacific) from March 1995 to February 1996, and as
President of CIGNA Insurance Company in Japan from June 1992 to February 1996.
Christopher Z. Marshall joined ACE in 1986 and has held a number of
senior positions at ACE, most recently as Chief Financial Officer of ACE (since
November 1992) and as Senior Vice President, Finance from January 1990 to
November 1992.
Peter N. Mear has served as General Counsel and Secretary of ACE since
April 1996. Mr. Mear served as Vice President and Claims Counsel of Aetna
Casualty and Surety Company from February 1991 to April 1996 and Counsel and
Litigation Section Head of Aetna Life & Casualty from September 1977 to
February 1991.
Keith P. White has served as Chief Administration Officer of ACE since
July 1, 1997. Mr. White previously served as Senior Vice President,
Administration of ACE since January 1990.
Robert A. Blee has served as Chief Accounting Officer of ACE since
October 1998. Mr. Blee served as Group Controller of ACE from January 1997 to
October 1998, Vice President--Finance of ACE from July 1996 to January 1997,
Assistant Vice President and Assistant Controller from October 1994 to July
1996 and Chief Accountant from August 1993 to October 1994.
John C. Burville has served as Chief Actuary of ACE since January 1992.
Mr. Burville served as Managing Actuarial Consultant with Tillinghast, Nelson &
Warren (Bermuda) Ltd. (management consulting and actuaries) from March 1986 to
December 1991.
Robin J. W. Masters has served as Chief Investment Officer of ACE since
July 1, 1997. Ms. Masters previously served as Senior Vice President since
February 1995 and as Treasurer of ACE since October 1992. Mrs. Masters has
resigned from ACE effective May 31, 2000.
S-26
<PAGE>
CERTAIN TERMS OF THE CAPITAL SECURITIES
General
The following summary of certain terms and provisions of the capital
securities supplements the description of the terms and provisions of the
preferred securities set forth in the accompanying prospectus under the heading
"Description of Preferred Securities," to which description reference is hereby
made. This summary of certain terms and provisions of the capital securities
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the restated trust agreement. Because this summary is
not complete, you should refer to the form of restated trust agreement and to
the Trust Indenture Act for complete information regarding the terms and
provisions of that agreement and of the capital securities, including the
definitions of some of the terms used below. The form of the restated trust
agreement has been filed as an exhibit to the registration statement of which
this prospectus supplement and accompanying prospectus are a part.
The restated trust agreement permits the Trust to "reopen" this offering
of capital securities and common securities and issue additional capital
securities and common securities without the consent of the holders of the
capital securities or the common securities.
Distributions
The capital securities represent undivided beneficial interests in the
assets of the Trust, and distributions on each capital security will be payable
at the annual rate of 9.70% of the stated liquidation amount of $1,000, payable
semiannually in arrears on April 1 and October 1 of each year. Distributions
will be cumulative and will accumulate from the date of original issuance. The
first distribution payment date for the capital securities will be October 1,
2000. 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 capital securities is not a business
day, then payment of the distributions payable on such date will be made on the
next succeeding day that is a business day (and without any additional
distributions 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.
See "Description of Preferred Securities--Distributions" in the accompanying
prospectus.
So long as no event of default under the ACE INA subordinated indenture
has occurred and is continuing, ACE INA has the right under the ACE INA
subordinated indenture to defer the payment of interest on the debentures at
any time or from time to time for up to 10 consecutive semiannual periods with
respect to each extension period, provided that no extension period may extend
beyond the stated maturity of the debentures. As a consequence of any such
election, semiannual distributions on the capital securities will be deferred
by the Trust during any such extension period. Distributions to which holders
of the capital securities are entitled will accumulate additional distributions
at the rate per annum of 9.70% thereof, compounded semiannually from the
relevant payment date for such distributions. The term "distributions" as used
herein shall include any such additional distributions. During any such
extension period, ACE INA and ACE may not, and neither may permit any of its
subsidiaries to, (1) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the outstanding capital stock of ACE INA or ACE, as the case may be, or (2)
make any payment of principal of, interest or premium, if any, on or repay,
repurchase or redeem any debt security of ACE INA or ACE that ranks junior in
interest to the debentures or the debenture guarantee, as the case may be, or
make any guarantee payments with respect to any guarantee by ACE INA or ACE, as
the case may be, of the debt securities of any subsidiary of ACE INA or ACE, as
the case may be, if such guarantee ranks junior in interest to the debentures
or the debenture guarantee, as the case may be, (other than (a) dividends or
distributions on the capital stock of ACE INA paid or made to ACE and dividends
or distributions in common stock of ACE INA or ordinary shares of ACE, as the
case may be, (b) redemptions or purchases of any rights outstanding under a
shareholder rights plan of ACE INA or ACE,
S-27
<PAGE>
as the case may be, or any successor to such rights plan, or the declaration of
a dividend of such rights or the issuance of stock under such plans in the
future, (c) payments under any preferred securities guarantee issued by ACE,
and (d) purchases of common stock or ordinary shares related to the issuance of
common stock or ordinary shares under any of ACE INA's or ACE's benefit plans
for its directors, officers or employees). Prior to the termination of any such
extension period, ACE INA may further extend the interest payment period,
provided that no extension period may exceed 10 consecutive semiannual periods
or extend beyond the stated maturity of the debentures. Upon the termination of
any such extension period and the payment of all amounts then due, ACE INA may
elect to begin a new extension period. There is no limitation on the number of
times that ACE INA may elect to begin an extension period. See "Certain Terms
of the Debentures--Option to Extend Interest Payment Period" and "Material
United States Federal Income Tax Considerations--General--Interest Income and
Original Issue Discount."
ACE INA has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
debentures.
Special Event Redemption
If ACE INA repays or redeems the debentures, whether at stated maturity
or upon earlier redemption as provided in the ACE INA subordinated indenture,
the proceeds from such repayment or redemption shall be applied by the property
trustee to redeem, on a pro rata basis, capital securities and common
securities having an aggregate stated liquidation amount equal to the aggregate
principal amount of the debentures so repaid or redeemed. The property trustee
will notify the holders of trust securities of any redemption of trust
securities not less than 30 nor more than 60 days before the redemption date,
which shall be the same date on which payment of the principal of the
corresponding debentures becomes due under the ACE INA subordinated indenture.
The redemption price per trust security will be equal to the stated liquidation
amount thereof plus accumulated and unpaid distributions thereon to the date of
redemption, plus the related amount of any premium and/or additional amounts
paid by ACE INA or ACE upon the concurrent repayment or redemption of the
corresponding debentures (the "redemption price"). See "Description of
Preferred Securities--Redemption or Exchange" in the accompanying prospectus
and "Certain Terms of the Debentures--Redemption."
ACE INA will have the right to redeem the debentures upon the occurrence
and continuation of a Tax Event or an Investment Company Event (each as defined
in the accompanying prospectus, and as so collectively defined, a "Special
Event"), in whole but not in part, within 90 days of the occurrence of such
Special Event, at a redemption price equal to accrued and unpaid interest on
the debentures plus the greater of:
.100% of the principal amount of the debentures, or
. as determined by a Quotation Agent, the sum of the present value of
scheduled payments of principal and interest on the debentures from
the redemption date to April 1, 2030, discounted to the redemption
date on a semiannual basis at a discount rate equal to the Treasury
Rate plus 3.1% in the first year and the Treasury Rate plus .50%
thereafter.
"Quotation Agent" means Merrill Lynch Government Securities, Inc.
However, if Merrill Lynch Government Securities, Inc. ceases to be a primary
U.S. Government securities dealer in New York City, ACE INA will replace them
with another primary U.S. Government securities dealer.
"Treasury Rate" means (1) the yield, under the heading which represents
the average for the week immediately prior to the date of calculation,
appearing in the most recently published statistical release designated
H.15(519) or any successor publication which is published weekly by the Federal
Reserve Board and which establishes the yield on actively traded U.S. Treasury
securities adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the time period from the
redemption date to April 1, 2030, or if no maturity is within three months
before
S-28
<PAGE>
or after this time period, yields for the two published maturities most closely
corresponding to this time period will be determined and the Treasury Rate will
be interpolated or extrapolated from those yields on a straight-line basis,
rounding to the nearest month, or (2) if the release or any successor release
is not published during the week preceding the calculation date or does not
contain such yields, the annual rate equal to the semiannual 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 the redemption date. The Treasury
Rate shall be calculated on the third business day preceding the redemption
date.
"Comparable Treasury Issue" means with respect to any redemption date the
U.S. Treasury security selected by the Quotation Agent as having a maturity
comparable to the time period from the redemption date to April 1, 2030 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 this time period. If no U.S. Treasury security has a
maturity which is within a period from three months before to three months
after April 1, 2030 the two most closely corresponding U.S. Treasury securities
shall be used as the Comparable Treasury Issue, and the Treasury Rate shall be
interpolated or extrapolated on a straight-line basis, rounding to the nearest
month using such securities.
"Comparable Treasury Price" means (a) the average of five Reference
Treasury Dealer Quotations for such redemption date, after excluding the
highest and lowest such Reference Treasury Dealer Quotations, or (b) if the
debenture trustee obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption 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
redemption date.
"Reference Treasury Dealer" means (1) the Quotation Agent and (2) any
other primary U.S. Government securities dealer selected by the debenture
trustee after consultation with ACE INA.
Distribution of Debentures in lieu of Special Event Redemption
ACE INA will have the right to dissolve the Trust at any time and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the debentures to be distributed to the holders of the
trust securities in liquidation of the Trust. Accordingly, if a Special Event
shall occur and be continuing, ACE INA will have the right to cause the
debentures to be distributed to holders of the trust securities in liquidation
of the Trust in lieu of redeeming the debentures and thereby causing a
mandatory redemption of the trust securities. Under current United States
federal income tax law and interpretations, a distribution of the debentures
upon liquidation of the Trust would not be a taxable event to holders of the
capital securities. However, if any event were to occur which would cause the
Trust to be subject to United States federal income tax with respect to income
received or accrued on the debentures, as the case would be if, for example,
the Trust were treated as an association taxable as a corporation, a
distribution of the debentures by the Trust could be a taxable event to the
Trust and the holders of the capital securities. See "Material United States
Federal Income Tax Considerations--General--Distribution of Debentures to
Holders of Capital Securities Upon Liquidation of the Trust." If ACE INA does
not elect to dissolve the Trust or redeem the debentures as described above,
the capital securities will remain outstanding until the repayment of the
debentures.
If ACE INA elects to dissolve the Trust and thereby causes the debentures
to be distributed to holders of the capital securities in liquidation of the
Trust, ACE INA shall have the right to change the maturity of such debentures,
provided that it can change the maturity only if certain conditions are met.
Any changed maturity of the debentures will be no earlier than April 1, 2005.
See "Description of Preferred Securities--Redemption or Exchange--Special Event
Redemption or Distribution of
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Corresponding ACE INA Subordinated Debt Securities" in the accompanying
prospectus and "Certain Terms of the Debentures--General."
Liquidation Value
The amount payable on the capital securities in the event of any
liquidation of the Trust is $1,000 per capital security plus accumulated and
unpaid distributions, which may be in the form of a distribution of such amount
in debentures, subject to certain exceptions. See "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution of ACE Trust" in the
accompanying prospectus.
Book-Entry-Only Issuance--DTC
The capital securities will be represented by one or more global
securities that will be deposited with and registered in the name of DTC or its
nominee. This means that the Trust will not issue certificates to you for the
capital securities. Each global security will be issued to DTC, which will keep
a computerized record of its participants whose clients have purchased the
capital securities. Each participant will then keep a record of its clients.
Unless a global security is exchanged in whole or in part for a certificated
security, a global security may not be transferred. However, DTC, its nominees
and their successors may transfer a global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers
of beneficial interest will be made only through, records maintained by DTC and
its participants. DTC has provided the Trust, ACE INA and ACE with the
following information: DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the United States Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered under the provisions of Section 17A of
the Securities Exchange Act of 1934. DTC holds securities that its participants
("direct participants") deposit with DTC. DTC also records the settlement among
direct participants of securities transactions, such as transfers and pledges,
in deposited securities through computerized records for direct participant's
accounts. This eliminates the need to exchange certificates. Direct
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant. The rules that
apply to DTC and its participants are on file with the SEC.
DTC is owned by a number of its direct participants and by the New York
Stock Exchange, the American Stock Exchange and the National Association of
Securities Dealers.
Purchases under the DTC system. When you purchase capital securities
through the DTC system, the purchases must be made by or through a direct
participant, who will receive credit for the capital securities on DTC's
records. Because you actually own the capital security, you are the beneficial
owner. Your ownership interest will be recorded only on the direct or indirect
participants' records. DTC has no knowledge of your individual ownership of the
capital securities. DTC's records show only the identity of the direct
participants and the amount of the capital securities held by or through them.
You will not receive a written confirmation of your purchase or sale or any
periodic account statement directly from DTC. You will receive these from the
direct or indirect participant through which you hold your capital securities.
As a result, the direct or indirect participants are responsible for keeping
accurate account of the holdings of their customers.
Payments under the DTC system. The property trustee will wire payments on
the capital securities to DTC's nominee. ACE INA, ACE, the Trust and the
property trustee will treat DTC's nominee as the owner and the holder of each
global security representing capital securities for all purposes. Accordingly,
ACE INA, ACE, the Trust and the property trustee will have no direct
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responsibility or liability to pay amounts due on the global security to you or
any other beneficial owners of the global security.
Any redemption notices will be sent by ACE INA and the Trust directly to
DTC, who will in turn inform the direct participants, who will then contact you
as a beneficial owner.
It is DTC's current practice, upon receipt of any payment of
distributions or liquidation or redemption amounts, to credit direct
participants' accounts on the payment date based on their holdings of
beneficial interests in the global securities as shown on DTC's records. In
addition, it is DTC's current practice to assign any consenting or voting
rights to direct participants whose accounts are credited with capital
securities on a record date by using an omnibus proxy. Payments by participants
to owners of beneficial interests in the global securities, and voting by
participants, will be based on the customary practices between the participants
and owners of beneficial interests, as is the case with securities held for the
account of customers in "street name." However, payments will be the
responsibility of the participants and not of DTC, the property trustee, ACE
INA, ACE or the Trust.
Exchange of Global Securities
Capital securities represented by a global security will be exchangeable
for certificated securities with the same terms in authorized denominations
only if:
. DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Securities
Exchange Act of 1934 and a successor depositary is not appointed
by the Trust within 90 days;
. ACE INA decides to discontinue use of the system of book-entry
transfer through DTC (or any successor depositary); or
. a default or event of default under the restated trust agreement
occurs and is continuing.
If the book-entry-only system is discontinued, the property trustee will
keep the registration books for the capital securities at its corporate office
and follow the practices and procedures discussed below.
Certificated Securities--Registration, Transfer and Payment
If the Trust issues certificated capital securities, they will be
registered in the name of the securityholder. The capital securities may be
transferred or exchanged, based on administrative procedures in the restated
trust agreement, without the payment of any service charge (other than any tax
or other governmental charge) by contacting the property trustee, Bank One
Trust Company, National Association, at Bank One Plaza, Suite 0126, Chicago,
Illinois 60670-0126.
Distribution payments on certificated capital securities will be made by
check. Payment of the redemption price or liquidation amount will be made in
immediately available funds when you surrender a capital security.
CERTAIN TERMS OF THE DEBENTURES
General
The following summary of certain terms and provisions of the debentures
supplements the description of the terms and provisions of the ACE INA
subordinated debt securities set forth in the accompanying prospectus under the
heading "Description of ACE INA Debt Securities and ACE Guarantee," to which
description reference is hereby made. This summary of certain terms and
provisions of the debentures does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the ACE INA subordinated
indenture. Because this summary is not complete, you should
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refer to the form of ACE INA subordinated indenture and to the Trust Indenture
Act for complete information regarding the terms and provisions of the ACE INA
subordinated indenture and the debentures, including the definitions of some of
the terms used below. The ACE INA subordinated indenture has been filed as an
exhibit to the registration statement of which this prospectus supplement and
accompanying prospectus are a part.
Concurrently with the issuance of the capital securities, the Trust will
invest the proceeds thereof, together with the consideration paid by ACE INA
for the common securities, in the debentures issued by ACE INA and guaranteed
by ACE. The debentures will bear interest accruing from the date of original
issuance, at the annual rate of 9.70% of the principal amount thereof, payable
semiannually in arrears on April 1 and October 1 of each year (each, an
"interest payment date"), commencing October 1, 2000, to the person in whose
name each debenture is registered, subject to certain exceptions, at the close
of business on the business day next preceding such interest payment date. It
is anticipated that, until the liquidation, if any, of the Trust, each
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
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 additional 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 9.70% thereof, compounded
semiannually. The term "interest" as used herein shall include semiannual
interest payments, interest on semiannual interest payments not paid on the
applicable interest payment date and Additional Sums (as defined below), as
applicable.
The debentures will be issued as a series of junior subordinated debt
securities under the ACE INA subordinated indenture. The debentures will mature
on April 1, 2030 (the "stated maturity").
The ACE subordinated indenture permits ACE INA to "reopen" this series of
debentures and issue additional debentures of this series without the consent
of the holders of the debentures.
Option to Extend Interest Payment Period
So long as no event of default under the ACE INA subordinated indenture
has occurred or is continuing, ACE INA has the right under the ACE INA
subordinated indenture to defer the payment of interest on the debentures at
any time or from time to time for up to 10 consecutive semiannual periods with
respect to each extension period, provided that no extension period may extend
beyond the stated maturity of the debentures. At the end of such extension
period, ACE INA must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of 9.70%, compounded semiannually, to the
extent permitted by applicable law). During an extension period, interest will
continue to accrue and holders of debentures (or holders of capital securities
while the capital securities are outstanding) will be required to accrue
interest income for United States federal income tax purposes. See "Material
United States Federal Income Tax Considerations--General--Interest Income and
Original Issue Discount."
During any such extension period, ACE INA and ACE may not, and neither
may permit any of its subsidiaries to, (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the outstanding capital stock of ACE INA or ACE, as the
case may be, or (2) make any payment of principal of, interest or premium, if
any, on or repay, repurchase or redeem any debt security of ACE INA or ACE that
ranks junior in interest to the debentures or the debenture guarantee, as the
case may be, or make any guarantee payments with respect to any guarantee by
ACE INA or ACE of the debt securities of any subsidiary of ACE INA or ACE, as
the case may be, if such guarantee ranks junior in interest to the debentures
or the debenture guarantee, as
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the case may be, (other than (a) dividends or distributions on the capital
stock of ACE INA paid or made to ACE and dividends or distributions in common
stock of ACE INA or ordinary shares of ACE, as the case may be, (b) redemptions
or purchases of any rights outstanding under a shareholder rights plan of ACE
INA or ACE, as the case may be, or any successor to such rights plan, or the
declaration of a dividend of such rights or the issuance of stock under such
plans in the future, (c) payments under any preferred securities guarantee
issued by ACE or the debenture guarantee, as the case may be, and (d) purchases
of common stock or ordinary shares related to the issuance of common stock or
ordinary shares under any of ACE INA's or ACE's benefit plans for its
directors, officers or employees). Prior to the termination of any such
extension period, ACE INA may further extend the interest payment period,
provided that no extension period may exceed 10 consecutive semiannual periods
or extend beyond the stated maturity of the debentures. Upon the termination of
any such extension period and the payment of all amounts then due, ACE INA 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. ACE INA must give the property trustee, the administrative trustees
and the debenture trustee notice of its election of such extension period at
least one business day prior to the earlier of (i) the date the distributions
on the capital securities would have been payable except for the election to
begin such extension period or (ii) the date the administrative trustees are
required to give notice to the New York Stock Exchange, the Nasdaq National
Market or other applicable self regulatory organization or to holders of such
capital securities of the record date or the date such distributions are
payable, but in any event not less than one business day prior to such record
date. The debenture trustee shall give notice of ACE INA's election to begin a
new extension period to the holders of the capital securities. There is no
limitation on the number of times that ACE INA may elect to begin an extension
period. See "Description of ACE INA Debt Securities and ACE Guarantee--Option
to Extend Interest Payment Date" in the accompanying prospectus.
Additional Sums
If the Trust is required to pay any additional taxes, duties or other
governmental charges ("Additional Sums") as a result of a Tax Event, ACE INA
will pay as additional amounts on the debentures such amounts as shall be
required so that the distributions payable by the Trust shall not be reduced as
a result of any such additional taxes, duties or other governmental charges,
subject to the conditions described under "Description of Preferred
Securities--Redemption or Exchange--Special Event Redemption or Distribution of
Corresponding ACE INA Subordinated Debt Securities" in the accompanying
prospectus.
Redemption
The debentures are redeemable prior to maturity at the option of ACE INA
upon the occurrence and continuation of a Special Event, in whole but not in
part, within 90 days of the occurrence of such Special Event, at a redemption
price equal to accrued and unpaid interest on the debentures plus the greater
of:
. 100% of the principal amount of the debentures, or
. as determined by a Quotation Agent, the sum of the present value
of scheduled payments of principal and interest on the debentures
from the redemption date to April 1, 2030, discounted to the
redemption date on a semiannual basis at a discount rate equal to
the Treasury Rate plus 3.1% in the first year and the Treasury
Rate plus .50% thereafter.
ACE INA's right to redeem the debentures is subject to the further
conditions described under "Description of ACE INA Debt Securities and ACE
Guarantee--Redemption" in the accompanying prospectus.
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Ranking
ACE INA's obligations under the debentures will be unsecured and will
rank in priority of payment (1) junior to all ACE INA Senior Indebtedness and
(2) equally with ACE INA's Auction Rate Reset Subordinated Notes Series A,
11.2% Subordinated Notes due 2009 and ACE INA's 8.875% Junior Subordinated
Deferrable Interest Debentures due 2029. This means that ACE INA cannot make
any payments of principal, including redemption payments, or interest on the
debentures if:
. any ACE INA Senior Indebtedness is not paid when due, any applicable
grace period with respect to any such payment default has ended and such
default has not been cured or waived or ceased to exist, or
. the maturity of any ACE INA Senior Indebtedness has been accelerated
because of a default and such acceleration has not been rescinded.
In addition, upon any payment or distribution of assets of ACE INA of any kind
or character, whether in cash, property or securities, to creditors upon any
dissolution, winding-up, liquidation or reorganization of ACE INA, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due upon all ACE INA Senior Indebtedness will first be
paid in full, or payment provided for in money in accordance with its terms,
before the holders of debentures are entitled to receive or retain any payment
on account of the debentures. See "Description of ACE INA Debt Securities and
ACE Guarantee--Subordination of ACE INA Subordinated Debt Securities" in the
accompanying prospectus.
The term "ACE INA Senior Indebtedness" means all Indebtedness (as defined
in the ACE INA subordinated indenture) of ACE INA outstanding at any time,
except (1) the debentures, (2) Indebtedness as to which, by the terms of the
instrument creating or evidencing the same, it is provided that such
Indebtedness is subordinated to or ranks equally with the debentures, (3)
Indebtedness of ACE INA to an Affiliate of ACE INA, (4) interest accruing after
the filing of a petition initiating any bankruptcy, insolvency or other similar
proceeding unless such interest is an allowed claim enforceable against ACE INA
in a proceeding under federal or state bankruptcy laws, (5) trade accounts
payable and (6) any Indebtedness, including all other debt securities and
guarantees in respect of those debt securities, initially issued to any trust,
partnership or other entity affiliated with ACE which is a financing vehicle of
ACE or any Affiliate of ACE in connection with an issuance by such entity of
preferred securities or other securities which are similar to the capital
securities offered hereby that are guaranteed by ACE pursuant to an instrument
that ranks equally with or junior in right of payment to the capital securities
guarantee.
ACE's obligations under the debenture guarantee will be unsecured and
will rank in priority of payment (1) junior to all ACE Senior Indebtedness and
(2) equally with ACE's guarantee of ACE INA's Auction Rate Reset Subordinated
Notes Series A and ACE INA's 8.875% Junior Subordinated Deferrable Interest
Debentures due 2029. This means that ACE cannot make any payments on account of
the debenture guarantee if:
. any ACE Senior Indebtedness is not paid when due, any applicable grace
period with respect to any such payment default has ended and such
default has not been cured or waived or ceased to exist, or
. the maturity of any ACE Senior Indebtedness has been accelerated because
of a default and such acceleration has not been rescinded.
In addition, upon any payment or distribution of assets of ACE of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution, winding-up, liquidation or reorganization of ACE, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due upon all ACE Senior Indebtedness will first be
paid in full, or payment provided for in money in accordance with its terms,
before the holders of debentures are entitled to receive or retain any payment
from ACE on account of the debenture guarantee. See "Description of ACE INA
Debt Securities and ACE Guarantee--Subordination of ACE Guarantee of ACE INA
Subordinated Debt Securities" in the accompanying prospectus.
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The term "ACE Senior Indebtedness" means all Indebtedness (as defined in
the ACE INA subordinated indenture) of ACE outstanding at any time, except (1)
ACE's obligations under the debenture guarantee, (2) Indebtedness as to which,
by the terms of the instrument creating or evidencing the same, it is provided
that such Indebtedness is subordinated to or ranks equally with ACE's
obligations under the debenture guarantee, (3) Indebtedness of ACE to an
Affiliate of ACE, (4) interest accruing after the filing of a petition
initiating any bankruptcy, insolvency or other similar proceeding unless such
interest is an allowed claim enforceable against ACE in a proceeding under
federal or state bankruptcy laws, (5) trade accounts payable, (6) ACE's
obligations under any guarantee in respect of ACE INA subordinated debt
securities initially issued to any trust, partnership or other entity
affiliated with ACE which is a financing vehicle of ACE or any Affiliate of ACE
in connection with an issuance by such entity of preferred securities or other
securities which are similar to the capital securities offered hereby that are
guaranteed by ACE pursuant to an instrument that ranks equally with or junior
in right of payment to the capital securities guarantee and (7) the capital
securities guarantee and all similar guarantees issued by ACE on behalf of
holders of preferred securities or other similar securities issued by any
trust, partnership or other entity affiliated with ACE which is a financing
vehicle of ACE or any Affiliate of ACE.
Both ACE and ACE INA conduct their operations through subsidiaries, which
generate a substantial portion of their respective operating income and cash
flow. As a result, distributions or advances from subsidiaries of ACE INA and
ACE are a major source of funds necessary to meet their respective debt service
and other obligations. Contractual provisions, laws or regulations, as well as
a subsidiary's financial condition and operating requirements, may limit the
ability of ACE INA or ACE to obtain cash required to pay ACE INA's debt service
obligations, including payments on the debentures, or ACE's payment obligations
under the debenture guarantee.
The debentures will be structurally subordinated to all obligations of
ACE INA's subsidiaries, including claims with respect to trade payables. The
debenture guarantee will be structurally subordinated to all obligations of
ACE's subsidiaries, including claims with respect to trade payables. This means
that holders of debentures, including the Trust, will have a junior position to
the claims of creditors of ACE INA's subsidiaries on their assets and earnings
and, by virtue of the debenture guarantee, will have a junior position to the
claims of creditors of ACE's subsidiaries on their assets and earnings.
Except in the case of certain secured indebtedness, the ACE INA
subordinated indenture does not limit or prohibit ACE INA, ACE or their
respective subsidiaries from incurring additional indebtedness, including
indebtedness that ranks senior in priority of payment to the debentures and the
debenture guarantee.
Under the terms of ACE's outstanding trust preferred securities issued in
June 1999, if the trading price of ACE's ordinary shares declines to 66 2/3
percent of the closing price of ACE's ordinary shares on June 30, 1999, or
approximately $18.83 per ordinary share, the holders of a majority of the
preferred securities would have the option to require the remarketing agent to
remarket the preferred securities. If the remarketing agent were unable to
remarket the securities, the holders of a majority of the preferred securities
would have the right to require ACE INA to repurchase them at a purchase price
equal to the face amount of the securities plus accumulated and unpaid
distributions, which obligations would be guaranteed by ACE. Under the terms of
the remarketing agreement entered into in connection with the preferred
securities, ACE INA's repurchase obligation and ACE's guarantee thereof would
be senior unsecured obligations of ACE INA and ACE, respectively. ACE's
ordinary shares have traded below the trigger price described above, although
the holders of the preferred securities did not exercise their remarketing
rights at those times.
As of February 29, 2000, on a pro forma basis as if on that date the
Trust and ACE INA had issue and sold the capital securities and the debentures
and applied the estimated net proceeds (after deducting estimated offering
expenses), approximately $296 million, to repay a portion of the commercial
paper indebtedness ACE INA incurred to finance the acquisition of the ACE INA
businesses, (1) the total amount of ACE INA Senior Indebtedness and the total
amount of indebtedness of ACE INA's
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subsidiaries that would have effectively ranked senior to the debentures would
have been approximately $979 million and (2) the total amount of ACE Senior
Indebtedness and the total amount of indebtedness of ACE's subsidiaries that
would have effectively ranked senior to the debenture guarantee would have been
approximately $2.25 billion.
Distribution of the Subordinated Debentures
Under certain circumstances involving the dissolution of the Trust,
debentures may be distributed to the holders of the capital securities in
liquidation of the Trust after satisfaction of liabilities to creditors of the
Trust as provided by applicable law. If distributed to holders of capital
securities in liquidation, the debentures will initially be issued in the form
of one or more global securities and DTC, or any successor depositary for the
capital securities, will act as depositary for the debentures. It is
anticipated that the depositary arrangements for the debentures would be
substantially identical to those in effect for the capital securities. There
can be no assurance as to the market price of any debentures that may be
distributed to the holders of capital securities.
Registration of the Subordinated Debentures
A global security will be exchangeable for debentures registered in the
names of persons other than DTC or its nominee only if (i) DTC notifies ACE INA
that it is unwilling or unable to continue as a depository for such global
security and no successor depository shall have been appointed, or if at any
time DTC ceases to be a clearing agency registered under the Exchange Act at a
time when DTC is required to be so registered to act as such depository, (ii)
ACE INA in its sole discretion determines that such global security will be so
exchangeable, or (iii) there shall have occurred and be continuing an event of
default under the ACE INA subordinated indenture with respect to such global
security. Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in such
names as DTC shall direct. It is expected that such instructions will be based
upon directions received by DTC from its participants with respect to ownership
of beneficial interests in such global security. In the event that debentures
are issued in definitive form, such debentures will be in denominations of
$1,000 and integral multiples thereof and may be transferred or exchanged at
the offices described below.
Payments on debentures represented by a global security will be made to
DTC, as the depositary for the debentures. In the event debentures are issued
in definitive form, principal and interest will be payable, the transfer of the
debentures will be registrable, and debentures will be exchangeable for
debentures of other denominations of a like aggregate principal amount, at the
corporate office of the debenture trustee in Chicago, Illinois, or at the
offices of any paying agent or transfer agent appointed by ACE INA, provided
that payment of interest may be made at the option of ACE INA by check mailed
to the address of the persons entitled thereto or by wire transfer. In
addition, if the debentures are issued in certificated form, the record dates
for payment of interest will be the March 15 and September 15 immediately
preceding the interest payment date, even if that day is not a business day.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of the material United States federal income
tax consequences of the purchase, ownership and disposition of the capital
securities. Insofar as this summary relates to matters of law and legal
conclusions, it is based on the opinion of Mayer, Brown & Platt, counsel to the
Trust and us. This discussion deals only with capital securities held as
capital assets within the meaning of the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), by U.S. Holders (as defined below) who
purchase the capital securities at their original offering price when the Trust
originally issues them. Moreover, it does not include all of the tax
consequences that may be important to a U.S. Holder in light of the U.S.
Holder's particular circumstances or to U.S. Holders subject to special
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rules, such as certain financial institutions, real estate investment trusts,
regulated investment companies, insurance companies, tax-exempt organizations,
dealers in securities or currencies, individual retirement and certain tax
deferred accounts, and persons who engage in a straddle or a hedge with respect
to a capital security.
This discussion is based on the Code, Treasury regulations, and
applicable judicial and administrative determinations, all of which are subject
to change at any time, and any such changes may be retroactively applied in a
manner that could adversely affect U.S. Holders. As used herein, the term "U.S.
Holder" means a beneficial owner of a capital security that for United States
federal income tax purposes is (1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity treated as a corporation or a
partnership for United States federal income tax purposes created or organized
in or under the laws of the United States or of any state thereof (including
the District of Columbia), (3) any estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source, or (4) a
trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
The term "Non-U.S. Holder" means a beneficial owner of a capital security other
than a U.S. Holder. Except as stated below, the following discussion does not
address any tax consequences that apply specifically to a Non-U.S. Holder.
Prospective investors should consult their own tax advisors with regard
to the application of the United States federal income tax considerations
discussed below to their particular situations as well as the application of
any state, local or other tax laws.
Classification of the Debentures and the Trust
We, the Trust and the holders of the capital securities (by the
acceptance of a beneficial interest in the capital securities) have agreed to
treat the debentures as indebtedness for all United States federal income tax
purposes and the capital securities as evidence of an indirect beneficial
ownership interest in the debentures. Given such treatment and assuming full
compliance with the terms of the trust agreement, the indenture and certain
other documents, the Trust will be treated as a "grantor trust" and not as an
association taxable as a corporation and the debentures will be treated as
indebtedness for U.S. federal income tax purposes. As a result, you will
determine your net income or loss with respect to the Trust in accordance with
your own method of accounting, although income arising from original issue
discount ("OID"), if any, must be taken into account under the accrual method
of accounting even if you otherwise would use the cash receipts and
disbursements method. See "Interest Income and Original Issue Discount."
Interest Income and Original Issue Discount
Under applicable Treasury regulations, remote contingencies that stated
interest will not be timely paid are ignored in determining whether a debt
instrument is issued with OID. As a result of terms and conditions of the
debentures that prohibit certain payments with respect to our capital stock and
indebtedness if we elect to extend interest payment periods, we believe that
the likelihood of our exercising our option to defer payments on the debentures
is remote. See "Certain Terms of the Debentures--Option to Extend Interest
Payment Period." Based on the foregoing, we believe that the debentures will
not be considered to be issued with OID at the time of their original issuance.
Accordingly, the following discussion assumes that unless and until we exercise
our option to defer any payment of interest, the debentures will not be treated
as issued with OID.
Under the Treasury regulations, if we exercise our option to defer any
payment of interest, the debentures would at that time be treated (solely for
purposes of determining OID) as redeemed and reissued with OID, and all stated
interest on the debentures would thereafter be treated as OID as long as the
debentures remained outstanding. In this event, all of your taxable interest
income with respect to the debentures would be accounted for as OID on an
economic accrual basis regardless of your method of
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<PAGE>
tax accounting, and actual distributions of stated interest would not be
reported as taxable income. Consequently, you would be required to include OID
in gross income even though we would not make any actual cash payments during
an extension period.
The Regulations regarding remote contingencies have not been addressed
in any rulings or other interpretations by the Internal Revenue Service
("IRS"), and it is possible that the IRS could take a position contrary to the
interpretation described above.
Subsequent uses of the term "interest" in this summary include income in
the form of OID.
Characterization of Income
Because income on the capital securities will constitute interest,
corporate U.S. Holders of the capital securities will not be entitled to a
dividends-received deduction with respect to any income taken into account
with respect to the capital securities.
Distribution of Debentures to Holders of Capital Securities Upon Liquidation
of the Trust
A distribution by the Trust of the debentures as described under the
caption "Certain Terms of the Capital Securities--Special Event Redemption or
Distribution of Debentures" will be nontaxable. This distribution will result
in your receiving directly your pro rata share of the debentures, with an
aggregate tax basis equal to your aggregate tax basis in your capital
securities before the distribution. Your holding period in the debentures
received in such a liquidation of the Trust would include the period during
which you had held the capital securities.
If, however, the liquidation of the Trust were to occur because the
Trust is subject to U.S. federal income tax with respect to income accrued or
received on the debentures, the distribution of debentures to you would be a
taxable event to the Trust and you, and you would recognize gain or loss as if
you had exchanged your capital securities for the debentures upon liquidation
of the Trust. Your holding period in the debentures would begin on the date
the debentures were received. You would include interest in income with
respect to debentures received from the Trust in the manner described above
under "Interest Income and Original Issue Discount."
Sale or Redemption of Capital Securities
If you sell your capital securities, including through a redemption for
cash, you will recognize gain or loss equal to the difference between the
amount realized on the sale of the capital securities and your adjusted tax
basis in the capital securities. Assuming that we do not defer interest
payments on the debentures, your adjusted tax basis in the capital securities
generally will be your initial purchase price. If the debentures are deemed to
be redeemed and reissued with OID as a result of our deferral of interest
payments, your adjusted tax basis in the capital securities generally will be
your initial purchase price, increased by OID previously includible in your
gross income to the date of disposition and decreased by distributions or
other payments received on the capital securities from, and including, the
date of the first extension period.
This gain or loss generally will be a capital gain or loss, except to
the extent any amount realized is treated as a payment of accrued but unpaid
interest with respect to your pro rata share of the debentures required to be
included in income (which will be ordinary income), and generally will be
long-term capital gain or loss if the capital securities have been held for
more than one year. Long-term capital gain of a non-corporate holder is
generally subject to a maximum tax rate of 20%.
If we defer any interest payment on the debentures, the capital
securities may trade at a price that does not fully reflect the value of
accrued but unpaid interest with respect to the debentures. If you sell your
capital securities between record dates for payments of distributions you will
be required to include accrued but unpaid interest on the debentures through
the date of disposition as ordinary income
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<PAGE>
and to add the amount of the accrued but unpaid interest to your adjusted tax
basis in the capital securities. To the extent the selling price is less than
your adjusted tax basis, you will recognize a capital loss. Subject to certain
limited exceptions, you cannot offset ordinary income against capital losses
for U.S. federal income tax purposes.
Non-U.S. Holders
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with respect
to the payment by us or any paying agent of principal or interest
(including OID, if any) on the capital securities owned by a Non-U.S.
Holder, provided (i) that the beneficial owner does not actually or
constructively own 10% or more of the total combined voting power of all
classes of our stock entitled to vote within the meaning of section
871(h)(3) of the Code and the regulations thereunder, (ii) the beneficial
owner is not a controlled foreign corporation that is related to us through
stock ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on the capital securities is described in section 881(c)(3)(A) of
the Code and (iv) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder;
(b) no withholding of U.S. federal income tax will be required with respect
to any gain or income realized by a Non-U.S. Holder upon the sale, exchange
or retirement of the capital securities unless (i) such gain or income is
effectively connected with a trade or business in the United States of the
Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder who is an
individual, such individual is present in the United States for 183 days or
more in the taxable year of such sale, exchange or retirement, and certain
other conditions are met; and
(c) capital securities beneficially owned by an individual who at the time
of his or her death is not a citizen or resident (as specifically defined
for U.S. estate tax purposes) of the United States will not be subject to
U.S. federal estate tax as a result of such individual's death, provided
that such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of our stock entitled to
vote within the meaning of section 871(h)(3) of the Code and provided that
the interest payments with respect to such capital securities would not
have been, if received at the time of such individual's death, effectively
connected with the conduct of a U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such capital securities, or a financial institution holding the
capital securities on behalf of such owner, must provide, in accordance with
specified procedures, to us or our paying agent, as the case may be, with a
statement to the effect that the beneficial owner is not a U.S. person (as
defined in the Code). Currently these requirements will be met if (1) the
beneficial owner provides his name and address, and certifies, under penalties
of perjury, that he is not a U.S. person or (2) a financial institution holding
the capital securities on behalf of the beneficial owner certifies, under
penalties of perjury, that such statement has been received by it and furnishes
a paying agent with a copy thereof. Under Treasury regulations, which are
anticipated to become effective for payments of interest made after December
31, 2000 (the "Final Regulations"), the statement requirement referred to in
(a)(iv) above may also be satisfied with other documentary evidence for
interest paid after December 31, 2000 with respect to capital securities held
through an offshore account or through certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of premium, if any, and
interest (including OID) made to such Non-U.S. Holder will be subject to a 30%
withholding tax unless the beneficial owner of the capital securities provides
to us or our paying agent, as the case may be, with a properly executed (1) IRS
Form W-8BEN (or successor form) claiming an exemption from withholding tax or a
reduction in withholding tax under the benefit of a tax treaty or (2) IRS Form
W-8ECI (or successor form) stating that interest paid on the capital securities
is not subject to withholding tax because it is effectively connected with the
beneficial
S-39
<PAGE>
owner's conduct of a trade or business in the United States. Prospective
holders are urged to consult their own tax advisors regarding the Final
Regulations.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and premium, if any, or interest (including OID) on the capital
securities is effectively connected with the conduct of such trade or business,
the Non-U.S. Holder, although exempt from the withholding tax discussed above,
will be subject to U.S. federal income tax on such interest and OID on a net
income basis in the same manner as if it were a U.S. Holder. In addition, if
such holder is a foreign corporation, it may be subject to a branch profits tax
equal to 30% (or lower treaty rate) of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, such
premium, if any, and interest (including OID) on the capital securities will be
included in such foreign corporation's earnings and profits.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on the capital securities
and to the proceeds of sale of the capital securities paid to U.S. Holders
other than certain exempt recipients (such as corporations). A 31% backup
withholding tax will apply to such payments if the U.S. Holder fails to provide
a taxpayer identification number or certification of foreign or other exempt
status or fails to report, in full, dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by us or our paying agent to Non-U.S. Holders if a
statement described in (a)(iv) under "Non-U.S. Holders" has been received and
the payor does not have actual knowledge that the beneficial owner is a U.S.
person.
In addition, backup withholding and information reporting will not apply
if payments of the principal, interest, OID or premium on the capital
securities are paid or collected by a foreign office of a custodian, nominee or
other foreign agent on behalf of the beneficial owner of such capital
securities, or if a foreign office of a broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of the capital securities
to the owner thereof. If, however, such nominee, custodian, agent or broker is,
for U.S. federal income tax purposes, a U.S. person, a controlled foreign
corporation or a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, such payments will not be subject to backup withholding but will be
subject to information reporting, unless (1) such custodian, nominee, agent or
broker has documentary evidence in its records that the beneficial owner is not
a U.S. person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption. Under the Final Regulations, backup
withholding will not apply to such payments absent actual knowledge that the
payee is a U.S. person.
Payments of principal, interest, OID and premium on the capital
securities paid to the beneficial owner of the capital securities by a U.S.
office of a custodian, nominee or agent, or the payment by the U.S. office of a
broker of the proceeds of sale of the capital securities, will be subject to
both backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a U.S. person or otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against your U.S. federal income tax liability provided
the required information is furnished to the IRS.
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<PAGE>
UNDERWRITING
We intend to offer the capital securities through the underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative
of the underwriters named below. Subject to the terms and conditions in an
underwriting agreement, the Trust has agreed to sell to each of the
underwriters, and each of the underwriters has severally agreed to purchase
from the Trust, the number of capital securities set forth opposite its name
below.
<TABLE>
<CAPTION>
Number of
Capital
Underwriter Securities
----------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................... 196,500
Chase Securities Inc............................................ 22,500
First Union Securities, Inc..................................... 22,500
Salomon Smith Barney Inc........................................ 22,500
Banc of America Securities LLC.................................. 12,000
Morgan Stanley & Co. Incorporated............................... 12,000
SG Cowen Securities Corporation................................. 12,000
-------
Total...................................................... 300,000
=======
</TABLE>
The underwriters have agreed to purchase all of the capital securities
pursuant to the underwriting agreement if any capital securities are purchased.
If an underwriter defaults, the underwriting agreement provides that the
purchase commitments of the non-defaulting underwriters may be increased or the
underwriting agreement may be terminated.
ACE INA, ACE and the Trust have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, or to contribute to payments the underwriters may be required
to make in respect of those liabilities.
Commissions and Discounts
The underwriters have advised us that they propose initially to offer the
capital securities to the public at $998.35 per capital security, and to
dealers at that price less a concession not in excess of $6.00 per capital
security. The underwriters may allow, and the dealers may reallow, a discount
not in excess of $2.50 per capital security to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
Because the proceeds from the sale of the capital securities will be used
to purchase the debentures, ACE INA has agreed to pay to the underwriters an
underwriting commission of $10.00 per capital security, or a total of
$3,000,000.
The following table shows the per capital security and total public
offering price, underwriting commission to be paid by ACE INA to the
underwriters and proceeds to the Trust. This information is shown assuming both
no exercise and full exercise by the underwriters of their option to purchase
additional capital securities.
<TABLE>
<CAPTION>
Per Capital Without
Security Option With Option
----------- ------------ -----------
<S> <C> <C> <C>
Public offering price.............. $998.35 $299,505,000 $344,430,750
Underwriting commission to be paid
by ACE INA........................ $10.00 $3,000,000 $3,450,000
Proceeds, before expenses, to the
Trust............................. $998.35 $299,505,000 $344,430,750
</TABLE>
ACE will pay all expenses, estimated to be approximately $180,000,
associated with the offer and sale of the capital securities.
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<PAGE>
Over-Allotment Option
The underwriters have an option to purchase up to 45,000 additional
capital securities at the public offering price. The underwriters may exercise
this option for a period of 30 days from the date of this prospectus supplement
solely to cover over-allotments. If the underwriters exercise this option, each
underwriter will be obligated, subject to conditions contained in the
underwriting agreement, to purchase a number of additional capital securities
proportionate to such underwriter's initial amount reflected in the above
table.
New Issue of Securities
The capital securities are a new issue of securities with no established
trading market. We do not intend to apply for listing of the capital securities
on any national securities exchange or for quotation of the capital securities
on any automated dealer quotation system. The underwriters have advised us that
they presently intend to make a market in the capital securities after
completion of this offering. However, they are under no obligation to do so and
may discontinue any market-making activities at any time without any notice. We
cannot assure the liquidity of the trading market for the capital securities or
that an active public market for the capital securities will develop. If an
active public trading market for the capital securities does not develop, the
market price and liquidity of the capital securities may be adversely affected.
If the capital securities are traded, they may trade at a discount from their
initial offering price, depending on prevailing interest rates, the market for
similar securities, our performance and other factors.
No Sales of Similar Securities
ACE INA, ACE and the Trust have agreed that, for 30 days after the date
of this prospectus supplement, they will not directly or indirectly issue,
sell, offer or contract to sell, grant any option for the sale of, or otherwise
dispose of, any preferred securities, or any securities convertible into or
exchangeable for preferred securities, that are substantially similar to the
capital securities, or any guarantee of such securities, or any subordinated
debt securities, or any securities convertible into or exchangeable for such
subordinated debt securities, that are substantially similar to the debentures,
or any guarantee of such subordinated debt securities (subject to certain
exceptions) without the prior written consent of Merrill Lynch, Pierce, Fenner
& Smith Incorporated.
Price Stabilization and Short Positions
In connection with the sale of the capital securities, SEC rules permit
the underwriters to engage in transactions that stabilize the market price of
the capital securities. These transactions may include bids or purchases to
peg, fix or maintain the price of the capital securities.
The underwriters may create a short position in the capital securities in
connection with this offering. That means they may sell a larger number of the
capital securities than is shown on the cover page of this prospectus
supplement. If the underwriters create a short position, the underwriters may
purchase capital securities in the open market to reduce the short position.
None of ACE INA, ACE, the Trust or any of the underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of capital
securities. In addition, none of ACE INA, ACE, the Trust or any of the
underwriters makes any representation that the underwriters will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
Other Relationships
Certain of the underwriters and their affiliates have in the past and may
in the future engage in transactions with, and perform services for, ACE and
its affiliates in the ordinary course of business.
S-42
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the offering of the capital
securities will be passed upon for ACE and ACE INA by Mayer, Brown & Platt,
Chicago, Illinois, and for the Trust, ACE and ACE INA by Richards, Layton &
Finger, P.A., Wilmington, Delaware. Certain legal matters with respect to
Cayman Islands law will be passed upon for ACE by Maples and Calder, George
Town, Grand Cayman, Cayman Islands, British West Indies. Certain legal matters
with respect to Bermuda law will be passed upon for ACE by Conyers, Dill &
Pearman, Hamilton, Bermuda. Certain legal matters in connection with the
offering of the capital securities will be passed upon for the underwriters by
Brown & Wood llp, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedules
incorporated in the accompanying prospectus by reference to our Annual Report
on Form 10-K for the year ended September 30, 1998 have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing. Any
audited financial statements and schedules that are incorporated or that are
deemed to be incorporated by reference into the accompanying prospectus that
are the subject of a report by independent accountants will be so incorporated
by reference in reliance upon such reports and upon the authority of such firms
as experts in accounting and auditing to the extent covered by consents of
these accountants filed with the SEC.
The CIGNA Corporation Property and Casualty Businesses Combined Financial
Statements incorporated in the accompanying prospectus by reference to our
Current Report on Form 8-K dated May 19, 1999 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
S-43
<PAGE>
PROSPECTUS
$4,000,000,000
ACE Limited
Ordinary Shares, Preferred Shares, Depositary Shares, Debt Securities,
Warrants to Purchase Ordinary Shares, Warrants to Purchase Preferred Shares,
Warrants to Purchase Debt Securities, Stock Purchase Contracts and
Stock Purchase Units
---------------
ACE INA Holdings Inc.
Debt Securities
Fully and Unconditionally Guaranteed by
ACE Limited
---------------
ACE Capital Trust I
ACE Capital Trust II
ACE Capital Trust III
Preferred Securities
Fully and Unconditionally Guaranteed to the Extent Provided in this Prospectus
by
ACE Limited
ACE, ACE INA or the applicable ACE Trust will provide the specific
terms of these securities in supplements to this prospectus. The prospectus
supplements may also add, update or change information contained in this
prospectus. You should read this prospectus and any supplements carefully
before you invest.
---------------
ACE's ordinary shares are traded on the New York Stock Exchange under
the symbol "ACL."
ACE's principal executive offices are located at: The ACE Building, 30
Woodbourne Avenue, Hamilton, HM 08, Bermuda, telephone number: (441) 295-5200.
The principal executive offices of ACE INA and each of the ACE Trusts are
located at: Two Liberty Place, 1601 Chestnut Street, Philadelphia,
Pennsylvania 19101, telephone (215) 761-1000.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
This prospectus may not be used to consummate sales of offered
securities unless accompanied by a prospectus supplement.
The date of this prospectus is December 8, 1999.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus or any supplement. None of ACE, ACE INA or any ACE
Trust has authorized anyone else to provide you with different information.
ACE, ACE INA and the ACE Trusts are offering these securities only in states
where the offer is permitted. You should not assume that the information in
this prospectus or any supplement is accurate as of any date other than the
date on the front of those documents. ACE's business, financial condition,
results of operations and prospects may have changed since that date.
Except as expressly provided in an underwriting agreement, no offered
securities may be offered or sold in the Cayman Islands or Bermuda (although
offers may be made to persons in Bermuda from outside Bermuda) and offers may
only be accepted from persons resident in Bermuda, for Bermuda exchange control
purposes, where such offers have been delivered outside of Bermuda. Persons
resident in Bermuda, for Bermuda exchange control purposes, may require the
prior approval of the Bermuda Monetary Authority in order to acquire any
offered securities.
In this prospectus, references to "dollar" and "$" are to United States
currency, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that ACE, ACE INA and the
ACE Trusts filed with the Securities and Exchange Commission utilizing a
"shelf" registration process, relating to the ordinary shares, preferred
shares, depositary shares, debt securities, debt securities guarantee,
warrants, stock purchase contracts, stock purchase units, preferred securities
and preferred securities guarantees described in this prospectus. Under this
shelf process, ACE, ACE INA and the ACE Trusts may sell the securities
described in this prospectus in one or more offerings up to a total initial
offering price of $4,000,000,000. This prospectus provides you with a general
description of the securities ACE, ACE INA or an ACE Trust may offer. This
prospectus does not contain all of the information set forth in the
registration statement as permitted by the rules and regulations of the SEC.
For additional information regarding ACE, ACE INA, the ACE Trusts and the
offered securities, please refer to the registration statement. Each time ACE,
ACE INA or an ACE Trust sells securities, it will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
2
<PAGE>
ACE LIMITED
ACE is a holding company incorporated with limited liability in the Cayman
Islands and maintains its principal business office in Bermuda. Through its
Bermuda-based operating subsidiaries, ACE Bermuda Insurance Ltd., Corporate
Officers & Directors Assurance Ltd. and Tempest Reinsurance Company Limited,
and its Dublin, Ireland based subsidiaries, ACE Insurance Company Europe
Limited and ACE Reinsurance Company Europe Limited, ACE provides a broad range
of insurance and reinsurance products to a diverse group of international
clients. Through ACE INA and its subsidiaries, ACE provides a broad range of
insurance products to insureds in the United States and 46 other countries
worldwide. ACE also provides insurance products to a broad range of clients in
the United States through its U.S. based subsidiary, ACE USA, Inc. ACE also
indirectly owns four Lloyd's managing agencies, ACE UK Underwriting Limited,
ACE London Aviation Limited, ACE London Underwriters Limited and ACE
Underwriting Agencies Limited, and provides corporate capital to Lloyd's
syndicates under their management to support underwriting capacity.
ACE was incorporated in August 1985. ACE's principal executive offices are
located at The ACE Building, 30 Woodbourne Avenue, Hamilton, HM 08, Bermuda,
and its telephone number is (441) 295-5200.
ACE INA
ACE INA is an indirect subsidiary of ACE that was formed in December 1998 to
acquire and hold the international and domestic property and casualty
businesses of CIGNA Corporation. ACE INA is a U.S. holding company and has no
direct operations. ACE INA's principal asset is the capital stock of its
insurance subsidiaries. The principal executive offices of ACE INA are located
at Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101
and its telephone number is (215) 761-1000.
3
<PAGE>
THE ACE TRUSTS
Each ACE Trust is a statutory business trust created under Delaware law
pursuant to (1) a trust agreement executed by ACE, as original sponsor of the
ACE Trust, and the ACE Trustees for the ACE Trust and (2) the filing of a
certificate of trust with the Delaware Secretary of State on May 19, 1999. On
August 5, 1999, ACE assigned its rights and obligations as sponsor of each ACE
Trust to ACE INA. Each trust agreement will be amended and restated in its
entirety substantially in the form filed as an exhibit to the registration
statement of which this prospectus forms a part. Each restated trust agreement
will be qualified as an indenture under the Trust Indenture Act of 1939. Each
ACE Trust exists for the exclusive purposes of:
. issuing and selling the preferred securities and common securities that
represent undivided beneficial interests in the assets of the ACE Trust,
. using the gross proceeds from the sale of the preferred securities and
common securities to acquire a particular series of ACE INA subordinated
debt securities, and
. engaging in only those other activities necessary, convenient or
incidental to the issuance and sale of the preferred securities and
common securities and purchase of the ACE INA subordinated debt
securities.
ACE INA will directly or indirectly own all of the common securities of each
ACE Trust. The common securities of an ACE Trust will rank equally, and
payments will be made thereon pro rata, with the preferred securities of that
ACE Trust, except that, if an event of default under the restated trust
agreement resulting from an event of default under the ACE INA subordinated
debt securities held by the ACE Trust has occurred and is continuing, the
rights of the holder of the common securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the preferred securities. Unless
otherwise disclosed in the applicable prospectus supplement, ACE INA will,
directly or indirectly, acquire common securities in an aggregate liquidation
amount equal to at least 3% of the total capital of each ACE Trust. Each of the
ACE Trusts is a legally separate entity and the assets of one are not available
to satisfy the obligations of any of the others.
Unless otherwise disclosed in the related prospectus supplement, each ACE
Trust has a term of approximately 55 years, but may dissolve earlier as
provided in the restated trust agreement of the ACE Trust. Unless otherwise
disclosed in the applicable prospectus supplement, each ACE Trust's business
and affairs will be conducted by the trustees (the "ACE Trustees") appointed by
ACE INA, as the direct or indirect holder of all of the common securities. ACE
INA, as the direct or indirect holder of the common securities, will be
entitled to appoint, remove or replace any of, or increase or reduce the number
of, the ACE Trustees of an ACE Trust, subject to the terms of the restated
trust agreement of the ACE Trust. The duties and obligations of the ACE
Trustees of an ACE Trust will be governed by the restated trust agreement of
the ACE Trust. Unless otherwise disclosed in the related prospectus supplement,
two of the ACE Trustees (the "Administrative Trustees") of each ACE Trust will
be persons who are employees or officers of or affiliated with ACE INA. One ACE
Trustee of each ACE Trust will be a financial institution (the "Property
Trustee") that is not affiliated with ACE INA and has a minimum amount of
combined capital and surplus of not less than $50,000,000, which shall act as
property trustee and as indenture trustee for the purposes of compliance with
the provisions of the Trust Indenture Act, pursuant to the terms set forth in
the applicable prospectus supplement. In addition, one ACE Trustee of each ACE
Trust (which may be the Property Trustee, if it otherwise meets the
requirements of applicable law) will have its principal place of business or
reside in the State of Delaware (the "Delaware Trustee"). ACE will pay all fees
and expenses related to each ACE Trust and the offering of preferred securities
and common securities.
The office of the Delaware Trustee for each ACE Trust in the State of
Delaware is located at c/o Bank One Delaware, Inc., Three Christina Centre, 201
North Walnut Street, Wilmington, Delaware 19801. The principal executive
offices for each of the ACE Trusts are located at c/o ACE INA Holdings Inc.,
Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101. The
telephone number of each of the ACE Trusts is (215) 761-1000.
4
<PAGE>
USE OF PROCEEDS
Unless otherwise disclosed in the applicable prospectus supplement, ACE and
ACE INA intend to use the net proceeds from the sale of the offered securities
to repay debt incurred to acquire the international and domestic property and
casualty businesses of CIGNA. Each ACE Trust will invest all proceeds received
from the sale of its preferred securities and common securities in a particular
series of subordinated debt securities of ACE INA, which will use such funds to
repay debt incurred to acquire the CIGNA businesses.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS OF ACE
For purposes of computing the following ratios, earnings consist of net
income before income tax expense (excluding interest costs capitalized) plus
fixed charges to the extent that such charges are included in the determination
of earnings. Fixed charges consist of interest costs (including interest costs
capitalized) plus one-third of minimum rental payments under operating leases
(estimated by management to be the interest factor of such rentals). Because
ACE paid no preferred share dividends during any of the periods presented, the
ratio of earnings to combined fixed charges and preferred share dividends is
identical to the ratio of earnings to fixed charges for each of the periods
presented.
<TABLE>
<CAPTION>
Twelve Months
Ended Fiscal Year Ended
September 30, September 30,
---------------- ----------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges..................... 8.1x 22.4x 22.4x 40.7x 32.3x 47.1x -- (1)
Ratio of Earnings to Combined
Fixed Charges and Preferred
Share Dividends............. 8.1x 22.4x 22.4x 40.7x 32.3x 47.1x -- (1)
</TABLE>
- --------
(1) Earnings were inadequate to cover fixed charges by $46.0 million in 1994.
ACE INA and the ACE Trusts had no operations during the periods set forth
above.
5
<PAGE>
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
ACE may from time to time offer under this prospectus, separately or
together:
.ordinary shares,
.preferred shares, which may be represented by depositary shares as
described below,
.unsecured senior or subordinated debt securities,
.warrants to purchase ordinary shares,
.warrants to purchase preferred shares,
.warrants to purchase debt securities of ACE,
.stock purchase contracts to purchase ordinary shares, and
. stock purchase units, each representing ownership of a stock purchase
contract and, as security for the holder's obligation to purchase
ordinary shares under the stock purchase contract, any of (1) debt
securities of ACE INA, fully and unconditionally guaranteed by ACE, (2)
debt obligations of third parties, including U.S. Treasury securities or
(3) preferred securities of an ACE Trust.
ACE INA may from time to time offer unsecured senior or subordinated debt
securities, which will be fully and unconditionally guaranteed by ACE.
Each of ACE Capital Trust I, ACE Capital Trust II and ACE Capital Trust III
may offer preferred securities representing undivided beneficial interests in
their respective assets, which will be fully and unconditionally guaranteed to
the extent described in this prospectus by ACE.
The aggregate initial offering price of the offered securities will not
exceed $4,000,000,000.
DESCRIPTION OF ACE CAPITAL STOCK
The following is a summary of certain provisions of ACE's Memorandum of
Association and Articles of Association. Because this summary is not complete,
you should refer to ACE's Memorandum and Articles for complete information
regarding the provisions of the Memorandum and Articles, including the
definitions of some of the terms used below. Copies of the Memorandum and
Articles are incorporated by reference as exhibits to the registration
statement of which this prospectus forms a part. Whenever particular sections
or defined terms of the Memorandum and Articles are referred to, such sections
or defined terms are incorporated herein by reference, and the statement in
connection with which such reference is made is qualified in its entirety by
such reference.
ACE's authorized share capital consists of two classes of shares: (1)
300,000,000 ordinary shares, par value $0.041666667 per share, of which
194,059,295 ordinary shares were issued and outstanding as of November 12, 1999
and (2) 10,000,000 other shares, none of which are outstanding.
Ordinary Shares
The ordinary shares are listed on the New York Stock Exchange under the
symbol "ACL." The ordinary shares currently issued and outstanding are fully
paid and nonassessable. The ordinary shares offered by a prospectus supplement,
upon issuance against full consideration, will be fully paid and nonassessable.
There are no provisions of Cayman Islands law or the Memorandum or the Articles
which impose any limitation on the rights of shareholders to hold or vote
ordinary shares by reason of their not being residents of the Cayman Islands.
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<PAGE>
Dividend Rights
After all dividends on all classes or series of preferred shares have been
paid or declared and set apart for payment, holders of ordinary shares are
entitled to receive such dividends as may be declared from time to time by
ACE's Board of Directors (the "Board"), in its discretion, out of funds legally
available therefor.
Liquidation
In the event of any dissolution, liquidation or winding up of ACE, whether
voluntary or involuntary, after there shall have been paid or set aside for
payment to the holders of any outstanding shares ranking senior to the ordinary
shares as to distribution on liquidation, dissolution or winding up, the full
amounts to which they shall be entitled, the holders of the then outstanding
ordinary shares will be entitled to receive, pro rata according to the number
of ordinary shares registered in the names of such shareholders, any remaining
assets of ACE available for distribution to its shareholders; provided, if, at
such time, any holder of ordinary shares has any outstanding debts, liabilities
or engagements to or with ACE (whether presently payable or not), either alone
or jointly with any other person, whether a shareholder or not (including,
without limitation, any liability associated with the unpaid purchase price of
such ordinary shares), the liquidator appointed to oversee the liquidation of
ACE will deduct from the amount payable in respect of such ordinary shares the
aggregate amount of such debts, liabilities and engagements and apply such
amount to any of such holder's debts, liabilities or engagements to or with ACE
(whether presently payable or not). The liquidator may distribute, in kind, to
the holders of the ordinary shares remaining assets of ACE or may sell,
transfer or otherwise dispose of all or any part of such remaining assets to
any other corporation, trust or entity and receive payment therefor in cash,
shares or obligations of such other corporation, trust or entity or any
combination thereof, and may sell all or part of the consideration so received,
and may distribute the consideration received or any balance or proceeds
thereof to holders of the ordinary shares.
Voting Rights
The Articles provide that the quorum required for a general meeting of
shareholders is not less than six shareholders present in person or by proxy
holding at least 50% of the issued and outstanding shares entitled to vote at
such meeting. A quorum for considering a "special resolution" is 66 2/3% of the
issued and outstanding shares entitled to vote at such meeting. Subject to
applicable law and any provision of the Articles requiring a greater majority,
ACE may from time to time by special resolution alter or amend the Memorandum
or Articles; voluntarily liquidate, dissolve or wind-up its affairs; increase
its share capital; consolidate and divide all or any of its share capital;
subdivide the whole or any part of its share capital; reduce its share capital,
any capital redemption reserve fund, or any share premium account; or change
its name or alter its objects.
Each holder of ordinary shares is entitled to one vote per share on all
matters submitted to a vote of shareholders at any such meeting, subject to the
10% voting limitation described below. All matters, including the election of
directors, voted upon at any duly held shareholders' meeting will be carried by
a majority of the votes cast at the meeting by shareholders represented in
person or by proxy, except (1) approval of a merger, consolidation or
amalgamation, or the sale, lease or exchange of all or substantially all of the
assets of ACE, which requires (in addition to any regulatory or court
approvals) the approval of at least 66 2/3% of the outstanding voting shares,
voting together as a single class, (2) approval of a special resolution, (3)
amendment of certain provisions of the Articles which require the approval of
at least 66 2/3% of the outstanding voting shares, voting together as a single
class and (4) as otherwise provided in the Articles. A special resolution
requires the approval of at least 66 2/3% of the votes cast by such
shareholders represented in person or by proxy at a duly convened meeting.
The Articles provide that, except as otherwise required by law and subject to
the rights of the holders of any class or series of shares issued by ACE having
a preference over the ordinary shares as to dividends or upon liquidation to
elect directors in specified circumstances, extraordinary general meetings of
ACE's shareholders may be called only by (1) the directors or (2) at the
request in writing of shareholders owning at least 25% of the outstanding
shares generally entitled to vote.
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<PAGE>
Each ordinary share has one vote, except that if, and so long as, the
"Controlled Shares" of any person constitute 10% or more of the issued ordinary
shares, the voting rights with respect to the controlled shares owned by such
person will be limited, in the aggregate, to a voting power of approximately
10%, pursuant to a formula specified in the Articles. "Controlled Shares" means
(1) all shares of ACE directly, indirectly or constructively owned by any
person within the meaning of Section 958 of the U.S. Internal Revenue Code of
1986, as amended (the "Code") and (2) all shares of ACE directly, indirectly or
beneficially owned by such person within the meaning of Section 13(d) of the
Exchange Act (including any shares owned by a group of persons as so defined
and including any shares that would otherwise be excluded by the provisions of
Section 13(d)(6) of the Exchange Act).
The ordinary shares have noncumulative voting rights, which means that the
holders of a majority of the ordinary shares may elect all of ACE's directors
and, in such event, the holders of the remaining shares will not be able to
elect any directors. The Board is presently divided into three classes, two of
which have four directors and one of which has five directors. At present, each
class is elected for a three-year term, with the result that shareholders will
not vote for the election of a majority of directors in any single year.
Directors may be removed without cause only by the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares generally entitled to
vote, voting together as a single class, at a meeting of shareholders.
Directors may be removed with cause by the affirmative vote of the holders of a
majority of the votes cast at a meeting of shareholders.
This classified board provision could prevent a party who acquires control of
a majority of the outstanding voting power from obtaining control of the Board
until the second annual shareholders meeting following the date the acquiror
obtains the controlling share interest. The classified board provision could
have the effect of discouraging a potential acquiror from making a tender offer
or otherwise attempting to obtain control of ACE and could thus increase the
likelihood that incumbent directors will retain their positions.
Preemptive Rights
No holder of ordinary shares, solely by reason of such holding, has or will
have any preemptive right to subscribe to any additional issue of shares of any
class or series nor to any security convertible into such shares.
Other Classes or Series of Shares
The Articles authorize the directors to create and issue one or more other
classes or series of shares and to determine the rights and preferences of each
such class or series, to the extent permitted by the Articles and applicable
law. Among other rights, the directors may determine:
. the number of shares of that class or series and the distinctive
designation thereof;
. the voting powers, full or limited, if any, of the shares of that class or
series;
. the dividend rights of the shares of that class or series, whether
dividends will be cumulative and, if so, from which date or dates and
the relative rights or priority, if any, of payment of dividends on
shares of that class or series and any limitations, restrictions or
conditions on the payment of dividends;
. the relative amounts, and the relative rights or priority, if any, of
payment in respect of shares of that class or series, which the holders
of the shares of that class or series will be entitled to receive upon
any liquidation, dissolution or winding up of ACE;
. the terms and conditions (including the price or prices, which may vary
under different conditions and at different redemption dates), if any,
upon which all or any part of the shares of that class or series may be
redeemed, and any limitations, restrictions or conditions on such
redemption;
8
<PAGE>
. the terms, if any, of any purchase, retirement or sinking fund to be
provided for the shares of that class or series;
. the terms, if any, upon which the shares of that class or series will be
convertible into or exchangeable for shares of any other class, classes
or series, or other securities, whether or not issued by ACE;
. the restrictions, limitations and conditions, if any, upon the issuance
of indebtedness of ACE so long as any shares of that class or series are
outstanding; and
. any other preferences and relative, participating, optional or other
rights and limitations not inconsistent with applicable law or the
Articles.
Preferred Shares
From time to time, pursuant to the authority granted to the directors by the
Articles to create other classes or series of shares, the Board may create and
issue one or more classes or series of preferred shares, setting forth the
rights and preferences of each such class or series in a Certificate of
Designation, Preferences and Rights. The preferred shares, upon issuance
against full consideration, will be fully paid and nonassessable. The
particular rights and preferences of the preferred shares offered by any
prospectus supplement and the extent, if any, to which the general provisions
described below may apply to the offered preferred shares, will be described in
the prospectus supplement. Because the following summary of the terms of
preferred shares is not complete, you should refer to the Memorandum, the
Articles and the applicable Certificate of Designation, Preferences and Rights
for complete information regarding the terms of the class or series of
preferred shares described in a prospectus supplement. Whenever particular
sections or defined terms of the Memorandum, the Articles and the applicable
Certificate of Designation, Preferences and Rights are referred to, such
sections or defined terms are incorporated herein by reference, and the
statement in connection with which such reference is made is qualified in its
entirety by such reference.
A prospectus supplement will specify the terms of a particular class or
series of preferred shares as follows:
. the number of shares to be issued and sold and the distinctive designation
thereof;
. the voting powers, full or limited, if any, of the preferred shares;
. the dividend rights of the preferred shares, whether dividends will be
cumulative and, if so, from which date or dates and the relative rights
or priority, if any, of payment of dividends on preferred shares and any
limitations, restrictions or conditions on the payment of dividends on
the preferred shares and the ordinary shares;
. the relative amounts, and the relative rights or priority, if any, of
payment in respect of preferred shares, which the holders of the
preferred shares will be entitled to receive upon any liquidation,
dissolution or winding up of ACE;
. the terms and conditions (including the price or prices, which may vary
under different conditions and at different redemption dates), if any,
upon which all or any part of the preferred shares may be redeemed, and
any limitations, restrictions or conditions on such redemption;
. the terms, if any, of any purchase, retirement or sinking fund to be
provided for the preferred shares;
. the terms, if any, upon which the preferred shares will be convertible
into or exchangeable for shares of any other class, classes or series,
or other securities, whether or not issued by ACE;
. the restrictions, limitations and conditions, if any, upon the issuance
of indebtedness of ACE so long as any preferred shares are outstanding;
and
. any other preferences and relative, participating, optional or other
rights and limitations not inconsistent with applicable law, the
Memorandum or the Articles.
9
<PAGE>
Dividends
The holders of preferred shares will be entitled to receive dividends at the
rate set by the Board, payable on specified dates each year for the respective
dividend periods ending on such dates ("dividend periods"), when and as
declared by the Board. Such dividends will accrue on each preferred share from
the first day of the dividend period in which such share is issued or from such
other date as the Board may fix for such purpose. All dividends on preferred
shares will be cumulative so that if ACE does not pay or set apart for payment
the dividend, or any part thereof, on the issued and outstanding preferred
shares for any dividend period, the deficiency in the dividend on the preferred
shares must thereafter be fully paid or declared and set apart for payment, but
without interest, before any dividend may be paid or declared and set apart for
payment on the ordinary shares. The holders of preferred shares will not be
entitled to participate in any other or additional earnings or profits of ACE,
except for such premiums, if any, as may be payable in case of redemption or
liquidation, dissolution or winding up of ACE.
Any dividend paid upon the preferred shares at a time when any accrued
dividends for any prior dividend period are delinquent will be expressly
declared to be in whole or partial payment of the accrued dividends to the
extent thereof, beginning with the earliest dividend period for which dividends
are then wholly or partly delinquent, and will be so designated to each
shareholder to whom payment is made.
No dividends will be paid upon any shares of any class or series of preferred
shares for a current dividend period unless there will have been paid or
declared and set apart for payment dividends required to be paid to the holders
of each other class or series of preferred shares for all past dividend periods
of such other class or series. If any dividends are paid on any of the
preferred shares with respect to any past dividend period at any time when less
than the total dividends then accumulated and payable for all past dividend
periods on all of the preferred shares then outstanding are to be paid or
declared and set apart for payment, then the dividends being paid will be paid
on each class or series of preferred shares in the proportions that the
dividends then accumulated and payable on each class or series for all past
dividend periods bear to the total dividends then accumulated and payable for
all past dividend periods on all outstanding preferred shares.
Liquidation, Dissolution or Winding Up
In case of voluntary or involuntary liquidation, dissolution or winding up of
ACE, the holders of each class or series of preferred shares will be entitled
to receive out of the assets of ACE in money or money's worth the liquidation
preference with respect to that class or series of preferred shares, together
with all accrued but unpaid dividends thereon (whether or not earned or
declared), before any of such assets will be paid or distributed to holders of
ordinary shares. In case of voluntary or involuntary liquidation, dissolution
or winding up of ACE, if the assets are insufficient to pay the holders of all
of the classes or series of preferred shares then outstanding the full amounts
to which they may be entitled, the holders of each outstanding class or series
of preferred shares will share ratably in such assets in proportion to the
amounts which would be payable with respect to such class or series if all
amounts payable thereon were paid in full. The consolidation or merger of ACE
with or into any other corporation, or a sale of all or any part of its assets,
will not be deemed a liquidation, dissolution or winding up of ACE within the
meaning of this paragraph.
Redemption
Except as otherwise provided with respect to a particular class or series of
preferred shares, the following general redemption provisions will apply to
each class or series of preferred shares.
On or prior to the date fixed for redemption of a particular class or series
of preferred shares or any part thereof as specified in the notice of
redemption for such class or series, ACE will deposit adequate funds for such
redemption, in trust for the account of holders of such class or series, with a
bank or trust company that has an office in the United States, and that has, or
is an affiliate of a bank or trust company that has, capital and surplus of at
least $50,000,000. If the name and address of such bank or trust company and
the deposit of or
10
<PAGE>
intent to deposit the redemption funds in such trust account have been stated
in the redemption notice, then from and after the mailing of the notice and the
making of such deposit the shares of the class or series called for redemption
will no longer be deemed to be outstanding for any purpose whatsoever, and all
rights of the holders of such shares in or with respect to ACE will cease and
terminate except only the right of the holders of the shares (1) to transfer
such shares prior to the date fixed for redemption, (2) to receive the
redemption price of such shares, including accrued but unpaid dividends to the
date fixed for redemption, without interest, upon surrender of the certificate
or certificates representing the shares to be redeemed, and (3) on or before
the close of business on the fifth day preceding the date fixed for redemption
to exercise privileges of conversion, if any, not previously expired. Any
moneys so deposited by ACE which remain unclaimed by the holders of the shares
called for redemption and not converted will, at the end of six years after the
redemption date, be paid to ACE upon its request, after which repayment the
holders of the shares called for redemption can no longer look to such bank or
trust company for the payment of the redemption price but must look only to ACE
for the payment of any lawful claim for such moneys which holders of such
shares may still have. After such six-year period, the right of any shareholder
or other person to receive such payment may be forfeited in the manner and with
the effect provided under Cayman Islands law. Any portion of the moneys so
deposited by ACE, in respect of preferred shares called for redemption that are
converted into ordinary shares, will be repaid to ACE upon its request.
In case of redemption of only a part of a class or series of preferred
shares, ACE will designate by lot, in such manner as the Board may determine,
the shares to be redeemed, or will effect such redemption pro rata.
Conversion Rights
Except as otherwise provided with respect to a particular class or series of
preferred shares, the following general conversion provisions will apply to
each class or series of preferred shares that is convertible into ordinary
shares.
All ordinary shares issued upon conversion will be fully paid and
nonassessable, and will be free of all taxes, liens and charges with respect to
the issue thereof except taxes, if any, payable by reason of issuance in a name
other than that of the holder of the shares converted and except as otherwise
provided by applicable law or the Articles.
The number of ordinary shares issuable upon conversion of a particular class
or series of preferred shares at any time will be the quotient obtained by
dividing the aggregate conversion value of the shares of such class or series
surrendered for conversion, by the conversion price per share of ordinary
shares then in effect for such class or series. ACE will not be required,
however, upon any such conversion, to issue any fractional share of ordinary
shares, but instead ACE will pay to the holder who would otherwise be entitled
to receive such fractional share if issued, a sum in cash equal to the value of
such fractional share based on the last reported sale price per ordinary share
on the NYSE at the date of determination. Preferred shares will be deemed to
have been converted as of the close of business on the date of receipt at the
office of the transfer agent of the certificates, duly endorsed, together with
written notice by the holder of his election to convert the shares.
The basic conversion price per ordinary share for a class or series of
preferred shares, as fixed by the Board, will be subject to adjustment from
time to time as follows:
. In case ACE (1) pays a dividend or makes a distribution to all holders
of outstanding ordinary shares as a class in ordinary shares, (2)
subdivides or splits the outstanding ordinary shares into a larger
number of shares or (3) combines the outstanding ordinary shares into a
smaller number of shares, the basic conversion price per ordinary share
in effect immediately prior to that event will be adjusted retroactively
so that the holder of each outstanding share of each class or series of
preferred shares which by its terms is convertible into ordinary shares
will thereafter be entitled to receive upon the conversion of such share
the number of ordinary shares which that holder would have owned and
been entitled to receive after the happening of any of the events
described above had such share of
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<PAGE>
such class or series been converted immediately prior to the happening
of that event. An adjustment made pursuant to this clause will become
effective retroactively immediately after such record date in the case
of a dividend or distribution and immediately after the effective date
in the case of a subdivision, split or combination. Such adjustments
will be made successively whenever any event described in this clause
occurs.
. In case ACE issues to all holders of ordinary shares as a class any
rights or warrants enabling them to subscribe for or purchase ordinary
shares at a price per share less than the current market price per
ordinary share at the record date for determination of shareholders
entitled to receive such rights or warrants, the basic conversion price
per ordinary share in effect immediately prior thereto for each class or
series of preferred shares which by its terms is convertible into
ordinary shares will be adjusted retroactively by multiplying such basic
conversion price by a fraction, of which the numerator will be the sum
of number of ordinary shares outstanding at such record date and the
number of ordinary shares which the aggregate exercise price (before
deduction of underwriting discounts or commissions and other expenses of
ACE in connection with the issue) of the total number of shares so
offered for subscription or purchase would purchase at such current
market price per share and of which the denominator will be the sum of
the number of ordinary shares outstanding at such record date and the
number of additional ordinary shares so offered for subscription or
purchase. An adjustment made pursuant to this clause will become
effective retroactively immediately after the record date for
determination of shareholders entitled to receive such rights or
warrants. Such adjustments will be made successively whenever any event
described in this clause occurs.
. In case ACE distributes to all holders of ordinary shares as a class
evidences of indebtedness or assets (other than cash dividends), the
basic conversion price per ordinary share in effect immediately prior
thereto for each class or series of preferred shares which by its terms
is convertible into ordinary shares will be adjusted retroactively by
multiplying such basic conversion price by a fraction, of which the
numerator will be the difference between the current market price per
ordinary share at the record date for determination of shareholders
entitled to receive such distribution and the fair value (as determined
by the Board) of the portion of the evidences of indebtedness or assets
(other than cash dividends) so distributed applicable to one ordinary
share and of which the denominator will be the current market price per
ordinary share. An adjustment made pursuant to this clause will become
effective retroactively immediately after such record date. Such
adjustments will be made successively whenever any event described in
this clause occurs.
For the purpose of any computation under the last clause above, the current
market price per ordinary share on any date will be deemed to be the average
of the high and low sales prices of the ordinary shares, as reported in the
New York Stock Exchange--Composite Transactions (or such other principal
market quotation as may then be applicable to the ordinary shares) for each of
the 30 consecutive trading days commencing 45 trading days before such date.
No adjustment will be made in the basic conversion price for any class or
series of preferred shares in effect immediately prior to such computation if
the amount of such adjustment would be less than fifty cents. However, any
adjustments which by reason of the preceding sentence are not required to be
made will be carried forward and taken into account in any subsequent
adjustment. Notwithstanding anything to the contrary, any adjustment required
for purposes of making the computations described above will be made not later
than the earlier of (1) three years after the effective date described above
for such adjustment or (2) the date as of which such adjustment would result
in an increase or decrease of at least 3% in the aggregate number of ordinary
shares issued and outstanding on the first date on which an event occurred
which required the making of a computation described above. All calculations
will be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be.
In the case of any capital reorganization or reclassification of ordinary
shares, or if ACE consolidates with or merges into, or sells or disposes of
all or substantially all of its property and assets to, any other corporation,
proper provisions will be made as part of the terms of such capital
reorganization, reclassification, consolidation, merger or sale that any
shares of a particular class or series of preferred shares at the time
12
<PAGE>
outstanding will thereafter be convertible into the number of shares of stock
or other securities or property to which a holder of the number of ordinary
shares deliverable upon conversion of such preferred shares would have been
entitled upon such capital reorganization, reclassification, consolidation or
merger.
No dividend adjustment with respect to any preferred shares or ordinary
shares will be made in connection with any conversion.
Whenever there is an issue of additional ordinary shares requiring a change
in the conversion price as provided above, and whenever there occurs any other
event which results in a change in the existing conversion rights of the
holders of shares of a class or series of preferred shares, ACE will file with
its transfer agent or agents, a statement signed by the Chairman, President and
Chief Executive Officer or by any Executive Officer of ACE, describing
specifically such issue of additional ordinary shares or such other event (and,
in the case of a capital reorganization, reclassification, consolidation or
merger, the terms thereof) and the actual conversion prices or basis of
conversion as changed by such issue or event and the change, if any, in the
securities issuable upon conversion. Whenever there are issued by ACE to all
holders of ordinary shares as a class any rights or warrants enabling them to
subscribe for or purchase ordinary shares, ACE will also file in like manner a
statement describing the same and the consideration it will receive therefrom.
The statement so filed will be open to inspection by any holder of record of
shares of any class or series of preferred shares.
ACE will at all times have authorized and will at all times reserve and set
aside a sufficient number of duly authorized ordinary shares for the conversion
of all shares of all then outstanding classes or series of preferred shares
which are convertible into ordinary shares.
Reissuance of Shares
Any preferred shares retired by purchase, redemption, through conversion, or
through the operation of any sinking fund or redemption or purchase account,
will have the status of authorized but unissued preferred shares, and may be
reissued as part of the same class or series or may be reclassified and
reissued by the Board in the same manner as any other authorized and unissued
preferred shares.
Voting Rights
Except as indicated below or as otherwise required by applicable law, the
holders of preferred shares will have no voting rights.
Whenever dividends payable on any class or series of preferred shares are in
arrears in an aggregate amount equivalent to six full quarterly dividends on
all of the preferred shares of that class or series then outstanding, the
holders of preferred shares of that class or series will have the exclusive and
special right, voting separately as a class, to elect two directors of ACE, and
the number of directors constituting the Board will be increased to the extent
necessary to effectuate such right. Whenever such right of the holders of any
class or series of the preferred shares has vested, such right may be exercised
initially either at an extraordinary meeting of the holders of such class or
series of the preferred shares, or at any annual meeting of shareholders, and
thereafter at annual meetings of shareholders. The right of the holders of any
class or series of the preferred shares voting separately as a class to elect
members of the Board will continue until such time as all dividends accumulated
on such class or series of the preferred shares have been paid in full, at
which time that special right will terminate, subject to revesting in the event
of each and every subsequent default in an aggregate amount equivalent to six
full quarterly dividends.
At any time when such special voting power has vested in the holders of any
class or series of the preferred shares as described in the preceding
paragraph, a proper officer of ACE will, upon the written request of the
holders of record of at least 10% of such class or series of the preferred
shares then outstanding addressed to the Secretary of ACE, call an
extraordinary meeting of the holders of such class or series of the preferred
shares for the purpose of electing directors. Such meeting will be held at the
earliest practicable date
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in such place as may be designated pursuant to the Articles (or if there be no
designation, at the principal office of ACE in Hamilton, Bermuda). If such
meeting shall not be called by the proper officers of ACE within 20 days after
the Secretary of ACE has been personally served with such request, or within 30
days after mailing the same within the United States by registered or certified
mail addressed to the Secretary of ACE at its principal office, then the
holders of record of at least 10% of such class or series of the preferred
shares then outstanding may designate in writing one of their number to call
such meeting at ACE's expense, and such meeting may be called by such person so
designated upon the notice required for annual meetings of shareholders and
will be held in Hamilton, Bermuda. Any holder of such class or series of
preferred shares so designated will have access to the stock books of ACE for
the purpose of causing meetings of shareholders to be called pursuant to these
provisions. Notwithstanding the foregoing, no such extraordinary meeting will
be called during the period within 90 days immediately preceding the date fixed
for the next annual meeting of shareholders.
At any annual or extraordinary meeting at which the holders of any class or
series of the preferred shares have the special right, voting separately as a
class, to elect directors as described above, the presence, in person or by
proxy, of the holders of 33 1/3% of such class or series of the preferred
shares will be required to constitute a quorum of such class or series for the
election of any director by the holders of such class or series, voting as a
class. At any such meeting or adjournment thereof, (1) the absence of a quorum
of such class or series of the preferred shares will not prevent the election
of directors other than those to be elected by such class or series of the
preferred shares, voting as a class, and the absence of a quorum for the
election of such other directors will not prevent the election of the directors
to be elected by such class or series of the preferred shares, voting as a
class, and (2) in the absence of either or both such quorums, a majority of the
holders present in person or by proxy of any class or series of stock for which
a quorum is lacking will have power to adjourn the meeting for the election of
directors which they are entitled to elect, from time to time until a quorum
shall be present, without notice other than announcement at the meeting.
During any period in which the holders of any class or series of the
preferred shares have the right to vote as a class for directors as described
above, any vacancies in the Board will be filled only by vote of a majority
(even if that be only a single director) of the remaining directors theretofore
elected by the holders of the class or series of stock which elected the
directors whose office shall have become vacant. During such period the
directors so elected by the holders of any class or series of the preferred
shares will continue in office (1) until the next succeeding annual meeting or
until their successors, if any, are elected by such holders and qualify or (2)
unless required by applicable law to continue in office for a longer period,
until termination of the right of the holders of such class or series of the
preferred shares to vote as a class for directors, if earlier. If and to the
extent permitted by applicable law, immediately upon any termination of the
right of the holders of any class or series of the preferred shares to vote as
a class for directors as provided herein, the term of office of the directors
then in office so elected by the holders of such class or series will
terminate.
Whether or not ACE is being wound up, the rights attached to any class or
series of preferred shares may only be varied with the consent in writing of
the holders of three-fourths of the issued shares of that class or series, or
with the sanction of a special resolution approved by at least 66 2/3% of the
votes cast by the holders of the shares of that class or series at a duly
convened meeting where at least one-third of the issued shares of that class or
series are represented, either in person or by proxy. The rights attached to
any class or series of preferred shares will not be deemed to be varied by the
creation or issue of any shares or any securities convertible into or
evidencing the right to purchase shares ranking prior to or equally with such
class or series of the preferred shares with respect to the payment of
dividends or of assets upon liquidation, dissolution or winding up. Holders of
preferred shares are not entitled to vote on any amalgamation, consolidation,
merger or statutory share exchange, except to the extent that such a
transaction would vary the rights attached to any class or series of preferred
shares, in which case any such variation is subject to the approval process
described above. Holders of preferred shares are not entitled to vote on any
sale of all or substantially all of the assets of ACE.
On any item on which the holders of the preferred shares are entitled to
vote, such holders will be entitled to one vote for each preferred share held.
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Restrictions in Event of Default in Dividends on Preferred Shares
If at any time ACE has failed to pay dividends in full on the preferred
shares, thereafter and until dividends in full, including all accrued and
unpaid dividends for all past quarterly dividend periods on the preferred
shares outstanding, shall have been declared and set apart in trust for payment
or paid, or if at any time ACE has failed to pay in full amounts payable with
respect to any obligations to retire preferred shares, thereafter and until
such amounts shall have been paid in full or set apart in trust for payment (1)
ACE, without the affirmative vote or consent of the holders of at least 66 2/3%
of the preferred shares at the time outstanding given in person or by proxy,
either in writing or by resolution adopted at an extraordinary meeting called
for the purpose, at which the holders of the preferred shares shall vote
separately as a class, regardless of class or series, may not redeem less than
all of the preferred shares at such time outstanding; (2) ACE may not purchase
any preferred shares except in accordance with a purchase offer made in writing
to all holders of preferred shares of all classes or series upon such terms as
the Board in its sole discretion after consideration of the respective annual
dividend rate and other relative rights and preferences of the respective
classes or series, will determine (which determination will be final and
conclusive) will result in fair and equitable treatment among the respective
classes or series; provided that (a) ACE, to meet the requirements of any
purchase, retirement or sinking fund provisions with respect to any class or
series, may use shares of such class or series acquired by it prior to such
failure and then held by it as treasury stock and (b) nothing will prevent us
from completing the purchase or redemption of preferred shares for which a
purchase contract was entered into for any purchase, retirement or sinking fund
purposes, or the notice of redemption of which was initially mailed, prior to
such failure; and (3) ACE may not redeem, purchase or otherwise acquire, or
permit any subsidiary to purchase or acquire any shares of any other class of
stock of ACE ranking junior to the preferred shares as to dividends and upon
liquidation.
Preemptive Rights
No holder of preferred shares, solely by reason of such holding, has or will
have any preemptive right to subscribe to any additional issue of shares of any
class or series nor to any security convertible into such shares.
Transfer Agent
ACE's registrar and transfer agent for the ordinary shares and the preferred
shares is The Bank of New York.
Transfer of Shares
The Articles contain various provisions affecting the transferability of
ACE's shares. Under the Articles, the Board has absolute discretion to decline
to register a transfer of shares (1) unless a registration statement under the
Securities Act is in effect with respect to such shares or a written opinion
from counsel acceptable to the directors is obtained to the effect that such
registration is not required or (2) if the Board determines that such transfer
would result in a person having controlled shares that constitute 10% or more
of any class or series of ACE's issued shares. The Board also has absolute
discretion to decline to register any transfer of shares. The Board has waived
its right to decline to register any transfer of shares which have been traded
in the public market (including the ordinary and preferred shares offered by a
prospectus supplement) or which were outstanding immediately prior to ACE's
initial public offering.
Maples and Calder, ACE's Cayman Islands counsel, has advised it that while
the precise form of the restrictions on transfers contained in the Articles is
untested, as a matter of general principle, restrictions on transfers are
enforceable under Cayman Islands law and are not uncommon. The transferor of
such shares will be deemed to own such shares for dividend, voting and
reporting purposes until a transfer of such shares has been registered on our
stock transfer records.
The restrictions on voting and ownership of more than 10% of any class or
series of our issued shares described above, as well as the provisions
discussed below under "Anti-Takeover Effects of Articles of Association" and
"Shareholder Rights Plan," may have the effect of discouraging an attempt to
obtain control of ACE through certain actions.
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The Articles also provide that the Board may suspend the registration of
transfer for such periods as the Board may determine, but shall not suspend the
registration of transfer for more than 45 days in any year.
Lloyd's Related Requirements
Under Lloyd's regulations as currently in effect, any person who (with any
associates) beneficially holds 10% or more of the votes or economic interest in
ACE or who controls decisions by ACE's Board is deemed to be a "controller" of
any ACE subsidiary that is a Lloyd's corporate member or Lloyd's managing
agent. Lloyd's imposes an absolute prohibition on any company being a 10%
controller of a Lloyd's corporate member or Lloyd's managing agent without
first notifying Lloyd's and receiving their consent. This prohibition is
qualified in respect of a person who breaches the 20%, 33%, 50% or majority
controller thresholds in that the Lloyd's corporate member or Lloyd's managing
agent must do all that lies within its powers to comply with Lloyd's
requirements. In these latter circumstances, this essentially means that notice
must have been given to the Council of Lloyd's that the relevant threshold will
be exceeded and that the Council of Lloyd's has not objected. Lloyd's requires
each "controller" of a Lloyd's corporate member or Lloyd's managing agent to
execute and deliver a declaration and undertaking to Lloyd's containing
representations concerning the absence of criminal activities, censure,
insolvency, civil liabilities and government investigations, etc., and
submitting to the jurisdiction of the English courts. Any person that becomes
the owner of 10% (or subsequently 20%, 33%, 50% or a majority) of the ordinary
shares would have to deliver this declaration and undertaking to Lloyd's in the
form prescribed by Lloyd's, unless Lloyd's exempts such person from this
requirement. Lloyd's regulations give Lloyd's the right to withhold consent to
a person becoming a controller of a Lloyd's corporate member, even where the
declaration and undertaking has been provided, if Lloyd's, in its discretion,
does not consider such person to be "fit and proper."
In addition under English law, if any person who is connected with a Lloyd's
broker holds or subsequently becomes the holder of more than 5% of the ordinary
shares in ACE, that Lloyd's broker risks losing its Lloyd's license. For these
purposes, a person is treated as connected with a Lloyd's broker if that person
is the subsidiary or holding company of a corporate Lloyd's broker or a
subsidiary of any such holding company (all being regarded as related
companies) or a director of such a Lloyd's broker or any related company that
controls (a test based on one-third voting rights or control of the Board) or
is controlled by such a Lloyd's broker or any related company or, if the
Lloyd's broker is a partnership, any person who is a partner in or who controls
or is controlled by (on a similar test) such a Lloyd's broker or any company
which is controlled by a partner in such a Lloyd's broker or any related
company of any such partner or any director of any such controlled or related
company.
Lien on Shares
The Articles provide that ACE will have a first lien on all shares for all
debts, liabilities or engagements to or with ACE (whether presently payable or
not) by the holder of such shares, except for shares declared to be exempt by
the Board. This lien would extend to the payment of dividends or other money
payable in respect of any ordinary shares or preferred shares subject to the
lien. The Articles also provide that the directors may deduct from any dividend
payable to a shareholder all sums of money presently payable by such
shareholder to ACE on any account. The Board has exempted from these provisions
the ordinary and preferred shares offered by a prospectus supplement.
Anti-Takeover Effects of Articles of Association
The Articles contain certain provisions that make it more difficult to
acquire control of ACE by means of a tender offer, open market purchase, a
proxy fight or otherwise. These provisions, as well as the shareholder rights
plan described under "Shareholder Rights Plan" below, are designed to encourage
persons seeking to acquire control of ACE to negotiate with its directors. The
directors believe that, as a general rule, the interests of its shareholders
would be best served if any change in control results from negotiations with
the directors.
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The directors would negotiate based upon careful consideration of the proposed
terms, such as the price to be paid to shareholders, the form of consideration
to be paid and the anticipated tax effects of the transaction. However, these
provisions could have the effect of discouraging a prospective acquiror from
making a tender offer or otherwise attempting to obtain control of ACE. To the
extent these provisions discourage takeover attempts, they could deprive
shareholders of opportunities to realize takeover premiums for their shares or
could depress the market price of the shares.
In addition to those provisions of the Articles discussed above, set forth
below is a description of other material provisions of the Articles. Because
the following description is intended as a summary only and is therefore not
complete, you should refer to the Articles, which are incorporated by reference
as an exhibit to the registration statement of which this prospectus forms a
part, for complete information regarding these provisions.
No Shareholder Action by Written Consent
The Articles provide that any action required or permitted to be taken by
ACE's shareholders must be taken at a duly called annual general or
extraordinary general meeting of its shareholders and may not be taken by
consent in writing or otherwise.
The affirmative vote of the holders of at least 66-2/3% of the outstanding
shares generally entitled to vote, voting together as a single class, is
required to amend or repeal, or adopt any provision inconsistent with, this
provision of the Articles.
Availability of Shares of Capital Stock for Future Issuances
The availability of shares for issue by ACE's directors without further
action by shareholders (except as may be required by applicable stock exchange
requirements) could be viewed as enabling the directors to make more difficult
a change in control of ACE, including by issuing warrants or rights to acquire
shares to discourage or defeat unsolicited stock accumulation programs and
acquisition proposals and by issuing shares in a private placement or public
offering to dilute or deter stock ownership of persons seeking to obtain
control of ACE.
Shareholder Proposals
The Articles provide that if a shareholder desires to submit a proposal for
consideration at an annual general meeting or extraordinary general meeting, or
to nominate persons for election as directors, written notice of such
shareholder's intent to make such a proposal or nomination must be given and
received by the Secretary of ACE at its principal executive offices not later
than (1) with respect to an annual general meeting, 60 days prior to the
anniversary date of the immediately preceding annual general meeting, and
(2) with respect to an extraordinary general meeting, the close of business on
the tenth day following the date on which notice of such meeting is first sent
or given to shareholders. The notice must describe the proposal or nomination
in sufficient detail for a proposal or nomination to be summarized on the
agenda for the meeting and must set forth (1) the name and address of the
shareholder, (2) a representation that the shareholder is a holder of record of
shares of ACE entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to present such proposal or nomination and (iii) the
class and number of shares of ACE that are beneficially owned by the
shareholder. In addition, the notice must set forth the reasons for conducting
such proposed business at the meeting and any material interest of the
shareholder in such business. In the case of a nomination of any person for
election as a director, the notice must set forth: (1) the name and address of
any person to be nominated; (2) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons; (3) such other information regarding such nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to Regulation 14A under the Exchange Act, whether or not we are then
subject to such Regulation; and (4) the consent of each nominee to serve as a
director of ACE, if so elected. The presiding officer of the annual general
meeting or extraordinary general meeting will, if the facts warrant, refuse to
acknowledge a proposal or nomination not made in compliance with the foregoing
procedure.
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The affirmative vote of the holders of at least 66 2/3% of the outstanding
shares entitled to vote, voting together as a single class, will be required to
amend or repeal, or adopt any provision inconsistent with, the foregoing
provision of the Articles.
The advance notice requirements regulating shareholder nominations and
proposals may have the effect of precluding a contest for the election of
directors or the introduction of a shareholder proposal if the procedures
summarized above are not followed and may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to introduce a proposal.
Shareholder Rights Plan
On May 7, 1999, ACE's Board of Directors declared a dividend of one
preference share purchase right for each outstanding ordinary share to
shareholders of record at the close of business on June 1, 1999. Subject to
certain exceptions, each right, when exercisable, entitles the holder to
purchase from ACE one one-thousandth of a series A junior participating
preference share at an exercise price of $150, subject to certain antidilution
adjustments. Because of the nature of the preference shares' dividend,
liquidation and voting rights, the value of the one one-thousandth of a
preference share purchasable upon the exercise of each right should approximate
the value of one ordinary share.
The rights generally will only be exercisable:
. 10 days following a public announcement that a person or a group of
affiliated or associated persons has acquired, or obtained the right to
acquire, 15% or more of the outstanding ordinary shares of ACE, or
. 15 business days following the commencement of, or the announcement of
an intention to make, a tender or exchange offer for 15% or more of the
outstanding ordinary shares of ACE.
In the following description, a person or group that acquires, or obtains the
right to acquire, 15% or more of the outstanding ordinary shares of ACE is
referred to as an "Acquiring Person."
Generally, if any person or group becomes an Acquiring Person, each right,
except for rights held by the Acquiring Person, will entitle its holder to
purchase ordinary shares having a value equal to two times the exercise price
of the right.
If ACE is acquired in a merger, amalgamation or other business combination
transaction or if 50% or more of ACE's assets or earnings power is sold, then
proper provision will be made so that each holder of a right, except for the
Acquiring Person, will be entitled to receive common stock of the acquiring or
surviving company having a value equal to two times the exercise price of the
right.
ACE's board of directors has the option, at any time after any person or
group becomes an Acquiring Person but before the Acquiring Person acquires 50%
or more of the outstanding ordinary shares, to exchange each right, except for
rights held by the Acquiring Person, for one ordinary share.
At any time prior to the time that any person or group becomes an Acquiring
Person, ACE's board of directors may redeem the rights in whole, but not in
part, at a price of $0.01 per right. The rights will expire on June 1, 2009 if
they have not been previously exercised, exchanged or redeemed.
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DESCRIPTION OF THE DEPOSITARY SHARES
General
ACE may, at its option, elect to offer depositary shares, each representing a
fraction (to be set forth in the prospectus supplement relating to a particular
series of preferred shares) of a share of a particular series of preferred
shares as described below. In the event ACE elects to do so, depositary
receipts evidencing depositary shares will be issued to the public.
The shares of any class or series of preferred shares represented by
depositary shares will be deposited under a deposit agreement among ACE, a
depositary selected by ACE and the holders of the depositary receipts. The
depositary will be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least
$50,000,000. Subject to the terms of the deposit agreement, each owner of a
depositary share will be entitled, in proportion to the applicable fraction of
a preferred share represented by such depositary share, to all the rights and
preferences of the preferred shares represented thereby (including dividend,
voting, redemption and liquidation rights).
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of the related class or series
of preferred shares in accordance with the terms of the offering described in
the related prospectus supplement. Copies of the forms of deposit agreement and
depositary receipt are filed as exhibits to the registration statement of which
this prospectus forms a part, and the following summary is qualified in its
entirety by reference to such exhibits.
Pending the preparation of definitive depositary receipts, the depositary
may, upon the written order of ACE, issue temporary depositary receipts
substantially identical to (and entitling the holders thereof to all the rights
pertaining to) the definitive depositary receipts but not in definitive form.
Definitive depositary receipts will be prepared thereafter without unreasonable
delay, and temporary depositary receipts will be exchangeable for definitive
depositary receipts without charge to the holder thereof.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other distributions
received in respect of the related class or series of preferred shares to the
record holders of depositary shares relating to such class or series of
preferred shares in proportion to the number of such depositary shares owned by
such holders.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
entitled thereto, unless the depositary determines that it is not feasible to
make such distribution, in which case the depositary may, with the approval of
ACE, sell such property and distribute the net proceeds from such sale to such
holders.
Withdrawal of Shares
Upon surrender of the depositary receipts at the corporate trust office of
the depositary (unless the related depositary shares have previously been
called for redemption), the holder of the depositary shares evidenced thereby
is entitled to delivery of the number of whole shares of the related class or
series of preferred shares and any money or other property represented by such
depositary shares. Holders of depositary shares will be entitled to receive
whole shares of the related class or series of preferred shares on the basis
set forth in the prospectus supplement for such class or series of preferred
shares, but holders of such whole preferred shares will not thereafter be
entitled to exchange them for depositary shares. If the depositary receipts
delivered by the holder evidence a number of depositary shares in excess of the
number of depositary shares representing the number of whole preferred shares
to be withdrawn, the depositary will deliver to such holder at the same time a
new depositary receipt evidencing such excess number of depositary shares. In
no event will fractional preferred shares be delivered upon surrender of
depositary receipts to the depositary.
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Redemption of Depositary Shares
Whenever ACE redeems preferred shares held by the depositary, the depositary
will redeem as of the same redemption date the number of depositary shares
representing shares of the related class or series of preferred shares so
redeemed. The redemption price per depositary share will be equal to the
applicable fraction of the redemption price per share payable with respect to
such class or series of the preferred shares. If less than all the depositary
shares are to be redeemed, the depositary shares to be redeemed will be
selected by lot or pro rata as may be determined by the depositary.
Voting the Preferred Shares
Upon receipt of notice of any meeting at which the holders of the preferred
shares are entitled to vote, the depositary will mail the information contained
in such notice of meeting to the record holders of the depositary shares
relating to such preferred shares. Each record holder of such depositary shares
on the record date (which will be the same date as the record date for the
preferred shares) will be entitled to instruct the depositary as to the
exercise of the voting rights pertaining to the amount of the class or series
of preferred shares represented by such holder's depositary shares. The
depositary will endeavor, insofar as practicable, to vote the number of the
preferred shares represented by such depositary shares in accordance with such
instructions, and ACE will agree to take all action which the depositary deems
necessary in order to enable the depositary to do so. The depositary will
abstain from voting preferred shares to the extent it does not receive specific
instructions from the holders of depositary shares representing such preferred
shares.
Amendment and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time be amended by agreement
between ACE and the depositary. However, any amendment which materially and
adversely alters the rights of the holders of depositary receipts will not be
effective unless such amendment has been approved by the holders of depositary
receipts representing at least a majority (or, in the case of amendments
relating to or affecting rights to receive dividends or distributions or voting
or redemption rights, 66 2/3%, unless otherwise provided in the related
prospectus supplement) of the depositary shares then outstanding. The deposit
agreement may be terminated by ACE or the depositary only if (1) all
outstanding depositary shares have been redeemed, (2) there has been a final
distribution in respect of the related class or series of preferred shares in
connection with any liquidation, dissolution or winding up of ACE and such
distribution has been distributed to the holders of depositary receipts or (3)
upon the consent of holders of depositary receipts representing not less than
66 2/3% of the depositary shares outstanding.
Charges of Depositary
ACE will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. ACE will pay charges
of the depositary in connection with the initial deposit of the related class
or series of preferred shares and any redemption of such preferred shares.
Holders of depositary receipts will pay all other transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
deposit agreement to be for their accounts.
The depositary may refuse to effect any transfer of a depositary receipt or
any withdrawal of shares of a class or series of preferred shares evidenced
thereby until all such taxes and charges with respect to such depositary
receipt or such preferred shares are paid by the holders thereof.
Miscellaneous
The depositary will forward all reports and communications from ACE which are
delivered to the depositary and which ACE is required to furnish to the holders
of the preferred shares.
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Neither the depositary nor ACE will be liable if it is prevented or delayed
by law or any circumstance beyond its control in performing its obligations
under the deposit agreement. The obligations of ACE and the depositary under
the deposit agreement will be limited to performance in good faith of their
duties thereunder and neither ACE nor the depositary will be obligated to
prosecute or defend any legal proceeding in respect of any depositary shares or
class or series of preferred shares unless satisfactory indemnity is furnished.
ACE and the depositary may rely on written advice of counsel or accountants, or
information provided by persons presenting preferred shares for deposit,
holders of depositary shares or other persons believed to be competent and on
documents believed to be genuine.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to ACE notice of its
election to do so, and ACE may at any time remove the depositary. Any such
resignation or removal of the depositary will take effect upon the appointment
of a successor depositary, which successor depositary must be appointed within
60 days after delivery of the notice of resignation or removal and must be a
bank or trust company having its principal office in the United States and
having a combined capital and surplus of at least $50,000,000.
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DESCRIPTION OF ACE DEBT SECURITIES
The following description of the ACE debt securities sets forth the material
terms and provisions of the ACE debt securities to which any prospectus
supplement may relate. The ACE senior debt securities are to be issued under an
indenture (the "ACE senior indenture") between ACE and The First National Bank
of Chicago, as trustee, the form of which is filed as an exhibit to the
registration statement of which this prospectus forms a part. The ACE
subordinated debt securities are to be issued under an indenture (the "ACE
subordinated indenture") between ACE and The First National Bank of Chicago, as
trustee, the form of which is filed as an exhibit to the registration statement
of which this prospectus forms a part. The ACE senior indenture and the ACE
subordinated indenture are sometimes referred to herein collectively as the
"ACE indentures" and each individually as an "ACE indenture." The particular
terms of the ACE debt securities offered by any prospectus supplement, and the
extent to which the general provisions described below may apply to the offered
ACE debt securities, will be described in the prospectus supplement.
Because the following summaries of the material terms and provisions of the
ACE indentures and the ACE debt securities are not complete, you should refer
to the forms of the ACE indentures and the ACE debt securities for complete
information regarding the terms and provisions of the ACE indentures, including
the definitions of some of the terms used below, and the ACE debt securities.
Wherever particular articles, sections or defined terms of an ACE indenture are
referred to, those articles, sections or defined terms are incorporated herein
by reference, and the statement in connection with which such reference is made
is qualified in its entirety by such reference. The ACE indentures are
substantially identical, except for certain covenants of ACE and provisions
relating to subordination.
General
The ACE indentures do not limit the aggregate principal amount of ACE debt
securities which ACE may issue thereunder and provide that ACE may issue ACE
debt securities thereunder from time to time in one or more series. (Section
3.1) The ACE indentures do not limit the amount of other Indebtedness (as
defined below) or ACE debt securities, other than certain secured Indebtedness
as described below, which ACE or its subsidiaries may issue.
Unless otherwise provided in a prospectus supplement, the ACE senior debt
securities will be unsecured obligations of ACE and will rank equally with all
of its other unsecured and unsubordinated indebtedness. The ACE subordinated
debt securities of each series will be unsecured obligations of ACE,
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (which term includes ACE senior debt securities) of ACE with
respect to such series, as described below under "Subordination of ACE
Subordinated Debt Securities" and in the applicable prospectus supplement.
Because ACE is a holding company, its rights and the rights of its creditors
(including the holders of ACE debt securities) and shareholders to participate
in any distribution of assets of any subsidiary upon the subsidiary's
liquidation or reorganization or otherwise would be subject to the prior claims
of the subsidiary's creditors, except to the extent that ACE may itself be a
creditor with recognized claims against the subsidiary. The right of creditors
of ACE (including the holders of ACE debt securities) to participate in the
distribution of stock owned by ACE in certain of its subsidiaries, including
ACE's insurance subsidiaries, may also be subject to approval by certain
insurance regulatory authorities having jurisdiction over such subsidiaries.
The prospectus supplement relating to the particular ACE debt securities
offered thereby will describe the following terms of the offered ACE debt
securities:
. the title of such ACE debt securities and the series in which such ACE
debt securities will be included, which may include medium-term notes;
. any limit upon the aggregate principal amount of such ACE debt
securities;
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. the date or dates, or the method or methods, if any, by which such date
or dates will be determined, on which the principal of such ACE debt
securities will be payable;
. the rate or rates at which such ACE debt securities will bear interest,
if any, which rate may be zero in the case of certain ACE debt
securities issued at an issue price representing a discount from the
principal amount payable at maturity, or the method by which such rate
or rates will be determined (including, if applicable, any remarketing
option or similar method), and the date or dates from which such
interest, if any, will accrue or the method by which such date or dates
will be determined;
. the date or dates on which interest, if any, on such ACE debt securities
will be payable and any regular record dates applicable to the date or
dates on which interest will be so payable;
. whether and on what terms ACE will have the option to redeem such ACE
debt securities in lieu of paying additional amounts in respect of
certain Bermuda or Cayman Islands taxes, fees, duties, assessments or
governmental charges that might be imposed on holders of such ACE debt
securities (and the terms of such option);
. the place or places where the principal of, any premium or interest on
or any additional amounts with respect to such ACE debt securities will
be payable, any of such ACE debt securities that are issued in
registered form may be surrendered for registration of transfer or
exchange, and any such ACE debt securities may be surrendered for
conversion or exchange;
. whether any of such ACE debt securities are to be redeemable at the
option of ACE and, if so, the date or dates on which, the period or
periods within which, the price or prices at which and the other terms
and conditions upon which such ACE debt securities may be redeemed, in
whole or in part, at the option of ACE;
. whether ACE will be obligated to redeem or purchase any of such ACE debt
securities pursuant to any sinking fund or analogous provision or at the
option of any holder thereof and, if so, the date or dates on which, the
period or periods within which, the price or prices at which and the
other terms and conditions upon which such ACE debt securities will be
redeemed or purchased, in whole or in part, pursuant to such obligation,
and any provisions for the remarketing of such ACE debt securities so
redeemed or purchased;
. if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which any ACE debt securities to be issued in
registered form will be issuable and, if other than a denomination of
$5,000, the denominations in which any ACE debt securities to be issued
in bearer form will be issuable;
. whether the ACE debt securities will be convertible into ordinary shares
and/or exchangeable for other securities, whether or not issued by ACE,
and, if so, the terms and conditions upon which such ACE debt securities
will be so convertible or exchangeable;
. if other than the principal amount, the portion of the principal amount
(or the method by which such portion will be determined) of such ACE
debt securities that will be payable upon declaration of acceleration of
the maturity thereof;
. if other than United States dollars, the currency of payment, including
composite currencies, of the principal of, any premium or interest on or
any additional amounts with respect to any of such ACE debt securities;
. whether the principal of, any premium or interest on or any additional
amounts with respect to such ACE debt securities will be payable, at the
election of ACE or a holder, in a currency other than that in which such
ACE debt securities are stated to be payable and the date or dates on
which, the period or periods within which, and the other terms and
conditions upon which, such election may be made;
. any index, formula or other method used to determine the amount of
payments of principal of, any premium or interest on or any additional
amounts with respect to such ACE debt securities;
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. whether such ACE debt securities are to be issued in the form of one or
more global securities and, if so, the identity of the depositary for
such global security or securities;
. whether such ACE debt securities are ACE senior debt securities or
subordinated debt securities and, if ACE subordinated debt securities,
the specific subordination provisions applicable thereto;
. in the case of ACE subordinated debt securities, the relative degree, if
any, to which such ACE subordinated debt securities of the series will
be senior to or be subordinated to other series of ACE subordinated debt
securities or other indebtedness of ACE in right of payment, whether
such other series of ACE subordinated debt securities or other
indebtedness is outstanding or not;
. any deletions from, modifications of or additions to the Events of
Default or covenants of ACE with respect to such ACE debt securities;
. whether the provisions described below under "Discharge, Defeasance and
Covenant Defeasance" will be applicable to such ACE debt securities;
. whether any of such ACE debt securities are to be issued upon the
exercise of warrants, and the time, manner and place for such ACE debt
securities to be authenticated and delivered; and
. any other terms of such ACE debt securities and any other deletions from
or modifications or additions to the applicable ACE indenture in respect
of such ACE debt securities. (Section 3.1)
ACE will have the ability under the ACE indentures to "reopen" a previously
issued series of ACE debt securities and issue additional ACE debt securities
of that series or establish additional terms of that series. ACE is also
permitted to issue ACE debt securities with the same terms as previously issued
ACE debt securities. (Section 3.1)
Unless otherwise provided in the related prospectus supplement, principal,
premium, interest and additional amounts, if any, with respect to any ACE debt
securities will be payable at the office or agency maintained by ACE for such
purposes (initially the corporate trust office of the trustee). In the case of
ACE debt securities issued in registered form, interest may be paid by check
mailed to the persons entitled thereto at their addresses appearing on the
security register or by transfer to an account maintained by the payee with a
bank located in the United States. Interest on ACE debt securities issued in
registered form will be payable on any interest payment date to the persons in
whose names the ACE debt securities are registered at the close of business on
the regular record date with respect to such interest payment date. All paying
agents initially designated by ACE for the ACE debt securities will be named in
the related prospectus supplement. ACE may at any time designate additional
paying agents or rescind the designation of any paying agent or approve a
change in the office through which any paying agent acts, except that ACE will
be required to maintain a paying agent in each place where the principal of,
any premium or interest on or any additional amounts with respect to the ACE
debt securities are payable. (Sections 3.7 and 10.2)
Unless otherwise provided in the related prospectus supplement, the ACE debt
securities may be presented for transfer (duly endorsed or accompanied by a
written instrument of transfer, if so required by ACE or the security
registrar) or exchanged for other ACE debt securities of the same series
(containing identical terms and provisions, in any authorized denominations,
and of a like aggregate principal amount) at the office or agency maintained by
ACE for such purposes (initially the corporate trust office of the trustee).
Such transfer or exchange will be made without service charge, but ACE may
require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses then payable. ACE will not be required to (1)
issue, register the transfer of, or exchange, ACE debt securities during a
period beginning at the opening of business 15 days before the day of mailing
of a notice of redemption of any such ACE debt securities and ending at the
close of business on the day of such mailing or (2) register the transfer of or
exchange any ACE debt security so selected for redemption in whole or in part,
except the unredeemed portion of any ACE debt security being redeemed in part.
(Section 3.5) ACE has appointed the trustee as security registrar. Any transfer
agent (in addition to the security registrar) initially designated by ACE for
any ACE debt securities will be named in the
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related prospectus supplement. ACE may at any time designate additional
transfer agents or rescind the designation of any transfer agent or approve a
change in the office through which any transfer agent acts, except that ACE
will be required to maintain a transfer agent in each place where the principal
of, any premium or interest on or any additional amounts with respect to the
ACE debt securities are payable. (Section 10.2)
Unless otherwise provided in the related prospectus supplement, the ACE debt
securities will be issued only in fully registered form without coupons in
minimum denominations of $1,000 and any integral multiple thereof. (Section
3.2) The ACE debt securities may be represented in whole or in part by one or
more global ACE debt securities registered in the name of a depositary or its
nominee and, if so represented, interests in such global ACE debt security will
be shown on, and transfers thereof will be effected only through, records
maintained by the designated depositary and its participants as described
below. Where ACE debt securities of any series are issued in bearer form, the
special restrictions and considerations, including special offering
restrictions and special United States Federal income tax considerations,
applicable to such ACE debt securities and to payment on and transfer and
exchange of such ACE debt securities will be described in the related
prospectus supplement.
The ACE debt securities may be issued as original issue discount securities
(bearing no interest or bearing interest at a rate which at the time of
issuance is below market rates) to be sold at a substantial discount below
their principal amount. Special United States Federal income tax and other
considerations applicable to original issue discount securities will be
described in the related prospectus supplement.
If the purchase price of any ACE debt securities is payable in one or more
foreign currencies or currency units or if any ACE debt securities are
denominated in one or more foreign currencies or currency units or if the
principal of, or any premium or interest on, or any additional amounts with
respect to, any ACE debt securities is payable in one or more foreign
currencies or currency units, the restrictions, elections, certain United
States Federal income tax considerations, specific terms and other information
with respect to such ACE debt securities and such foreign currency or currency
units will be set forth in the related prospectus supplement.
ACE will comply with Section 14(e) under the Exchange Act, and any other
tender offer rules under the Exchange Act which may then be applicable, in
connection with any obligation of ACE to purchase ACE debt securities at the
option of the holders. Any such obligation applicable to a series of ACE debt
securities will be described in the related prospectus supplement.
Unless otherwise described in a prospectus supplement relating to any ACE
debt securities, other than as described below under "--Covenants Applicable to
ACE Senior Debt Securities--Limitation on Liens on Stock of Designated
Subsidiaries," the ACE indentures do not contain any provisions that would
limit ACE's ability to incur indebtedness or that would afford holders of ACE
debt securities protection in the event of a sudden and significant decline in
the credit quality of ACE or a takeover, recapitalization or highly leveraged
or similar transaction involving ACE. Accordingly, ACE could in the future
enter into transactions that could increase the amount of indebtedness
outstanding at that time or otherwise affect ACE's capital structure or credit
rating. You should refer to the prospectus supplement relating to a particular
series of ACE debt securities for information regarding to any deletions from,
modifications of or additions to the Events of Defaults described below or
covenants of ACE contained in the ACE indentures, including any addition of a
covenant or other provisions providing event risk or similar protection.
Conversion and Exchange
The terms, if any, on which ACE debt securities of any series are convertible
into or exchangeable for ordinary shares, preferred shares or other securities,
whether or not issued by ACE, property or cash, or a combination of any of the
foregoing, will be set forth in the related prospectus supplement. Such terms
may include provisions for conversion or exchange, either mandatory, at the
option of the holder, or at the option of ACE, in which the securities,
property or cash to be received by the holders of the ACE debt securities would
be calculated according to the factors and at such time as described in the
related prospectus supplement.
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Global Securities
The ACE debt securities of a series may be issued in whole or in part in the
form of one or more global ACE debt securities that will be deposited with, or
on behalf of, a depositary identified in the prospectus supplement relating to
such series.
The specific terms of the depositary arrangement with respect to a series of
ACE debt securities will be described in the prospectus supplement relating to
such series. ACE anticipates that the following provisions will apply to all
depositary arrangements.
Upon the issuance of a global security, the depositary for such global
security or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the ACE debt securities
represented by such global security. Such accounts will be designated by the
underwriters or agents with respect to such ACE debt securities or by ACE if
such ACE debt securities are offered and sold directly by ACE. Ownership of
beneficial interests in a global security will be limited to persons that may
hold interests through participants. Ownership of beneficial interests in such
global security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the depositary or its nominee
(with respect to interests of participants) and on the records of participants
(with respect to interests of persons other than participants). The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of such global security, such depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the ACE debt
securities represented by such global security for all purposes under the
applicable ACE indenture. Except as described below, owners of beneficial
interests in a global security will not be entitled to have ACE debt securities
of the series represented by such global security registered in their names and
will not receive or be entitled to receive physical delivery of ACE debt
securities of that series in definitive form.
Principal of, any premium and interest on, and any additional amounts with
respect to, ACE debt securities registered in the name of a depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the global security representing such ACE debt
securities. None of ACE, the trustee, any paying agent or the security
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the global security for such ACE debt securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
ACE expects that the depositary for a series of ACE debt securities or its
nominee, upon receipt of any payment with respect to such ACE debt securities,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the principal amount
of the global security for such ACE debt securities as shown on the records of
such depositary or its nominee. ACE also expects that payments by participants
to owners of beneficial interests in such global security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in "street name," and will be the responsibility of such
participants.
The ACE indentures provide that if (1) the depositary for a series of ACE
debt securities notifies ACE that it is unwilling or unable to continue as
depositary or if such depositary ceases to be eligible under the applicable ACE
indenture and a successor depositary is not appointed by ACE within 90 days of
written notice, (2) ACE determines that ACE debt securities of a particular
series will no longer be represented by global securities and executes and
delivers to the trustee a company order to such effect or (3) an Event of
Default with respect to a series of ACE debt securities has occurred and is
continuing, the global securities will be exchanged for ACE debt securities of
such series in definitive form of like tenor and of an equal aggregate
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principal amount, in authorized denominations. Such definitive ACE debt
securities will be registered in such name or names as the depositary shall
instruct the trustee. (Section 3.5) It is expected that such instructions may
be based upon directions received by the depositary from participants with
respect to ownership of beneficial interests in global securities.
Payment of Additional Amounts
ACE will make all payments of principal of and premium, if any, interest and
any other amounts on, or in respect of, the ACE debt securities of any series
without withholding or deduction at source for, or on account of, any present
or future taxes, fees, duties, assessments or governmental charges of whatever
nature imposed or levied by or on behalf of the Cayman Islands or Bermuda
(each, a "taxing jurisdiction") or any political subdivision or taxing
authority thereof or therein, unless such taxes, fees, duties, assessments or
governmental charges are required to be withheld or deducted by (x) the laws
(or any regulations or rulings promulgated thereunder) of a taxing jurisdiction
or any political subdivision or taxing authority thereof or therein or (y) an
official position regarding the application, administration, interpretation or
enforcement of any such laws, regulations or rulings (including, without
limitation, a holding by a court of competent jurisdiction or by a taxing
authority in a taxing jurisdiction or any political subdivision thereof). If a
withholding or deduction at source is required, ACE will, subject to certain
limitations and exceptions described below, pay to the holder of any such ACE
debt security such additional amounts as may be necessary so that every net
payment of principal, premium, if any, interest or any other amount made to
such holder, after the withholding or deduction, will not be less than the
amount provided for in such ACE debt security and the applicable ACE indenture
to be then due and payable.
ACE will not be required to pay any additional amounts for or on account of:
1. any tax, fee, duty, assessment or governmental charge of whatever
nature which would not have been imposed but for the fact that such holder
(a) was a resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or was physically present in, the
relevant taxing jurisdiction or any political subdivision thereof or
otherwise had some connection with the relevant taxing jurisdiction other
than by reason of the mere ownership of, or receipt of payment under, such
ACE debt security, (b) presented such ACE debt security for payment in the
relevant taxing jurisdiction or any political subdivision thereof, unless
such ACE debt security could not have been presented for payment elsewhere,
or (c) presented such ACE debt security for payment more than 30 days after
the date on which the payment in respect of such ACE debt security became
due and payable or provided for, whichever is later, except to the extent
that the holder would have been entitled to such additional amounts if it
had presented such ACE debt security for payment on any day within that 30-
day period;
2. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
3. any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the holder or the beneficial owner of
such ACE debt security to comply with any reasonable request by ACE
addressed to the holder within 90 days of such request (a) to provide
information concerning the nationality, residence or identity of the holder
or such beneficial owner or (b) to make any declaration or other similar
claim or satisfy any information or reporting requirement, which in either
case is required or imposed by statute, treaty, regulation or
administrative practice of the relevant taxing jurisdiction or any
political subdivision thereof as a precondition to exemption from all or
part of such tax, assessment or other governmental charge; or
4. any combination of items (1), (2) and (3).
In addition, ACE will not pay additional amounts with respect to any payment
of principal of, or premium, if any, interest or any other amounts on, any such
ACE debt security to any holder who is a fiduciary or partnership or other than
the sole beneficial owner of such ACE debt security to the extent such payment
would be required by the laws of the relevant taxing jurisdiction (or any
political subdivision or relevant taxing
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authority thereof or therein) to be included in the income for tax purposes of
a beneficiary or partner or settlor with respect to such fiduciary or a member
of such partnership or a beneficial owner who would not have been entitled to
such additional amounts had it been the holder of the ACE debt security.
(Section 10.4)
Covenants Applicable to ACE Senior Debt Securities
Limitation on Liens on Stock of Designated Subsidiaries
Under the ACE senior indenture, ACE will covenant that, so long as any ACE
senior debt securities are outstanding, it will not, nor will it permit any
Subsidiary to, create, assume, incur, guarantee or otherwise permit to exist
any Indebtedness secured by any mortgage, pledge, lien, security interest or
other encumbrance upon any shares of capital stock of any Designated Subsidiary
(whether such shares of stock are now owned or hereafter acquired) without
effectively providing concurrently that the ACE senior debt securities (and, if
ACE so elects, any other Indebtedness of ACE that is not subordinate to the ACE
senior debt securities and with respect to which the governing instruments
require, or pursuant to which ACE is otherwise obligated, to provide such
security) will be secured equally and ratably with such Indebtedness for at
least the time period such other Indebtedness is so secured. (Section 10.5 of
the ACE senior indenture)
For purposes of the ACE senior indenture, "capital stock" of any Person means
any and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
equity of such Person, including preferred stock, but excluding any debt
securities convertible into such equity. (Section 1.1 of the ACE senior
indenture)
The term "Designated Subsidiary" means any present or future consolidated
Subsidiary of ACE, the Consolidated Net Worth of which constitutes at least 5%
of ACE's Consolidated Net Worth. (Section 1.1 of the ACE senior indenture) As
of July 31, 1999, ACE's Designated Subsidiaries were ACE Bermuda, Tempest, ACE
INA and ACE USA.
For purposes of the ACE indentures, the term "Indebtedness" means, with
respect to any Person, (1) the principal of and any premium and interest on (a)
indebtedness of such Person for money borrowed and (b) indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which such Person is responsible or liable; (2) all Capitalized Lease
Obligations of such Person; (3) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations and all obligations under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (1) through (3) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (5) all
obligations of the type referred to in clauses (1) through (4) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable as obligor, guarantor or otherwise; (6)
all obligations of the type referred to in clauses (1) through (5) of other
Persons secured by any mortgage, pledge, lien, security interest or other
encumbrance on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured; and (7) any amendments, modifications,
refundings, renewals or extensions of any indebtedness or obligation described
as Indebtedness in clauses (1) through (6) above. (Section 1.1)
Limitations on Disposition of Stock of Designated Subsidiaries
The ACE senior indenture also provides that, so long as any ACE senior debt
securities are outstanding and except in a transaction otherwise governed by
such ACE indenture, ACE will not issue, sell, assign, transfer or otherwise
dispose of any shares of, securities convertible into, or warrants, rights or
options to
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subscribe for or purchase shares of, capital stock (other than preferred stock
having no voting rights of any kind) of any Designated Subsidiary, and will not
permit any Designated Subsidiary to issue (other than to ACE) any shares (other
than director's qualifying shares) of, or securities convertible into, or
warrants, rights or options to subscribe for or purchase shares of, capital
stock (other than preferred stock having no voting rights of any kind) of any
Designated Subsidiary, if, after giving effect to any such transaction and the
issuance of the maximum number of shares issuable upon the conversion or
exercise of all such convertible securities, warrants, rights or options, ACE
would own, directly or indirectly, less than 80% of the shares of capital stock
of such Designated Subsidiary (other than preferred stock having no voting
rights of any kind); provided, however, that (1) any issuance, sale,
assignment, transfer or other disposition permitted by ACE may only be made for
at least a fair market value consideration as determined by ACE's board of
directors pursuant to a resolution adopted in good faith and (2) the foregoing
will not prohibit any such issuance or disposition of securities if required by
any law or any regulation or order of any governmental or insurance regulatory
authority. Notwithstanding the foregoing, (1) ACE may merge or consolidate any
Designated Subsidiary into or with another direct or indirect Subsidiary of
ACE, the shares of capital stock of which ACE owns at least 80%, and (2) ACE
may, subject to the provisions described under "--Consolidation, Amalgamation,
Merger and Sale of Assets" below, sell, assign, transfer or otherwise dispose
of the entire capital stock of any Designated Subsidiary at one time for at
least a fair market value consideration as determined by ACE's board of
directors pursuant to a resolution adopted in good faith. (Section 10.6 of the
ACE senior indenture)
Consolidation, Amalgamation, Merger and Sale of Assets
Each ACE indenture provides that ACE may not (1) consolidate or amalgamate
with or merge into any Person or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any Person, or (2)
permit any Person to consolidate or amalgamate with or merge into ACE, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to ACE, unless (a) in the case of (1) above, such
Person is a Corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia, Bermuda or
the Cayman Islands and will expressly assume, by supplemental indenture
satisfactory in form to the trustee, the due and punctual payment of the
principal of, any premium and interest on and any additional amounts with
respect to all of the ACE debt securities issued thereunder, and the
performance of ACE's obligations under such ACE indenture and the ACE debt
securities issued thereunder, and provides for conversion or exchange rights in
accordance with the provisions of the ACE debt securities of any series that
are convertible or exchangeable into ordinary shares or other securities; (b)
immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of ACE or a Subsidiary as a result of
such transaction as having been incurred by ACE or such Subsidiary at the time
of such transaction, no Event of Default, and no event which after notice or
lapse of time or both would become an Event of Default, will have happened and
be continuing; and (c) certain other conditions are met. (Section 8.1)
Events of Default
Each of the following events will constitute an Event of Default under the
applicable ACE indenture with respect to any series of ACE debt securities
issued thereunder (whatever the reason for such Event of Default and whether it
will 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):
(1) default in the payment of any interest on any ACE debt security of such
series, or any additional amounts payable with respect thereto, when
such interest becomes or such additional amounts become due and
payable, and continuance of such default for a period of 30 days;
(2) default in the payment of the principal of or any premium on any ACE
debt security of such series, or any additional amounts payable with
respect thereto, when such principal or premium becomes or such
additional amounts become due and payable either at maturity, upon any
redemption, by declaration of acceleration or otherwise;
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(3) default in the deposit of any sinking fund payment, when and as due by
the terms of any ACE debt security of such series;
(4) default in the performance, or breach, of any covenant or warranty of
ACE contained in the applicable ACE indenture for the benefit of such
series or in the ACE debt securities of such series, and the
continuance of such default or breach for a period of 60 days after
there has been given written notice as provided in such ACE indenture;
(5) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of ACE (including an Event of
Default under any other series of ACE debt securities), whether such
Indebtedness now exists or is hereafter created or incurred, happens
and consists of default in the payment of more than $50,000,000 in
principal amount of such Indebtedness at the maturity thereof (after
giving effect to any applicable grace period) or results in such
Indebtedness in principal amount in excess of $50,000,000 becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable, and such default is not cured or such
acceleration is not rescinded or annulled within a period of 30 days
after there has been given written notice as provided in the applicable
ACE indenture;
(6) ACE shall fail within 60 days to pay, bond or otherwise discharge any
uninsured judgment or court order for the payment of money in excess of
$50,000,000, which is not stayed on appeal or is not otherwise being
appropriately contested in good faith;
(7) certain events in bankruptcy, insolvency or reorganization of ACE; and
(8) any other Event of Default provided in or pursuant to the applicable
ACE indenture with respect to ACE debt securities of such series.
(Section 5.1)
If an Event of Default with respect to the ACE debt securities of any series
(other than an Event of Default described in (7) of the preceding paragraph)
occurs and is continuing, either the trustee or the holders of not less than
25% in principal amount of the outstanding ACE debt securities of such series
by written notice as provided in the applicable ACE indenture may declare the
principal amount (or such lesser amount as may be provided for in the ACE debt
securities of such series) of all outstanding ACE debt securities of such
series to be due and payable immediately. At any time after a declaration of
acceleration has been made, but before a judgment or decree for payment of
money has been obtained by the trustee, and subject to applicable law and
certain other provisions of the applicable ACE indenture, the holders of not
less than a majority in principal amount of the ACE debt securities of such
series may, under certain circumstances, rescind and annul such declaration of
acceleration. An Event of Default described in (7) of the preceding paragraph
will cause the principal amount and accrued interest (or such lesser amount as
provided for in the ACE debt securities of such series) to become immediately
due and payable without any declaration or other act by the trustee or any
holder. (Section 5.2)
Each ACE indenture provides that, within 90 days after the occurrence of any
event which is, or after notice or lapse of time or both would become, an Event
of Default with respect to the ACE debt securities of any series (a "default"),
the trustee will transmit, in the manner set forth in such ACE indenture,
notice of such default to the holders of the ACE debt securities of such series
unless such default has been cured or waived; provided, however, that except in
the case of a default in the payment of principal of, or premium, if any, or
interest, if any, on, or additional amounts or any sinking fund or purchase
fund installment with respect to, any ACE debt security of such series, the
trustee may withhold such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or responsible
officers of the trustee in good faith determine that the withholding of such
notice is in the best interest of the holders of ACE debt securities of such
series; and provided, further, that in the case of any default of the character
described in (5) of the second preceding paragraph, no such notice to holders
will be given until at least 30 days after the default occurs. (Section 6.2)
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If an Event of Default occurs and is continuing with respect to the ACE debt
securities of any series, the trustee may in its discretion proceed to protect
and enforce its rights and the rights of the holders of ACE debt securities of
such series by all appropriate judicial proceedings. (Section 5.3) Each ACE
indenture provides that, subject to the duty of the trustee during any default
to act with the required standard of care, the trustee will be under no
obligation to exercise any of its rights or powers under such ACE indenture at
the request or direction of any of the holders of ACE debt securities, unless
such holders shall have offered to the trustee reasonable indemnity. (Section
6.1) Subject to such provisions for the indemnification of the trustee, and
subject to applicable law and certain other provisions of the applicable ACE
indenture, the holders of a majority in principal amount of the outstanding ACE
debt securities of any series will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee,
or exercising any trust or power conferred on the trustee, with respect to the
ACE debt securities of such series. (Section 5.12)
Modification and Waiver
ACE and the trustee may modify or amend either ACE indenture with the consent
of the holders of not less than a majority in principal amount of the
outstanding ACE debt securities of each series affected thereby; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding ACE debt security affected thereby,
. change the stated maturity of the principal of, or any premium or
installment of interest on, or any additional amounts with respect to,
any ACE debt security,
. reduce the principal amount of, or the rate (or modify the calculation
of such rate) of interest on, or any additional amounts with respect to,
or any premium payable upon the redemption of, any ACE debt security,
. change the obligation of ACE to pay additional amounts with respect to
any ACE debt security,
. reduce the amount of the principal of an original issue discount
security that would be due and payable upon a declaration of
acceleration of the maturity thereof or the amount thereof provable in
bankruptcy,
. change the redemption provisions of any ACE debt security or adversely
affect the right of repayment at the option of any holder of any ACE
debt security,
. change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional amounts with
respect to any ACE debt security is payable,
. impair the right to institute suit for the enforcement of any payment on
or after the stated maturity of any ACE debt security (or, in the case
of redemption, on or after the redemption date or, in the case of
repayment at the option of any holder, on or after the repayment date),
. reduce the percentage in principal amount of the outstanding ACE debt
securities, the consent of whose holders is required in order to take
specific actions,
. reduce the requirements for quorum or voting by holders of ACE debt
securities in Section 15.4 of each ACE indenture,
. modify any of the provisions in the applicable ACE indenture regarding
the waiver of past defaults and the waiver of certain covenants by the
holders of ACE debt securities except to increase any percentage vote
required or to provide that other provisions of such ACE indenture
cannot be modified or waived without the consent of the holder of each
ACE debt security affected thereby,
. make any change that adversely affects the right to convert or exchange
any ACE debt security into or for ordinary shares of ACE or other
securities (whether or not issued by ACE), cash or property in
accordance with its terms,
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. modify any of the provisions of the ACE subordinated indenture relating
to the subordination of the ACE subordinated debt securities in a manner
adverse to holders of ACE subordinated debt securities, or
. modify any of the above provisions. (Section 9.2)
In addition, no supplemental indenture may directly or indirectly modify or
eliminate the subordination provisions of the ACE subordinated indenture in any
manner which might terminate or impair the subordination of the ACE
subordinated debt securities of any series to Senior Indebtedness with respect
to such series without the prior written consent of the holders of such Senior
Indebtedness. (Section 9.7 of the ACE subordinated indenture)
ACE and the trustee may modify or amend either ACE indenture and the ACE debt
securities of any series without the consent of any holder in order to, among
other things;
. provide for a successor to ACE pursuant to a consolidation,
amalgamation, merger or sale of assets;
. add to the covenants of ACE for the benefit of the holders of all or any
series of ACE debt securities or to surrender any right or power
conferred upon ACE by the applicable ACE indenture;
. provide for a successor trustee with respect to the ACE debt securities
of all or any series;
. cure any ambiguity or correct or supplement any provision in either ACE
indenture which may be defective or inconsistent with any other
provision, or to make any other provisions with respect to matters or
questions arising under either ACE indenture which will not adversely
affect the interests of the holders of ACE debt securities of any
series;
. change the conditions, limitations and restrictions on the authorized
amount, terms or purposes of issue, authentication and delivery of ACE
debt securities under either ACE indenture;
. add any additional Events of Default with respect to all or any series
of ACE debt securities;
. secure the ACE debt securities;
. provide for conversion or exchange rights of the holders of any series
of ACE debt securities; or
. make any other change that does not materially adversely affect the
interests of the holders of any ACE debt securities then outstanding
under the applicable ACE indenture. (Section 9.1)
The holders of at least a majority in principal amount of the outstanding ACE
debt securities of any series may, on behalf of the holders of all ACE debt
securities of that series, waive compliance by ACE with certain covenants of
the applicable ACE indenture. (Section 10.8 of the ACE senior indenture;
Section 10.6 of the ACE subordinated indenture) The holders of not less than a
majority in principal amount of the outstanding ACE debt securities of any
series may, on behalf of the holders of all ACE debt securities that series,
waive any past default and its consequences under the applicable ACE indenture
with respect to the ACE debt securities of that series, except a default (1) in
the payment of principal of, any premium or interest on or any additional
amounts with respect to ACE debt securities of that series or (2) in respect of
a covenant or provision of the applicable ACE indenture that cannot be modified
or amended without the consent of the holder of each outstanding ACE debt
security of any series affected. (Section 5.13)
Under each ACE indenture, ACE is required to furnish the trustee annually a
statement as to performance by ACE of certain of its obligations under that ACE
indenture and as to any default in such performance. ACE is also required to
deliver to the trustee, within five days after occurrence thereof, written
notice of any Event of Default, or any event which after notice or lapse of
time or both would constitute an Event of Default, resulting from the failure
to perform or breach of any covenant or warranty contained in the applicable
ACE indenture or the ACE debt securities of any series. (Section 10.9 of the
ACE senior indenture; Section 10.7 of the ACE subordinated indenture)
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Discharge, Defeasance and Covenant Defeasance
ACE may discharge certain obligations to holders of any series of ACE debt
securities that have not already been delivered to the trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by depositing
with the trustee, in trust, funds in U.S. dollars or in the Foreign Currency in
which such ACE debt securities are payable in an amount sufficient to pay the
entire indebtedness on such ACE debt securities with respect to principal and
any premium, interest and additional amounts to the date of such deposit (if
such ACE debt securities have become due and payable) or to the maturity
thereof, as the case may be. (Section 4.1)
Each ACE indenture provides that, unless the provisions of Section 4.2
thereof are made inapplicable to the ACE debt securities of or within any
series pursuant to Section 3.1 thereof, ACE may elect either (1) to defease and
be discharged from any and all obligations with respect to such ACE debt
securities (except for, among other things, the obligation to pay additional
amounts, if any, upon the occurrence of certain events of taxation, assessment
or governmental charge with respect to payments on such ACE debt securities and
other obligations to register the transfer or exchange of such ACE debt
securities, to replace temporary or mutilated, destroyed, lost or stolen ACE
debt securities, to maintain an office or agency with respect to such ACE debt
securities and to hold moneys for payment in trust) ("defeasance") or (2) to be
released from its obligations with respect to such ACE debt securities under
certain covenants as described in the related prospectus supplement, and any
omission to comply with such obligations will not constitute a default or an
Event of Default with respect to such ACE debt securities ("covenant
defeasance"). Defeasance or covenant defeasance, as the case may be, will be
conditioned upon the irrevocable deposit by ACE with the Trustee, in trust, of
an amount in U.S. dollars or in the Foreign Currency in which such ACE debt
securities are payable at stated maturity, or Government Obligations (as
defined below), or both, applicable to such ACE debt securities which through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of, any premium
and interest on, and any additional amounts with respect to, such ACE debt
securities on the scheduled due dates. (Section 4.2)
Such a trust may only be established if, among other things, (1) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the applicable ACE indenture or
any other material agreement or instrument to which ACE is a party or by which
it is bound, (2) no Event of Default or event which with notice or lapse of
time or both would become an Event of Default with respect to the ACE debt
securities to be defeased will have occurred and be continuing on the date of
establishment of such a trust and, with respect to defeasance only, at any time
during the period ending on the 123rd day after such date and (3) ACE has
delivered to the trustee an opinion of counsel (as specified in the ACE
indenture) to the effect that the holders of such ACE debt securities will not
recognize income, gain or loss for United States Federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to
United States Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, must refer to and be based upon a letter ruling of the Internal
Revenue Service received by ACE, a Revenue Ruling published by the Internal
Revenue Service or a change in applicable United States Federal income tax law
occurring after the date of the applicable ACE indenture. (Section 4.2)
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the euro, issued by the government of one or
more countries other than the United States of America or by any recognized
confederation or association of such governments. (Section 1.1)
"Government Obligations" means debt securities which are (1) direct
obligations of the United States of America or the government or the
governments which issued the Foreign Currency in which the ACE debt securities
of a particular series are payable, for the payment of which its full faith and
credit is pledged or (2) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government or governments which issued the Foreign Currency in which the
ACE debt securities of such series are payable, the timely payment of which is
unconditionally guaranteed as a full
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faith and credit obligation by the United States of America or such other
government or governments, and which, in the case of clauses (1) and (2), are
not callable or redeemable at the option of the issuer or issuers thereof, and
will also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of or any other amount with respect to any such
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
with respect to the Government Obligation or the specific payment of interest
on or principal of or any other amount with respect to the Government
Obligation evidenced by such depository receipt. (Section 1.1)
If after ACE has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to ACE debt securities of any
series, (1) the holder of an ACE debt security of that series is entitled to,
and does, elect pursuant to Section 3.1 of the applicable ACE indenture or the
terms of such ACE debt security to receive payment in a currency other than
that in which such deposit has been made in respect of such ACE debt security,
or (2) a Conversion Event (as defined below) occurs in respect of the Foreign
Currency in which such deposit has been made, the indebtedness represented by
such ACE debt security will be deemed to have been, and will be, fully
discharged and satisfied through the payment of the principal of, any premium
and interest on, and any additional amounts with respect to, such ACE debt
security as such ACE debt security becomes due out of the proceeds yielded by
converting the amount or other properties so deposited in respect of such ACE
debt security into the currency in which such ACE debt security becomes payable
as a result of such election or such Conversion Event based on (a) in the case
of payments made pursuant to clause (1) above, the applicable market exchange
rate for such currency in effect on the second business day prior to such
payment date, or (b) with respect to a Conversion Event, the applicable market
exchange rate for such Foreign Currency in effect (as nearly as feasible) at
the time of the Conversion Event. (Section 4.2)
"Conversion Event" means the cessation of use of (1) a Foreign Currency both
by the government of the country or countries which issued such Foreign
Currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community or (2) any
currency unit or composite currency for the purposes for which it was
established. All payments of principal of, any premium and interest on, and any
additional amounts with respect to, any ACE debt security that are payable in a
Foreign Currency that ceases to be used by the government or governments of
issuance will be made in U.S. dollars. (Section 1.1)
In the event ACE effects covenant defeasance with respect to any ACE debt
securities and such ACE debt securities are declared due and payable because of
the occurrence of any Event of Default other than an Event of Default with
respect to any covenant as to which there has been covenant defeasance, the
amount in such Foreign Currency in which such ACE debt securities are payable,
and Government Obligations on deposit with the trustee, will be sufficient to
pay amounts due on such ACE debt securities at the time of the stated maturity
but may not be sufficient to pay amounts due on such ACE debt securities at the
time of the acceleration resulting from such Event of Default. However, ACE
would remain liable to make payment of such amounts due at the time of
acceleration.
Subordination of ACE Subordinated Debt Securities
The ACE subordinated debt securities of each series will, to the extent set
forth in the ACE subordinated indenture, be subordinate in right of payment to
the prior payment in full of all Senior Indebtedness with respect to such
series. (Section 16.1 of the ACE subordinated indenture). Upon any payment or
distribution of assets of ACE of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution, winding-up,
liquidation or reorganization of ACE, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due upon
all Senior Indebtedness with respect to the ACE subordinated debt securities of
any series will first be paid in full, or payment thereof
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provided for in money in accordance with its terms, before the holders of ACE
subordinated debt securities of such series are entitled to receive or retain
any payment on account of principal of, or any premium or interest on, or any
additional amounts with respect to, the ACE subordinated debt securities of
such series, and to that end the holders of such Senior Indebtedness will be
entitled to receive, for application to the payment thereof, any payment or
distribution of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of ACE being subordinated to
the payment of ACE subordinated debt securities of such series, which may be
payable or deliverable in respect of the ACE subordinated debt securities of
such series upon any such dissolution, winding-up, liquidation or
reorganization or in any such bankruptcy, insolvency, receivership or other
proceeding. (Section 16.3 of the ACE subordinated indenture)
By reason of such subordination, in the event of liquidation or insolvency of
ACE, holders of Senior Indebtedness with respect to the ACE subordinated debt
securities of any series and holders of other obligations of ACE that are not
subordinated to such Senior Indebtedness may recover more, ratably, than the
holders of the ACE subordinated debt securities of such series.
Subject to the payment in full of all Senior Indebtedness with respect to the
ACE subordinated debt securities of any series, the rights of the holders of
the ACE subordinated debt securities of such series will be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of ACE applicable to such Senior
Indebtedness until the principal of, any premium and interest on, and any
additional amounts with respect to, the ACE subordinated debt securities of
such series have been paid in full. (Section 16.4 of the ACE subordinated
indenture)
No payment of principal (including redemption and sinking fund payments) of
or any premium or interest on or any additional amounts with respect to the ACE
subordinated debt securities of any series may be made (1) if any Senior
Indebtedness with respect to such series is not paid when due and any
applicable grace period with respect to such default has ended and such default
has not been cured or waived or ceased to exist, or (2) if the maturity of any
Senior Indebtedness with respect to such series has been accelerated because of
a default. (Section 16.2 of the ACE subordinated indenture)
The ACE subordinated indenture does not limit or prohibit ACE from incurring
additional Senior Indebtedness, which may include Indebtedness that is senior
to the ACE subordinated debt securities of any series, but subordinate to other
obligations of ACE. The ACE senior debt securities will constitute Senior
Indebtedness with respect to the ACE subordinatd debt securities of each series
under the ACE subordinated indenture.
The term "Senior Indebtedness" means, with respect to the ACE subordinated
debt securities of any particular series, all Indebtedness of ACE outstanding
at any time, except (1) the ACE subordinated debt securities of such series,
(2) Indebtedness as to which, by the terms of the instrument creating or
evidencing the same, it is provided that such Indebtedness is subordinated to
or ranks equally with the ACE subordinated debt securities of such series, (3)
Indebtedness of ACE to an Affiliate of ACE, (4) interest accruing after the
filing of a petition initiating any bankruptcy, insolvency or other similar
proceeding unless such interest is an allowed claim enforceable against ACE in
a proceeding under federal or state bankruptcy laws and (5) trade accounts
payable. Senior Indebtedness with respect to the ACE subordinated debt
securities of any particular series will continue to be Senior Indebtedness
with respect to the ACE subordinated debt securities of such series and be
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
(Sections 1.1 and 16.8 of the ACE subordinated indenture)
The ACE subordinated indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular series of ACE subordinated
debt securities, may be changed prior to such issuance. Any such change would
be described in the related prospectus supplement.
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New York Law to Govern
The ACE indentures and the ACE debt securities will be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made or instruments entered into and, in each case, performed in
that state. (Section 1.13)
Information Concerning the Trustee
ACE may from time to time borrow from, maintain deposit accounts with and
conduct other banking transactions with The First National Bank of Chicago and
its affiliates in the ordinary course of business.
Under each ACE indenture, The First National Bank of Chicago is required to
transmit annual reports to all holders regarding its eligibility and
qualifications as trustee under the applicable ACE indenture and related
matters. (Section 7.3)
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DESCRIPTION OF ACE INA DEBT SECURITIES AND ACE GUARANTEE
The following description of the ACE INA debt securities and the ACE
guarantee sets forth the material terms and provisions of the ACE INA debt
securities and the ACE guarantee to which any prospectus supplement may relate.
The ACE INA senior debt securities are to be issued under an indenture (the
"ACE INA senior indenture") among ACE INA, ACE and The First National Bank of
Chicago, as trustee, the form of which is filed as an exhibit to the
registration statement of which this prospectus forms a part. The ACE INA
subordinated debt securities are to be issued under an indenture (the "ACE INA
subordinated indenture") among ACE INA, ACE and The First National Bank of
Chicago, as trustee, the form of which is filed as an exhibit to the
registration statement of which this prospectus forms a part. The ACE INA
senior indenture and the ACE INA subordinated indenture are sometimes referred
to herein collectively as the "ACE INA indentures" and each individually as an
"ACE INA indenture". The particular terms of the ACE INA debt securities
offered by any prospectus supplement, and the extent to which the general
provisions described below may apply to the offered ACE INA debt securities,
will be described in the prospectus supplement.
Because the following summaries of the material terms and provisions of the
ACE INA indentures, the ACE INA debt securities and the ACE guarantee are not
complete, you should refer to the forms of the ACE INA indentures and the ACE
INA debt securities for complete information regarding the terms and provisions
of the ACE INA indentures, including the definitions of some of the terms used
below, the ACE INA debt securities and the ACE guarantee. Wherever particular
articles, sections or defined terms of an ACE INA indenture are referred to,
such articles, sections or defined terms are incorporated herein by reference,
and the statement in connection with which such reference is made is qualified
in its entirety by such reference. The ACE INA indentures are substantially
identical, except for certain covenants of ACE INA and ACE and provisions
relating to subordination.
General
The ACE INA indentures do not limit the aggregate principal amount of ACE INA
debt securities which ACE INA may issue thereunder and provide that ACE INA may
issue ACE INA debt securities thereunder from time to time in one or more
series. (Section 3.1) The ACE INA indentures do not limit the amount of other
Indebtedness (as defined below) or ACE INA debt securities, other than certain
secured Indebtedness as described below, which ACE, ACE INA or their respective
subsidiaries may issue.
Unless otherwise provided in a prospectus supplement, the ACE INA senior debt
securities will be unsecured obligations of ACE INA and will rank equally with
all of its other unsecured and unsubordinated indebtedness. The ACE INA
subordinated debt securities of each series will be unsecured obligations of
ACE INA, subordinated in right of payment to the prior payment in full of all
Senior Indebtedness (which term includes ACE INA senior debt securities) of ACE
INA with respect to such series, as described below under "Subordination of ACE
INA Subordinated Debt Securities" and in the related prospectus supplement. The
ACE INA subordinated debt securities of any series issued to an ACE Trust will
rank equally with each other series of ACE INA subordinated debt securities
issued to other ACE Trusts.
Because ACE INA is a holding company, its rights and the rights of its
creditors (including the holders of ACE INA debt securities) and shareholders
to participate in any distribution of assets of any subsidiary upon that
subsidiary's liquidation or reorganization or otherwise would be subject to the
prior claims of the subsidiary's creditors, except to the extent that ACE INA
may itself be a creditor with recognized claims against the subsidiary. The
rights of creditors of ACE INA (including the holders of ACE INA debt
securities) to participate in the distribution of stock owned by ACE INA in
certain of its subsidiaries, including ACE INA's insurance subsidiaries, may
also be subject to the approval of certain insurance regulatory authorities
having jurisdiction over such subsidiaries.
In the event ACE INA subordinated debt securities are issued to an ACE Trust
in connection with the issuance of preferred securities and common securities
by that ACE Trust, such ACE INA subordinated debt
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securities subsequently may be distributed pro rata to the holders of such
preferred securities and common securities in connection with the dissolution
of that ACE Trust upon the occurrence of certain events described in the
prospectus supplement relating to such preferred securities and common
securities. Only one series of ACE INA subordinated debt securities will be
issued to an ACE Trust in connection with the issuance of preferred securities
and common securities by that ACE Trust.
The prospectus supplement relating to the particular ACE INA debt securities
offered thereby will describe the following terms of the offered ACE INA debt
securities:
. the title of such ACE INA debt securities and the series in which such
ACE INA debt securities will be included, which may include medium-term
notes;
. any limit upon the aggregate principal amount of such ACE INA debt
securities;
. the date or dates, or the method or methods, if any, by which such date
or dates will be determined, on which the principal of such ACE INA debt
securities will be payable;
. the rate or rates at which such ACE INA debt securities will bear
interest, if any, which rate may be zero in the case of certain ACE INA
debt securities issued at an issue price representing a discount from
the principal amount payable at maturity, or the method by which such
rate or rates will be determined (including, if applicable, any
remarketing option or similar method), and the date or dates from which
such interest, if any, will accrue or the method by which such date or
dates will be determined;
. the date or dates on which interest, if any, on such ACE INA debt
securities will be payable and any regular record dates applicable to
the date or dates on which interest will be so payable;
. whether and under what circumstances additional amounts in respect of
certain taxes, fees, duties, assessments or governmental charges that
might be imposed on holders of such ACE INA debt securities will be
payable and, if so, whether and on what terms ACE INA will have the
option to redeem such ACE INA debt securities in lieu of paying such
additional amounts (and the terms of such option);
. the place or places where the principal of, any premium or interest on
or any additional amounts with respect to such ACE INA debt securities
will be payable, any of such ACE INA debt securities that are issued in
registered form may be surrendered for registration of transfer or
exchange, and any such ACE INA debt securities may be surrendered for
conversion or exchange;
. whether any of such ACE INA debt securities are to be redeemable at the
option of ACE INA and, if so, the date or dates on which, the period or
periods within which, the price or prices at which and the other terms
and conditions upon which such ACE INA debt securities may be redeemed,
in whole or in part, at the option of ACE INA;
. whether ACE INA will be obligated to redeem or purchase any of such ACE
INA debt securities pursuant to any sinking fund or analogous provision
or at the option of any holder thereof and, if so, the date or dates on
which, the period or periods within which, the price or prices at which
and the other terms and conditions upon which such ACE INA debt
securities will be redeemed or purchased, in whole or in part, pursuant
to such obligation, and any provisions for the remarketing of such ACE
INA debt securities so redeemed or purchased;
. if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which any ACE INA debt securities to be issued in
registered form will be issuable and, if other than a denomination of
$5,000, the denominations in which any ACE INA debt securities to be
issued in bearer form will be issuable;
. whether the ACE INA debt securities will be convertible into other
securities of ACE INA and/or exchangeable for securities of ACE or other
issuers and, if so, the terms and conditions upon which such ACE INA
debt securities will be so convertible or exchangeable;
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. if other than the principal amount, the portion of the principal amount
(or the method by which such portion will be determined) of such ACE INA
debt securities that will be payable upon declaration of acceleration of
the maturity thereof;
. if other than United States dollars, the currency of payment, including
composite currencies, of the principal of, any premium or interest on or
any additional amounts with respect to any of such ACE INA debt
securities;
. whether the principal of, any premium or interest on or any additional
amounts with respect to such ACE INA debt securities will be payable, at
the election of ACE INA or a holder, in a currency other than that in
which such ACE INA debt securities are stated to be payable and the date
or dates on which, the period or periods within which, and the other
terms and conditions upon which, such election may be made;
. any index, formula or other method used to determine the amount of
payments of principal of, any premium or interest on or any additional
amounts with respect to such ACE INA debt securities;
. whether such ACE INA debt securities are to be issued in the form of one
or more global securities and, if so, the identity of the depositary for
such global security or securities;
. whether such ACE INA debt securities are ACE INA senior debt securities
or ACE INA subordinated debt securities and, if ACE INA subordinated
debt securities, the specific subordination provisions applicable
thereto;
. in the case of ACE INA subordinated debt securities issued to an ACE
Trust, the terms and conditions of any obligation or right of ACE INA or
a holder to convert or exchange such ACE INA subordinated debt
securities into preferred securities of that ACE Trust;
. in the case of ACE INA subordinated debt securities issued to an ACE
Trust, the form of restated trust agreement and, if applicable, the
agreement relating to ACE's guarantee of the preferred securities of
that ACE Trust;
. in the case of ACE INA subordinated debt securities, the relative
degree, if any, to which such ACE INA subordinated debt securities of
the series and the ACE guarantee in respect thereof will be senior to or
be subordinated to other series of ACE INA subordinated debt securities
and the ACE guarantee in respect thereof or other indebtedness of ACE
INA or ACE, as the case may be, in right of payment, whether such other
series of ACE INA subordinated debt securities or other indebtedness is
outstanding or not;
. any deletions from, modifications of or additions to the Events of
Default or covenants of ACE INA or ACE with respect to such ACE INA debt
securities;
. whether the provisions described below under "Discharge, Defeasance and
Covenant Defeasance" will be applicable to such ACE INA debt securities;
. whether any of such ACE INA debt securities are to be issued upon the
exercise of warrants, and the time, manner and place for such ACE INA
debt securities to be authenticated and delivered; and
. any other terms of such ACE INA debt securities and any other deletions
from or modifications or additions to the applicable ACE INA indenture
in respect of such ACE INA debt securities. (Section 3.1)
ACE INA will have the ability under the ACE INA indentures to "reopen" a
previously issued series of ACE INA debt securities and issue additional ACE
INA debt securities of that series or establish additional terms of that
series. ACE INA is also permitted to issue ACE INA debt securities with the
same terms as previously issued ACE INA debt securities. (Section 3.1)
Unless otherwise provided in the related prospectus supplement, principal,
premium, interest and additional amounts, if any, with respect to any ACE INA
debt securities will be payable at the office or agency maintained by ACE INA
and ACE for such purposes (initially the corporate trust office of the
trustee). In the
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case of ACE INA debt securities issued in registered form, interest may be paid
by check mailed to the persons entitled thereto at their addresses appearing on
the security register or by transfer to an account maintained by the payee with
a bank located in the United States. Interest on ACE INA debt securities issued
in registered form will be payable on any interest payment date to the persons
in whose names the ACE INA debt securities are registered at the close of
business on the regular record date with respect to such interest payment date.
All paying agents initially designated by ACE INA for the ACE INA debt
securities will be named in the related prospectus supplement. ACE INA may at
any time designate additional paying agents or rescind the designation of any
paying agent or approve a change in the office through which any paying agent
acts, except that ACE INA and ACE will be required to maintain a paying agent
in each place where the principal of, any premium or interest on or any
additional amounts with respect to the ACE INA debt securities are payable.
(Sections 3.7 and 10.2)
Unless otherwise provided in the related prospectus supplement, the ACE INA
debt securities may be presented for transfer (duly endorsed or accompanied by
a written instrument of transfer, if so required by ACE INA or the security
registrar) or exchanged for other ACE INA debt securities of the same series
(containing identical terms and provisions, in any authorized denominations,
and of a like aggregate principal amount) at the office or agency maintained by
ACE INA for such purposes (initially the corporate trust office of the
trustee). Such transfer or exchange will be made without service charge, but
ACE INA may require payment of a sum sufficient to cover any tax or other
governmental charge and any other expenses then payable. ACE INA will not be
required to (1) issue, register the transfer of, or exchange, ACE INA debt
securities during a period beginning at the opening of business 15 days before
the day of mailing of a notice of redemption of any such ACE INA debt
securities and ending at the close of business on the day of such mailing or
(2) register the transfer of or exchange any ACE INA debt security so selected
for redemption in whole or in part, except the unredeemed portion of any ACE
INA debt security being redeemed in part. (Section 3.5) ACE INA has appointed
the trustee as security registrar. Any transfer agent (in addition to the
security registrar) initially designated by ACE INA for any ACE INA debt
securities will be named in the related prospectus supplement. ACE INA may at
any time designate additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which any transfer
agent acts, except that ACE INA and ACE will be required to maintain a transfer
agent in each place where the principal of, any premium or interest on or any
additional amounts with respect to the ACE INA debt securities are payable.
(Section 10.2)
Unless otherwise provided in the related prospectus supplement, the ACE INA
debt securities will be issued only in fully registered form without coupons in
minimum denominations of $1,000 and any integral multiple thereof. (Section
3.2) The ACE INA debt securities may be represented in whole or in part by one
or more global ACE INA debt securities registered in the name of a depositary
or its nominee and, if so represented, interests in such global ACE INA debt
security will be shown on, and transfers thereof will be effected only through,
records maintained by the designated depositary and its participants as
described below. Where ACE INA debt securities of any series are issued in
bearer form, the special restrictions and considerations, including special
offering restrictions and special United States Federal income tax
considerations, applicable to such ACE INA debt securities and to payment on
and transfer and exchange of such ACE INA debt securities will be described in
the related prospectus supplement.
The ACE INA debt securities may be issued as original issue discount
securities (bearing no interest or bearing interest at a rate which at the time
of issuance is below market rates) to be sold at a substantial discount below
their principal amount. Special United States Federal income tax and other
considerations applicable to original issue discount securities will be
described in the related prospectus supplement.
If the purchase price of any ACE INA debt securities is payable in one or
more foreign currencies or currency units or if any ACE INA debt securities are
denominated in one or more foreign currencies or currency units or if the
principal of, or any premium or interest on, or any additional amounts with
respect to, any ACE INA debt securities is payable in one or more foreign
currencies or currency units, the restrictions, elections, certain United
States Federal income tax considerations, specific terms and other information
with respect to such ACE INA debt securities and such foreign currency or
currency units will be set forth in the related prospectus supplement.
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ACE INA will comply with Section 14(e) under the Exchange Act, and any other
tender offer rules under the Exchange Act which may then be applicable, in
connection with any obligation of ACE INA to purchase ACE INA debt securities
at the option of the holders. Any such obligation applicable to a series of ACE
INA debt securities will be described in the related prospectus supplement.
Unless otherwise described in a prospectus supplement relating to any ACE INA
debt securities, other than as described below under "--Covenants Applicable to
ACE INA Senior Debt Securities--Limitation on Liens on Stock of Designated
Subsidiaries," the ACE INA indentures do not contain any provisions that would
limit the ability of ACE INA or ACE to incur indebtedness or that would afford
holders of ACE INA debt securities protection in the event of a sudden and
significant decline in the credit quality of ACE INA or ACE or a takeover,
recapitalization or highly leveraged or similar transaction involving ACE INA
or ACE. Accordingly, ACE INA or ACE could in the future enter into transactions
that could increase the amount of indebtedness outstanding at that time or
otherwise affect ACE INA's or ACE's capital structure or credit rating. You
should refer to the prospectus supplement relating to a particular series of
ACE INA debt securities for information regarding any deletions from,
modifications of or additions to the Events of Defaults described below or
covenants of ACE INA or ACE contained in the ACE INA indentures, including any
addition of a covenant or other provisions providing event risk or similar
protection.
ACE Guarantee
ACE will fully and unconditionally guarantee all payments with respect to the
ACE INA debt securities. Unless otherwise provided in a prospectus supplement,
the ACE guarantee of the ACE INA senior debt securities will be an unsecured
obligation of ACE and will rank equally with all of its other unsecured and
unsubordinated indebtedness (including the ACE senior debt securities). The ACE
guarantee of the ACE INA subordinated debt securities of any particular series
will be an unsecured obligation of ACE, subordinated in right of payment to the
prior payment in full of all ACE Senior Indebtedness (which term includes ACE
senior debt securities and the ACE guarantee of the ACE INA senior debt
securities) with respect to such series as described below under "Subordination
of ACE Guarantee" and in the related prospectus supplement. The ACE guarantee
of the ACE INA subordinated debt securities of any series issued to an ACE
Trust will rank equally with the ACE guarantee of each other series of ACE
subordinated debt securities issued to other ACE Trusts.
Since ACE is a holding company, its rights and the rights of its creditors
(including the holders of the ACE INA debt securities who are creditors of ACE
by virtue of the ACE guarantee) and shareholders to participate in any
distribution of the assets of any subsidiary upon such subsidiary's liquidation
or reorganization or otherwise would be subject to prior claims of the
subsidiary's creditors, except to the extent that ACE may itself be a creditor
with recognized claims against the subsidiary. The right of creditors of ACE
(including the holders of the ACE INA debt securities who are creditors of ACE
by virtue of the ACE guarantee) to participate in the distribution of the stock
owned by ACE in certain of its subsidiaries, including ACE's insurance
subsidiaries, may also be subject to approval by certain insurance regulatory
authorities having jurisdiction over such subsidiaries.
ACE will make all payments of principal of and premium, if any, interest and
any other amounts on, or in respect of, the ACE INA debt securities of any
series without withholding or deduction at source for, or on account of, any
present or future taxes, fees, duties, assessments or governmental charges of
whatever nature imposed or levied by or on behalf of the Cayman Islands or
Bermuda (each, a "taxing jurisdiction") or any political subdivision or taxing
authority thereof or therein, unless such taxes, fees, duties, assessments or
governmental charges are required to be withheld or deducted by (x) the laws
(or any regulations or rulings promulgated thereunder) of a taxing jurisdiction
or any political subdivision or taxing authority thereof or therein or (y) an
official position regarding the application, administration, interpretation or
enforcement of any such laws, regulations or rulings (including, without
limitation, a holding by a court of competent jurisdiction or by a taxing
authority in a taxing jurisdiction or any political subdivision thereof). If a
withholding or deduction at source is required, ACE will, subject to certain
limitations and exceptions described below, pay to the holder of any such ACE
INA debt security such additional amounts as may be necessary so that every net
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payment of principal, premium, if any, interest or any other amount made to
such holder, after the withholding or deduction, will not be less than the
amount provided for in such ACE INA debt security and the applicable ACE INA
indenture to be then due and payable.
ACE will not be required to pay any additional amounts for or on account of:
1. any tax, fee, duty, assessment or governmental charge of whatever
nature which would not have been imposed but for the fact that such holder
(a) was a resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or was physically present in, the
relevant taxing jurisdiction or any political subdivision thereof or
otherwise had some connection with the relevant taxing jurisdiction other
than by reason of the mere ownership of, or receipt of payment under, such
ACE INA debt security, (b) presented such ACE INA debt security for payment
in the relevant taxing jurisdiction or any political subdivision thereof,
unless such ACE INA debt security could not have been presented for payment
elsewhere, or (c) presented such ACE INA debt security for payment more
than 30 days after the date on which the payment in respect of such ACE INA
debt security became due and payable or provided for, whichever is later,
except to the extent that the holder would have been entitled to such
additional amounts if it had presented such ACE INA debt security for
payment on any day within that 30-day period;
2. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
3. any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the holder or the beneficial owner of
such ACE INA debt security to comply with any reasonable request by ACE
addressed to the holder within 90 days of such request (a) to provide
information concerning the nationality, residence or identity of the holder
or such beneficial owner or (b) to make any declaration or other similar
claim or satisfy any information or reporting requirement, which in either
case is required or imposed by statute, treaty, regulation or
administrative practice of the relevant taxing jurisdiction or any
political subdivision thereof as a precondition to exemption from all or
part of such tax, assessment or other governmental charge; or
4. any combination of items (1), (2) and (3).
In addition, ACE will not pay additional amounts with respect to any payment
of principal of, or premium, if any, interest or any other amounts on, any such
ACE INA debt security to any holder who is a fiduciary or partnership or other
than the sole beneficial owner of such ACE INA debt security to the extent such
payment would be required by the laws of the relevant taxing jurisdiction (or
any political subdivision or relevant taxing authority thereof or therein) to
be included in the income for tax purposes of a beneficiary or partner or
settlor with respect to such fiduciary or a member of such partnership or a
beneficial owner who would not have been entitled to such additional amounts
had it been the holder of the ACE INA debt security. (Section 10.4)
Conversion and Exchange
The terms, if any, on which ACE INA debt securities of any series are
convertible into or exchangeable for other securities, whether or not issued by
ACE INA, property or cash, or a combination of any of the foregoing, will be
set forth in the related prospectus supplement. Such terms may include
provisions for conversion or exchange, either mandatory, at the option of the
holder, or at the option of ACE INA, in which the securities, property or cash
to be received by the holders of the ACE INA debt securities would be
calculated according to the factors and at such time as described in the
related prospectus supplement.
Global Securities
The ACE INA debt securities of a series may be issued in whole or in part in
the form of one or more global ACE INA debt securities that will be deposited
with, or on behalf of, a depositary identified in the prospectus supplement
relating to such series.
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The specific terms of the depositary arrangement with respect to a series of
ACE INA debt securities will be described in the prospectus supplement relating
to such series. ACE INA anticipates that the following provisions will apply to
all depositary arrangements.
Upon the issuance of a global security, the depositary for such global
security or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the ACE INA debt
securities represented by such global security. Such accounts will be
designated by the underwriters or agents with respect to such ACE INA debt
securities or by ACE INA if such ACE INA debt securities are offered and sold
directly by ACE INA. Ownership of beneficial interests in a global security
will be limited to persons that may hold interests through participants.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of that ownership will be effected only through, records
maintained by the depositary or its nominee (with respect to interests of
participants) and on the records of participants (with respect to interests of
persons other than participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of such global security, such depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the ACE INA
debt securities represented by such global security for all purposes under the
applicable ACE INA indenture. Except as described below, owners of beneficial
interests in a global security will not be entitled to have ACE INA debt
securities of the series represented by such global security registered in
their names and will not receive or be entitled to receive physical delivery of
ACE INA debt securities of that series in definitive form.
Principal of, any premium and interest on, and any additional amounts with
respect to, ACE INA debt securities registered in the name of a depositary or
its nominee will be made to the depositary or its nominee, as the case may be,
as the registered owner of the global security representing such ACE INA debt
securities. None of ACE INA, ACE, the trustee, any paying agent or the security
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the global security for such ACE INA debt securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
ACE INA expects that the depositary for a series of ACE INA debt securities
or its nominee, upon receipt of any payment with respect to such ACE INA debt
securities, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the principal
amount of the global security for such ACE INA debt securities as shown on the
records of such depositary or its nominee. ACE INA also expects that payments
by participants to owners of beneficial interests in such global security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in "street name," and will be the responsibility of
such participants.
The ACE INA indentures provide that if (1) the depositary for a series of ACE
INA debt securities notifies ACE INA that it is unwilling or unable to continue
as depositary or if such depositary ceases to be eligible under the applicable
ACE INA Indenture and a successor depositary is not appointed by ACE INA within
90 days of written notice, (2) ACE INA determines that ACE INA debt securities
of a particular series will no longer be represented by global securities and
executes and delivers to the trustee a company order to such effect or (3) an
Event of Default with respect to a series of ACE INA debt securities will have
occurred and be continuing, the global securities will be exchanged for ACE INA
debt securities of such series in definitive form of like tenor and of an equal
aggregate principal amount, in authorized denominations. Such definitive ACE
INA debt securities will be registered in such name or names as the depositary
shall instruct the trustee. (Section 3.5) It is expected that such instructions
may be based upon directions received by the depositary from participants with
respect to ownership of beneficial interests in global securities.
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Option to Extend Interest Payment Date
If provided in the related prospectus supplement, ACE INA will have the right
at any time and from time to time during the term of any series of ACE INA
subordinated debt securities issued to an ACE Trust to defer payment of
interest for such number of consecutive interest payment periods as may be
specified in the related prospectus supplement (each, an "Extension Period"),
subject to the terms, conditions and covenants, if any, specified in such
prospectus supplement, provided that such Extension Period may not extend
beyond the stated maturity of such series of ACE INA subordinated debt
securities. Certain United States Federal income tax consequences and special
considerations applicable to such ACE INA subordinated debt securities will be
described in the related prospectus supplement. (Section 3.11 of the ACE INA
subordinated indenture)
Option to Extend Maturity Date
If provided in the related prospectus supplement, ACE INA will have the right
to (x) change the stated maturity of the principal of the ACE INA subordinated
debt securities of any series issued to an ACE Trust upon the liquidation of
that ACE Trust and the exchange of the ACE INA subordinated debt securities for
the preferred securities of that ACE Trust or (y) extend the stated maturity of
the principal of the ACE INA subordinated debt securities of any series,
provided that (1) neither ACE INA nor ACE is in bankruptcy, otherwise insolvent
or in liquidation; (2) neither ACE INA nor ACE has defaulted on any payment on
such ACE INA subordinated debt securities or under ACE's guarantee in respect
thereof, as the case may be, and no deferred interest payments have accrued,
(3) the applicable ACE Trust is not in arrears on payments of distributions on
its preferred securities and no deferred distributions have accumulated, (4)
the ACE INA subordinated debt securities of such series are rated investment
grade by Standard & Poor's Ratings Services, Moody's Investors Service, Inc. or
another nationally recognized statistical rating organization and (5) the
extended stated maturity is no later than the 49th anniversary of the initial
issuance of the preferred securities of the applicable ACE Trust. If ACE INA
exercises its right to liquidate the applicable ACE Trust and exchange the ACE
INA subordinated debt securities for the preferred securities of the ACE Trust
as described above, any changed stated maturity of the principal of the ACE INA
subordinated debt securities shall be no earlier than the date that is five
years after the initial issue date of the preferred securities and no later
than the date 30 years (plus an extended term of up to an additional 19 years
if the conditions described above are satisfied) after the initial issue date
of the preferred securities of the applicable ACE Trust. (Section 3.14 of the
ACE INA subordinated indenture)
Redemption
Except as otherwise provided in the related prospectus supplement, in the
case of any series of ACE INA subordinated debt securities issued to an ACE
Trust, if an Investment Company Event or a Tax Event (each, a "Special Event")
shall occur and be continuing, ACE INA may, at its option, redeem such series
of ACE INA subordinated debt securities, in whole but not in part, at any time
within 90 days of the occurrence of the Special Event, at a redemption price
equal to 100% of the principal amount of such ACE INA subordinated debt
securities then outstanding plus accrued and unpaid interest to the date fixed
for redemption. (Section 11.8 of the ACE INA subordinated indenture)
For purposes of the ACE INA subordinated indenture, "Investment Company
Event" means, in respect of an ACE Trust, the receipt by such ACE Trust of an
opinion of independent counsel experienced in such matters to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
the interpretation or application of law or regulation by any legislative body,
court or governmental agency or regulatory authority, such ACE Trust is or will
be considered an investment company that is required to be registered under the
Investment Company Act, which change becomes effective on or after the date of
original issuance of the preferred securities of such ACE Trust. (Section 1.1
of the ACE INA subordinated indenture)
"Tax Event" means, in respect of an ACE Trust, the receipt by such ACE Trust
or ACE INA of an opinion of independent 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 regulation thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official
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administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of original
issuance of the preferred securities of such ACE Trust, there is more than an
insubstantial risk that (i) such ACE 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 corresponding series of ACE INA
subordinated debt securities, (ii) interest payable by ACE INA on such ACE INA
subordinated debt securities is not, or within 90 days of the date of such
opinion will not be, deductible by ACE INA, in whole or in part, for United
States Federal income tax purposes or (iii) such ACE Trust is, or will be
within 90 days of the date of such opinion, subject to more than a de minimus
amount of other taxes, duties or other governmental charges. (Section 1.1 of
the ACE INA subordinated indenture)
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of ACE INA subordinated debt
securities to be redeemed at its registered address. Unless ACE INA and ACE, as
guarantor, default in payment of the redemption price, on and after the
redemption date interest will cease to accrue on the ACE INA subordinated debt
securities or portions thereof called for redemption.
Covenants Applicable to ACE INA Senior Debt Securities
Limitation on Liens on Stock of Designated Subsidiaries
Under the ACE INA senior indenture, each of ACE INA and ACE will covenant
that, so long as any ACE INA senior debt securities are outstanding, it will
not, nor will it permit any of its Subsidiaries to, create, assume, incur,
guarantee or otherwise permit to exist any Indebtedness secured by any
mortgage, pledge, lien, security interest or other encumbrance upon any shares
of capital stock of any Designated Subsidiary (whether such shares are now
owned or hereafter acquired) without effectively providing concurrently that
the ACE INA senior debt securities (and, if ACE INA and ACE so elect, any other
Indebtedness of ACE INA that is not subordinate to the ACE INA senior debt
securities and with respect to which the governing instruments require, or
pursuant to which ACE INA is otherwise obligated, to provide such security)
will be secured equally and ratably with such Indebtedness for at least the
time period such other Indebtedness is so secured. (Section 10.5 of the ACE INA
senior indenture)
For purposes of the ACE INA senior indenture, "capital stock" of any Person
means any and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
equity of such Person, including preferred stock, but excluding any debt
securities convertible into such equity. (Section 1.1 of the ACE INA senior
indenture)
The term "Designated Subsidiary" means any present or future consolidated
Subsidiary of ACE, the Consolidated Net Worth of which constitutes at least 5%
of ACE's Consolidated Net Worth. (Section 1.1 of the ACE INA senior indenture)
As of July 31, 1999, ACE's Designated Subsidiaries were ACE Bermuda, CODA,
Tempest, ACE INA and ACE USA.
For purposes of the ACE INA indentures, the term "Indebtedness" means, with
respect to any Person, (1) the principal of and any premium and interest on (a)
indebtedness of such Person for money borrowed and (b) indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which such Person is responsible or liable; (2) all Capitalized Lease
Obligations of such Person; (3) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations and all obligations under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (1) through (3) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person
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of a demand for reimbursement following payment on the letter of credit); (5)
all obligations of the type referred to in clauses (1) through (4) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable as obligor, guarantor or otherwise;
(6) all obligations of the type referred to in clauses (1) through (5) of other
Persons secured by any mortgage, pledge, lien, security interest or other
encumbrance on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured; and (7) any amendments, modifications,
refundings, renewals or extensions of any indebtedness or obligation described
as Indebtedness in clauses (1) through (6) above. (Section 1.1)
Limitations on Disposition of Stock of Designated Subsidiaries
The ACE INA senior indenture also provides that, so long as any ACE INA
senior debt securities are outstanding and except in a transaction otherwise
governed by such indenture, neither ACE INA nor ACE will issue, sell, assign,
transfer or otherwise dispose of any shares of, securities convertible into, or
warrants, rights or options to subscribe for or purchase shares of, capital
stock (other than preferred stock having no voting rights of any kind) of any
Designated Subsidiary, and will not permit any Designated Subsidiary to issue
(other than to ACE INA or ACE) any shares (other than director's qualifying
shares) of, or securities convertible into, or warrants, rights or options to
subscribe for or purchase shares of, capital stock (other than preferred stock
having no voting rights of any kind) of any Designated Subsidiary, if, after
giving effect to any such transaction and the issuance of the maximum number of
shares issuable upon the conversion or exercise of all such convertible
securities, warrants, rights or options, ACE would own, directly or indirectly,
less than 80% of the shares of capital stock of such Designated Subsidiary
(other than preferred stock having no voting rights of any kind); provided,
however, that (1) any issuance, sale, assignment, transfer or other disposition
permitted by ACE INA or ACE may only be made for at least a fair market value
consideration as determined by the board of directors of ACE INA or ACE, as the
case may be, pursuant to a resolution adopted in good faith and (2) the
foregoing shall not prohibit any such issuance or disposition of securities if
required by any law or any regulation or order of any governmental or insurance
regulatory authority. Notwithstanding the foregoing, (1) ACE INA or ACE, as the
case may be, may merge or consolidate any Designated Subsidiary into or with
another direct or indirect Subsidiary of ACE, the shares of capital stock of
which ACE owns at least 80%, and (2) ACE INA or ACE, as the case may be, may,
subject to the provisions described under "--Consolidation, Amalgamation,
Merger and Sale of Assets" below, sell, assign, transfer or otherwise dispose
of the entire capital stock of any Designated Subsidiary at one time for at
least a fair market value consideration as determined by the board of directors
of ACE INA or ACE, as the case may be, pursuant to a resolution adopted in good
faith. (Section 10.6 of the ACE INA senior indenture)
Covenants Applicable to ACE INA Subordinated Debt Securities Issued to an ACE
Trust
Each of ACE INA and ACE will also covenant, as to each series of ACE INA
subordinated debt securities issued to an ACE Trust in connection with the
issuance of preferred securities and common securities by that ACE Trust, that
it will not, and will not permit any of its Subsidiaries to, (1) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the outstanding capital stock of
ACE INA or ACE, as the case may be, or (2) make any payment of principal of, or
interest or premium, if any, on or repay, repurchase or redeem any debt
security of ACE INA or ACE that ranks junior in interest to the ACE INA
subordinated debt securities of such series or the ACE guarantee in respect
thereof, as the case may be, or make any guarantee payments with respect to any
guarantee by ACE INA or ACE, as the case may be, of the debt securities of any
Subsidiary of ACE INA or ACE, as the case may be, if such guarantee ranks
junior in interest to the ACE INA subordinated debt securities of such series
or the ACE guarantee in respect thereof, as the case may be (other than (a)
dividends or distributions on the capital stock of ACE INA paid or made to ACE
and dividends or distributions in common stock of ACE INA or ordinary shares of
ACE, as the case may be, (b) redemptions or purchases of any rights outstanding
under a shareholder rights plan of ACE INA or ACE, as the case may be, or the
declaration of a dividend of such rights or the issuance of stock under such
plans in the future, (c) payments under any preferred securities guarantee
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and (d) purchases of common stock or ordinary shares related to the issuance of
common stock or ordinary shares under any of ACE INA's or ACE's benefit plans
for its directors, officers or employees) if at such time (i) there shall have
occurred any event of which ACE INA or ACE has actual knowledge that (A) with
the giving of notice or lapse of time or both would constitute an Event of
Default and (B) in respect of which ACE INA or ACE, as the case may be, shall
not have taken reasonable steps to cure, (ii) ACE shall be in default with
respect to its payment of any obligations under the preferred securities
guarantee relating to such related preferred securities or (iii) ACE INA shall
have given notice of its election to begin an Extension Period as provided in
the ACE INA subordinated indenture with respect to the ACE INA subordinated
debt securities of such series and shall not have rescinded such notice, or
such Extension Period, or any extension thereof, shall be continuing. (Section
10.9 of the ACE INA subordinated indenture)
In the event ACE INA subordinated debt securities are issued to an ACE Trust
in connection with the issuance of preferred securities and common securities
of such ACE Trust, for so long as such ACE INA subordinated debt securities
remain outstanding, ACE INA will also covenant (1) to maintain directly or
indirectly 100% ownership of the common securities of such ACE Trust; provided,
however, that any permitted successor of ACE INA under the ACE INA subordinated
indenture may succeed to ACE INA's ownership of such common securities, (2) not
to voluntarily dissolve, wind-up or liquidate such ACE Trust, except in
connection with the distribution of ACE INA subordinated debt securities to the
holders of preferred securities and common securities in liquidation of such
ACE Trust, the redemption of all of the preferred securities and common
securities of such ACE Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the restated trust agreement of such ACE
Trust, and (3) to use its reasonable efforts, consistent with the terms of the
related trust agreement, to cause such ACE Trust to remain classified as a
grantor trust for United States Federal income tax purposes. (Section 10.9 of
the ACE INA subordinated indenture)
Consolidation, Amalgamation, Merger and Sale of Assets
Each ACE INA indenture provides that ACE INA may not (1) consolidate or
amalgamate with or merge into any Person or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
Person, or (2) permit any Person to consolidate or amalgamate with or merge
into ACE INA, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to ACE INA, unless (a) in the case of
(1) above, such Person is a Corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia
and will expressly assume, by supplemental indenture satisfactory in form to
the trustee, the due and punctual payment of the principal of, any premium and
interest on and any additional amounts with respect to all of the ACE INA debt
securities issued thereunder, and the performance of ACE INA's obligations
under such ACE INA indenture and the ACE INA debt securities issued thereunder,
and provides for conversion or exchange rights in accordance with the
provisions of the ACE INA debt securities of any series that are convertible or
exchangeable into ordinary shares or other securities; (b) immediately after
giving effect to such transaction and treating any indebtedness which becomes
an obligation of ACE INA or a Subsidiary as a result of such transaction as
having been incurred by ACE INA or such Subsidiary at the time of such
transaction, no Event of Default, and no event which after notice or lapse of
time or both would become an Event of Default, shall have happened and be
continuing; and (c) certain other conditions are met. (Section 8.1)
Each ACE INA indenture provides that ACE may not (1) consolidate or
amalgamate with or merge into any Person or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
Person, or (2) permit any Person to consolidate or amalgamate with or merge
into ACE, or convey, transfer or lease its properties and assets as an entirety
or substantially as an entirety to ACE, unless (a) in the case of (1) above,
such Person is a Corporation organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia,
Bermuda or the Cayman Islands and will expressly assume, by supplemental
indenture satisfactory in form to the trustee, the due and punctual payment of
the principal of, any premium and interest on and any additional amounts with
respect to all of the ACE INA debt securities issued thereunder, and the
performance of ACE's obligations under such ACE INA indenture and the ACE INA
debt
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securities issued thereunder; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of ACE or
a Subsidiary as a result of such transaction as having been incurred by ACE or
such Subsidiary at the time of such transaction, no Event of Default, and no
event which after notice or lapse of time or both would become an Event of
Default, shall have happened and be continuing; and (c) certain other
conditions are met. (Section 8.3)
Events of Default
Each of the following events will constitute an Event of Default under the
applicable ACE INA indenture with respect to any series of ACE INA debt
securities issued thereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest on any ACE INA debt security of
such series, or any additional amounts payable with respect thereto,
when such interest becomes or such additional amounts become due and
payable, and continuance of such default for a period of 30 days;
(2) default in the payment of the principal of or any premium on any ACE
INA debt security of such series, or any additional amounts payable
with respect thereto, when such principal or premium becomes or such
additional amounts become due and payable either at maturity, upon any
redemption, by declaration of acceleration or otherwise;
(3) default in the deposit of any sinking fund payment, when and as due by
the terms of any ACE INA debt security of such series;
(4) default in the performance, or breach, of any covenant or warranty of
ACE INA or ACE contained in the applicable ACE INA indenture for the
benefit of such series or in the ACE INA debt securities of such
series, and the continuance of such default or breach for a period of
60 days after there has been given written notice as provided in such
ACE INA indenture;
(5) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of ACE INA or ACE (including an
Event of Default under any other series of ACE INA debt securities),
whether such Indebtedness now exists or is hereafter created or
incurred, happens and consists of default in the payment of more than
$50,000,000 in principal amount of such Indebtedness at the maturity
thereof (after giving effect to any applicable grace period) or results
in such Indebtedness in principal amount in excess of $50,000,000
becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable, and such default is not
cured or such acceleration is not rescinded or annulled within a period
of 30 days after there has been given written notice as provided in the
applicable ACE INA indenture;
(6) ACE INA or ACE shall fail within 60 days to pay, bond or otherwise
discharge any uninsured judgment or court order for the payment of
money in excess of $50,000,000, which is not stayed on appeal or is not
otherwise being appropriately contested in good faith;
(7) certain events in bankruptcy, insolvency or reorganization of ACE INA
or ACE; and
(8) any other Event of Default provided in or pursuant to the applicable
ACE INA indenture with respect to ACE INA debt securities of such
series. (Section 5.1)
If an Event of Default with respect to the ACE INA debt securities of any
series (other than an Event of Default described in (7) of the preceding
paragraph) occurs and is continuing, either the trustee or the holders of not
less than 25% in principal amount of the outstanding ACE INA debt securities of
such series by written notice as provided in the applicable ACE INA indenture
may declare the principal amount (or such lesser amount as may be provided for
in the ACE INA debt securities of such series) of all outstanding ACE INA
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debt securities of such series to be due and payable immediately. In the case
of an Event of Default with respect to a series of ACE INA subordinated debt
securities issued to an ACE Trust, if the trustee or such holders fail to
declare such principal amount (or lesser amount) to be due and payable
immediately, the holders of at least 25% in liquidation amount of the
outstanding preferred securities of the ACE Trust may do so by written notice
as provided in the ACE INA subordinated indenture. At any time after a
declaration of acceleration has been made, but before a judgment or decree for
payment of money has been obtained by the trustee, and subject to applicable
law and certain other provisions of the applicable ACE INA indenture, the
holders of not less than a majority in principal amount of the outstanding ACE
INA debt securities of such series may, under certain circumstances, rescind
and annul such declaration of acceleration. In the case of a series of ACE INA
subordinated debt securities issued to an ACE Trust, if such holders fail to
rescind and annul such declaration, the holders of a majority in liquidation
amount of the outstanding preferred securities of such ACE Trust may, subject
to satisfaction of certain conditions, rescind and annul such declaration by
written notice as provided in the ACE INA subordinated indenture. An Event of
Default described in (7) of the preceding paragraph shall cause the principal
amount and accrued interest (or such lesser amount as provided for in the ACE
INA debt securities of such series) to become immediately due and payable
without any declaration or other act by the trustee or any holder. (Section
5.2)
Each ACE INA indenture provides that, within 90 days after the occurrence of
any event which is, or after notice or lapse of time or both would become, an
Event of Default with respect to the ACE INA debt securities of any series (a
"default"), the trustee must transmit, in the manner set forth in such ACE INA
indenture, notice of such default to the holders of the ACE INA debt securities
of such series unless such default has been cured or waived; provided, however,
that except in the case of a default in the payment of principal of, or
premium, if any, or interest, if any, on, or additional amounts or any sinking
fund or purchase fund installment with respect to, any ACE INA debt security of
such series, the trustee may withhold such notice if and so long as the board
of directors, the executive committee or a trust committee of directors and/or
responsible officers of the trustee in good faith determine that the
withholding of such notice is in the best interest of the holders of ACE INA
debt securities of such series; and provided, further, that in the case of any
default of the character described in (5) of the second preceding paragraph, no
such notice to holders will be given until at least 30 days after the default
occurs. (Section 6.2)
If an Event of Default occurs and is continuing with respect to the ACE INA
debt securities of any series, the trustee may in its discretion proceed to
protect and enforce its rights and the rights of the holders of ACE INA debt
securities of such series by all appropriate judicial proceedings. (Section
5.3) Each ACE INA indenture provides that, subject to the duty of the trustee
during any default to act with the required standard of care, the trustee will
be under no obligation to exercise any of its rights or powers under such ACE
INA indenture at the request or direction of any of the holders of ACE INA debt
securities, unless such holders shall have offered to the trustee reasonable
indemnity. (Section 6.1) Subject to such provisions for the indemnification of
the trustee, and subject to applicable law and certain other provisions of the
applicable ACE INA indenture, the holders of a majority in principal amount of
the outstanding ACE INA debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee, with respect to the ACE INA debt securities of such series. (Section
5.12)
If an Event of Default with respect to a series of ACE INA subordinated debt
securities issued to an ACE Trust has occurred and is continuing and such event
is attributable to a default in the payment of principal of, any premium or
interest on, or additional amounts with respect to, the related ACE INA
subordinated debt securities on the date such principal, premium, interest or
additional amounts are otherwise payable, a holder of preferred securities of
such ACE Trust may institute directly a legal proceeding against ACE INA or ACE
(pursuant to the ACE guarantee) for enforcement of payment to such holder of
the principal of, any premium and interest on, and additional amounts with
respect to, such related ACE INA subordinated debt securities having a
principal amount equal to the liquidation amount of the related preferred
securities of such holder (a "Direct Action"). (Section 5.8 of the ACE INA
subordinated indenture) ACE INA and ACE may not amend
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the ACE INA subordinated indenture to remove the foregoing right to bring a
Direct Action without the prior consent of the holders of all of the
outstanding preferred securities of such ACE Trust. (Section 9.2 of the ACE INA
subordinated indenture) If the right to bring a Direct Action is removed, the
applicable ACE Trust may become subject to the reporting obligations under the
Exchange Act. Each of ACE INA and ACE will have the right under the ACE INA
subordinated indenture to set-off any payment made to such holder of preferred
securities by ACE INA or ACE, as the case may be, in connection with a Direct
Action. (Section 3.12 of the ACE INA subordinated indenture)
The holders of the preferred 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 related ACE INA subordinated debt securities.
Modification and Waiver
ACE INA, ACE and the trustee may modify or amend either ACE INA indenture
with the consent of the holders of not less than a majority in principal amount
of the outstanding ACE INA debt securities of each series affected thereby;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding ACE INA debt security affected
thereby,
. change the stated maturity of the principal of, or any premium or
installment of interest on, or any additional amounts with respect to,
any ACE INA debt security,
. reduce the principal amount of, or the rate (or modify the calculation
of such rate) of interest on, or any additional amounts with respect to,
or any premium payable upon the redemption of, any ACE INA debt
security,
. change the obligation of ACE INA or ACE to pay additional amounts with
respect to any ACE INA debt security,
. reduce the amount of the principal of an original issue discount
security that would be due and payable upon a declaration of
acceleration of the maturity thereof or the amount thereof provable in
bankruptcy,
. change the redemption provisions of any ACE INA debt security or
adversely affect the right of repayment at the option of any holder of
any ACE INA debt security,
. change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional amounts with
respect to any ACE INA debt security is payable,
. impair the right to institute suit for the enforcement of any payment on
or after the stated maturity of any ACE INA debt security (or, in the
case of redemption, on or after the redemption date or, in the case of
repayment at the option of any holder, on or after the repayment date),
. reduce the percentage in principal amount of the outstanding ACE INA
debt securities, the consent of whose holders is required in order to
take specific actions,
. reduce the requirements for quorum or voting by holders of ACE INA debt
securities in Section 15.4 of each ACE INA indenture,
. modify any of the provisions of the ACE subordinated indenture relating
to the subordination of the ACE INA debt securities or the ACE guarantee
in a manner adverse to the holders of ACE INA subordinated debt
securities,
. modify or effect in any manner adverse to the holders of ACE INA debt
securities the terms and conditions of the obligations of ACE in respect
of the due and punctual payment of principal of, or any premium or
interest on, or any sinking fund requirements or additional amounts with
respect to, the ACE INA debt securities,
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. modify any of the provisions in the applicable ACE INA indenture
regarding the waiver of past defaults and the waiver of certain
covenants by the holders of ACE INA debt securities except to increase
any percentage vote required or to provide that other provisions of such
ACE INA indenture cannot be modified or waived without the consent of
the holder of each ACE INA debt security affected thereby,
. make any change that adversely affects the right to convert or exchange
any ACE INA debt security into or for other securities of ACE INA, ACE
or other securities, cash or property in accordance with its terms, or
. modify any of the above provisions. (Section 9.2)
In addition, no supplemental indenture may directly or indirectly modify or
eliminate the subordination provisions of the ACE INA subordinated indenture in
any manner which might terminate or impair the subordination of the ACE INA
subordinated debt securities of any series to Senior Indebtedness with respect
to such series or the subordination of the ACE guarantee with respect to the
ACE INA subordinated debt securities of any series to ACE Senior Indebtedness
with respect to such series, without the prior written consent of the holders
of such Senior Indebtedness or such ACE Senior Indebtedness, respectively.
(Section 9.7 of the ACE INA Subordinated Indenture)
ACE INA, ACE and the trustee may modify or amend either ACE INA indenture and
the ACE INA debt securities of any series without the consent of any holder in
order to, among other things:
. provide for a successor to ACE INA or ACE pursuant to a consolidation,
amalgamation, merger or sale of assets;
. add to the covenants of ACE INA or ACE for the benefit of the holders of
all or any series of ACE INA debt securities or to surrender any right
or power conferred upon ACE INA or ACE by the applicable ACE INA
indenture;
. provide for a successor trustee with respect to the ACE INA debt
securities of all or any series;
. cure any ambiguity or correct or supplement any provision in either ACE
INA indenture which may be defective or inconsistent with any other
provision, or to make any other provisions with respect to matters or
questions arising under either ACE INA indenture which will not
adversely affect the interests of the holders of ACE INA debt securities
of any series;
. change the conditions, limitations and restrictions on the authorized
amount, terms or purposes of issue, authentication and delivery of ACE
INA debt securities under either ACE INA indenture;
. add any additional Events of Default with respect to all or any series
of ACE INA debt securities;
. secure the ACE INA debt securities;
. provide for conversion or exchange rights of the holders of any series
of ACE INA debt securities; or
. make any other change that does not materially adversely affect the
interests of the holders of any ACE INA debt securities then outstanding
under the applicable ACE INA indenture. (Section 9.1)
The holders of at least a majority in principal amount of the outstanding ACE
INA debt securities of any series may, on behalf of the holders of all ACE INA
debt securities of that series, waive compliance by ACE INA and ACE with
certain covenants of the applicable ACE INA indenture. (Section 10.8 of the ACE
INA senior indenture; Section 10.6 of the ACE INA subordinated indenture) The
holders of not less than a majority in principal amount of the outstanding ACE
INA debt securities of any series on behalf of the holders of all ACE INA debt
securities of that series and, in the case of any ACE INA subordinated debt
securities issued to an ACE Trust, the holders of not less than a majority in
liquidation amount of the outstanding preferred securities of the ACE Trust,
may waive any past default and its consequences under the applicable ACE INA
indenture with respect to the ACE INA debt securities of that series, except a
default (1) in the payment of
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principal, any premium or interest on or any additional amounts with respect to
ACE INA debt securities of such series or (2) in respect of a covenant or
provision of the applicable ACE INA indenture that cannot be modified or
amended without the consent of the holder of each outstanding ACE INA debt
security of any series affected. (Section 5.13)
Under each ACE INA indenture, each of ACE INA and ACE is required to furnish
the trustee annually a statement as to its performance of certain of its
obligations under that ACE INA indenture and as to any default in such
performance. Each of ACE INA and ACE is also required to deliver to the
trustee, within five days after occurrence thereof, written notice of any Event
of Default, or any event which after notice or lapse of time or both would
constitute an Event of Default, resulting from the failure to perform or breach
of any covenant or warranty contained in the applicable ACE INA indenture or
the ACE INA debt securities of any series. (Sections 10.9 and 10.10 of the ACE
INA senior indenture; Sections 10.7 and 10.8 of the ACE INA subordinated
indenture)
Discharge, Defeasance and Covenant Defeasance
ACE INA or ACE may discharge certain obligations to holders of any series of
ACE INA debt securities that have not already been delivered to the trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
depositing with the trustee, in trust, funds in U.S. dollars or in the Foreign
Currency in which such ACE INA debt securities are payable in an amount
sufficient to pay the entire indebtedness on such ACE INA debt securities with
respect to principal and any premium, interest and additional amounts to the
date of such deposit (if such ACE INA debt securities have become due and
payable) or to the maturity thereof, as the case may be. (Section 4.1)
Each ACE INA indenture provides that, unless the provisions of Section 4.2
thereof are made inapplicable to the ACE INA debt securities of or within any
series pursuant to Section 3.1 thereof, ACE INA may elect either (1) to defease
and discharge itself and ACE from any and all obligations with respect to such
ACE INA debt securities (except for, among other things, the obligation of ACE
to pay additional amounts upon the occurrence of certain events of taxation,
assessment or governmental charge with respect to payments on such ACE INA debt
securities and other obligations to register the transfer or exchange of such
ACE INA debt securities, to replace temporary or mutilated, destroyed, lost or
stolen ACE INA debt securities, to maintain an office or agency with respect to
such ACE INA debt securities and to hold moneys for payment in trust)
("defeasance") or (2) to release itself and ACE from their respective
obligations with respect to such ACE INA debt securities under certain
covenants as described in the related prospectus supplement, and any omission
to comply with such obligations shall not constitute a default or an Event of
Default with respect to such ACE INA debt securities ("covenant defeasance").
Defeasance or covenant defeasance, as the case may be, shall be conditioned
upon the irrevocable deposit by ACE INA or ACE with the Trustee, in trust, of
an amount in U.S. dollars or in the Foreign Currency in which such ACE INA debt
securities are payable at stated maturity, or Government Obligations (as
defined below), or both, applicable to such ACE INA debt securities which
through the scheduled payment of principal and interest in accordance with
their terms will provide money in an amount sufficient to pay the principal of,
any premium and interest on, and any additional amounts with respect to, such
ACE INA debt securities on the scheduled due dates. (Section 4.2)
Such a trust may only be established if, among other things, (1) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the applicable ACE INA indenture
or any other material agreement or instrument to which ACE INA or ACE is a
party or by which either of them is bound, (2) no Event of Default or event
which with notice or lapse of time or both would become an Event of Default
with respect to the ACE INA debt securities to be defeased shall have occurred
and be continuing on the date of establishment of such a trust and, with
respect to defeasance only, at any time during the period ending on the 123rd
day after such date and (3) ACE INA or ACE has delivered to the trustee an
opinion of counsel (as specified in the ACE INA indenture) to the effect that
the holders of such
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ACE INA debt securities will not recognize income, gain or loss for United
States Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to United States Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such defeasance or covenant defeasance had not occurred, and such opinion of
counsel, in the case of defeasance, must refer to and be based upon a letter
ruling of the Internal Revenue Service received by ACE INA or ACE, a Revenue
Ruling published by the Internal Revenue Service or a change in applicable
United States Federal income tax law occurring after the date of the applicable
ACE INA indenture. (Section 4.2)
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the euro, issued by the government of one or
more countries other than the United States of America or by any recognized
confederation or association of such governments. (Section 1.1)
"Government Obligations" means debt securities which are (1) direct
obligations of the United States of America or the government or the
governments which issued the Foreign Currency in which the ACE INA debt
securities of a particular series are payable, for the payment of which its
full faith and credit is pledged or (2) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America or such government or governments which issued the Foreign Currency
in which the ACE INA debt securities of such series are payable, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government or
governments, and which, in the case of clauses (1) and (2), are not callable or
redeemable at the option of the issuer or issuers thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of
interest on or principal of or any other amount with respect to any such
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
with respect to the Government Obligation or the specific payment of interest
on or principal of or any other amount with respect to the Government
Obligation evidenced by such depository receipt. (Section 1.1)
If after ACE INA or ACE has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to ACE INA debt
securities of any series, (1) the holder of an ACE INA debt security of that
series is entitled to, and does, elect pursuant to Section 3.1 of the
applicable ACE INA indenture or the terms of such ACE INA debt security to
receive payment in a currency other than that in which such deposit has been
made in respect of such debt security, or (2) a Conversion Event occurs in
respect of the Foreign Currency in which such deposit has been made, the
indebtedness represented by such ACE INA debt security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of, any premium and interest on, and any additional amounts with
respect to, such ACE INA debt security as such ACE INA debt security becomes
due out of the proceeds yielded by converting the amount or other properties so
deposited in respect of such ACE INA debt security into the currency in which
such ACE INA debt security becomes payable as a result of such election or such
Conversion Event based on (a) in the case of payments made pursuant to clause
(1) above, the applicable market exchange rate for such currency in effect on
the second business day prior to such payment date, or (b) with respect to a
Conversion Event, the applicable market exchange rate for such Foreign Currency
in effect (as nearly as feasible) at the time of the Conversion Event. (Section
4.2)
"Conversion Event" means the cessation of use of (1) a Foreign Currency both
by the government of the country or countries which issued such Foreign
Currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community or (2) any
currency unit or composite currency for the purposes for which it was
established. All payments of principal of, any premium and interest on, and any
additional amounts with respect to, any ACE INA debt security that are payable
in a Foreign Currency that ceases to be used by the government or governments
of issuance shall be made in U.S. dollars. (Section 1.1)
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In the event ACE INA effects covenant defeasance with respect to any ACE INA
debt securities and such ACE INA debt securities are declared due and payable
because of the occurrence of any Event of Default other than an Event of
Default with respect to any covenant as to which there has been covenant
defeasance, the amount in such Foreign Currency in which such ACE INA debt
securities are payable, and Government Obligations on deposit with the trustee,
will be sufficient to pay amounts due on such ACE INA debt securities at the
time of the stated maturity but may not be sufficient to pay amounts due on
such ACE INA debt securities at the time of the acceleration resulting from
such Event of Default. However, ACE INA and ACE would remain liable to make
payment of such amounts due at the time of acceleration.
Subordination of ACE INA Subordinated Debt Securities
The ACE INA subordinated debt securities of each series will, to the extent
set forth in the ACE INA subordinated indenture, be subordinate in right of
payment to the prior payment in full of all Senior Indebtedness with respect to
such series. (Section 16.1 of the ACE INA subordinated indenture). Upon any
payment or distribution of assets of ACE INA of any kind or character, whether
in cash, property or securities, to creditors upon any dissolution, winding-up,
liquidation or reorganization of ACE INA, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all amounts due
upon all Senior Indebtedness with respect to the ACE INA subordinated debt
securities of any series will first be paid in full, or payment thereof
provided for in money in accordance with its terms, before the holders of ACE
INA subordinated debt securities of such series are entitled to receive or
retain any payment on account of principal of, or any premium or interest on,
or any additional amounts with respect to, the ACE INA subordinated debt
securities of such series, and to that end the holders of such Senior
Indebtedness shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of
ACE INA being subordinated to the payment of ACE INA subordinated debt
securities of such series, which may be payable or deliverable in respect of
the ACE INA subordinated debt securities of such series upon any such
dissolution, winding-up, liquidation or reorganization or in any such
bankruptcy, insolvency, receivership or other proceeding. (Section 16.3 of the
ACE INA subordinated indenture)
By reason of such subordination, in the event of liquidation or insolvency of
ACE INA, holders of Senior Indebtedness with respect to the ACE INA
subordinated debt securities of any series and holders of other obligations of
ACE INA that are not subordinated to such Senior Indebtedness may recover more,
ratably, than the holders of the ACE INA subordinated debt securities of such
series.
Subject to the payment in full of all Senior Indebtedness with respect to the
ACE INA subordinated debt securities of any series, the rights of the holders
of the ACE INA subordinated debt securities of such series will be subrogated
to the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of ACE INA applicable to such
Senior Indebtedness until the principal of, any premium and interest on, and
any additional amounts with respect to, the ACE INA subordinated debt
securities of such series have been paid in full. (Section 16.4 of the ACE INA
subordinated indenture)
No payment of principal (including redemption and sinking fund payments) of
or any premium or interest on or any additional amounts with respect to the ACE
INA subordinated debt securities of any series may be made by ACE INA (1) if
any Senior Indebtedness with respect to such series is not paid when due and
any applicable grace period with respect to such default has ended and such
default has not been cured or waived or ceased to exist, or (2) if the maturity
of any Senior Indebtedness with respect to such series has been accelerated
because of a default. (Section 16.2 of the ACE INA subordinated indenture)
The ACE INA subordinated indenture does not limit or prohibit ACE INA from
incurring additional Senior Indebtedness, which may include Indebtedness that
is senior to the ACE INA subordinated debt securities of any series, but
subordinate to other obligations of ACE INA. The ACE INA senior debt securities
will constitute Senior Indebtedness with respect to the ACE INA subordinated
debt securities of each series under the ACE INA subordinated indenture.
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The term "Senior Indebtedness" means, with respect to the ACE INA
subordinated debt securities of any particular series, all Indebtedness of ACE
INA outstanding at any time, except (1) the ACE INA subordinated debt
securities of such series, (2) Indebtedness as to which, by the terms of the
instrument creating or evidencing the same, it is provided that such
Indebtedness is subordinated to or ranks equally with the ACE INA subordinated
debt securities of such series, (3) Indebtedness of ACE INA to an Affiliate of
ACE INA, (4) interest accruing after the filing of a petition initiating any
bankruptcy, insolvency or other similar proceeding unless such interest is an
allowed claim enforceable against ACE INA in a proceeding under federal or
state bankruptcy laws, (5) trade accounts payable and (6) any Indebtedness,
including all other debt securities and guarantees in respect of those debt
securities, initially issued to (x) any ACE Trust or (y) any trust, partnership
or other entity affiliated with ACE which is a financing vehicle of ACE or any
Affiliate of ACE in connection with an issuance by such entity of preferred
securities or other securities which are similar to the preferred securities
described under "Description of Preferred Securities" below that are guaranteed
by ACE pursuant to an instrument that ranks equally with or junior in right of
payment to the preferred securities guarantees described under "Description of
the Preferred Securities Guarantees" below. Senior Indebtedness with respect to
the ACE INA subordinated debt securities of any particular series shall
continue to be Senior Indebtedness with respect to the ACE INA subordinated
debt securities of such series and be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness. (Sections 1.1 and 16.8 of the ACE INA
subordinated indenture)
The ACE INA subordinated indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular series of ACE INA
subordinated debt securities, may be changed prior to such issuance. Any such
change would be described in the related prospectus supplement.
Subordination of ACE Guarantee of ACE INA Subordinated Debt Securities
The ACE guarantee of ACE INA subordinated debt securities of each series
will, to the extent set forth in the ACE INA subordinated indenture, be
subordinate in right of payment to the prior payment in full of all ACE Senior
Indebtedness with respect to such series. (Section 18.1 of the ACE INA
subordinated indenture) Upon any payment or distribution of assets of ACE of
any kind or character, whether in cash, property or securities, to creditors
upon any dissolution, winding-up, liquidation or reorganization of ACE, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due upon all ACE Senior Indebtedness with respect to
the ACE INA subordinated debt securities of any series will first be paid in
full, or payment thereof provided for in money in accordance with its terms,
before the holders of ACE INA subordinated debt securities of such series are
entitled to receive or retain any payment from ACE on account of principal of,
or any premium or interest on, or any additional amounts with respect to, the
ACE INA subordinated debt securities of such series, and to that end the
holders of such ACE Senior Indebtedness shall be entitled to receive, for
application to the payment thereof, any payment or distribution by ACE of any
kind or character, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by ACE by reason of
the payment of any other Indebtedness of ACE being subordinated to the payment
of ACE INA subordinated debt securities of such series, which may be payable or
deliverable by ACE in respect of the ACE INA subordinated debt securities of
such series upon any such dissolution, winding-up, liquidation or
reorganization or in any such bankruptcy, insolvency, receivership or other
proceeding. (Section 18.3 of the ACE INA subordinated indenture)
By reason of such subordination, in the event of liquidation or insolvency of
ACE, holders of ACE Senior Indebtedness with respect to the ACE INA
subordinated debt securities of any series and holders of other obligations of
ACE that are not subordinated to such ACE Senior Indebtedness may recover more,
ratably, than the holders of the ACE INA subordinated debt securities of such
series.
Subject to the payment in full of all ACE Senior Indebtedness with respect to
the ACE INA subordinated debt securities of any series, the rights of the
holders of the ACE INA subordinated debt securities of such series under the
ACE guarantee will be subrogated to the rights of the holders of such ACE
Senior Indebtedness to receive payments or distributions of cash, property or
securities of ACE applicable to such
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ACE Senior Indebtedness until the principal of, any premium and interest on,
and any additional amounts with respect to, the ACE INA subordinated debt
securities of such series have been paid in full. (Section 18.4 of the ACE INA
subordinated indenture)
No payment of principal (including redemption and sinking fund payments) of
or any premium or interest on or any additional amounts with respect to the ACE
INA subordinated debt securities of any series may be made by ACE (i) if any
ACE Senior Indebtedness with respect to such series is not paid when due and
any applicable grace period with respect to such default has ended and such
default has not been cured or waived or ceased to exist, or (ii) if the
maturity of any ACE Senior Indebtedness with respect to such series has been
accelerated because of a default. (Section 18.2 of the ACE INA subordinated
indenture)
The ACE INA subordinated indenture does not limit or prohibit ACE from
incurring additional ACE Senior Indebtedness, which may include Indebtedness
that is senior to the ACE guarantee of the ACE INA subordinated debt securities
of any series, but subordinate to other obligations of ACE. The ACE senior debt
securities will constitute ACE Senior Indebtedness with respect to the ACE INA
subordinated debt securities of each series under the ACE INA subordinated
indenture.
The term "ACE Senior Indebtedness" means, with respect to the ACE INA
subordinated debt securities of any particular series, all Indebtedness of ACE
outstanding at any time, except (1) ACE's obligations under the ACE guarantee
in respect of the ACE INA subordinated debt securities of such series, (2)
Indebtedness as to which, by the terms of the instrument creating or evidencing
the same, it is provided that such Indebtedness is subordinated to or ranks
equally with ACE's obligations under the ACE guarantee in respect of the ACE
subordinated debt securities of such series, (3) Indebtedness of ACE to an
Affiliate of ACE, (4) interest accruing after the filing of a petition
initiating any bankruptcy, insolvency or other similar proceeding unless such
interest is an allowed claim enforceable against ACE in a proceeding under
federal or state bankruptcy laws, (5) trade accounts payable, (6) ACE's
obligations under the ACE guarantee in respect of the ACE INA subordinated debt
securities of any series initially issued to (x) any ACE Trust or (y) any
trust, partnership or other entity affiliated with ACE which is a financing
vehicle of ACE or any Affiliate of ACE in connection with an issuance by such
entity of preferred securities or other securities which are similar to the
preferred securities described under "Description of Preferred Securities"
below that are guaranteed by ACE pursuant to an instrument that ranks equally
with a junior in right of payment to the preferred securities guarantees
described under "Description of Preferred Securities Guarantees" below and (7)
all preferred securities guarantees and all similar guarantees issued by ACE on
behalf of holders of preferred securities of an ACE Trust or other similar
preferred securities issued by any trust, partnership or other entity
affiliated with ACE which is a financing vehicle for ACE or any affiliate of
ACE.
The ACE INA subordinated indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular series of ACE INA
subordinated debt securities, may be changed prior to such issuance. Any such
change would be described in the applicable prospectus supplement.
New York Law to Govern
The ACE INA indentures, the ACE INA debt securities and the ACE guarantee
will be governed by, and construed in accordance with, the laws of the State of
New York applicable to agreements made or instruments entered into and, in each
case, performed in that state. (Section 1.13)
DESCRIPTION OF THE WARRANTS TO PURCHASE
ORDINARY SHARES OR PREFERRED SHARES
The following statements with respect to the ordinary share warrants and
preferred share warrants are summaries of, and subject to, the detailed
provisions of a stock warrant agreement to be entered into by ACE and a stock
warrant agent to be selected at the time of issue. The stock warrant agreement
may include or incorporate by reference standard warrant provisions
substantially in the form of the Standard Stock Warrant Provisions filed as an
exhibit to the registration statement of which this prospectus forms a part.
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General
The stock warrants, evidenced by stock warrant certificates, may be issued
under the stock warrant agreement independently or together with any other
securities offered by any prospectus supplement and may be attached to or
separate from such other offered securities. If stock warrants are offered, the
related prospectus supplement will describe the designation and terms of the
stock warrants, including without limitation the following:
. the offering price, if any;
. the designation and terms of the ordinary shares or preferred shares
purchasable upon exercise of the stock warrants;
. if applicable, the date on and after which the stock warrants and the
related offered securities will be separately transferable;
. the number of ordinary shares or preferred shares purchasable upon
exercise of one stock warrant and the initial price at which such shares
may be purchased upon exercise;
. the date on which the right to exercise the stock warrants shall
commence and the date on which such right shall expire;
. a discussion of certain United States Federal income tax considerations;
. the call provisions, if any;
. the currency, currencies or currency units in which the offering price,
if any, and exercise price are payable;
. the antidilution provisions of the stock warrants; and
. any other terms of the stock warrants.
The ordinary shares or preferred shares issuable upon exercise of the stock
warrants will, when issued in accordance with the stock warrant agreement, be
fully paid and nonassessable.
Exercise of Stock Warrants
Stock warrants may be exercised by surrendering to the stock warrant agent
the stock warrant certificate with the form of election to purchase on the
reverse thereof duly completed and signed by the warrantholder, or its duly
authorized agent (such signature to be guaranteed by a bank or trust company,
by a broker or dealer which is a member of the National Association of
Securities Dealers, Inc. or by a member of a national securities exchange),
indicating the warrantholder's election to exercise all or a portion of the
stock warrants evidenced by the certificate. Surrendered stock warrant
certificates shall be accompanied by payment of the aggregate exercise price of
the stock warrants to be exercised, as set forth in the related prospectus
supplement, in lawful money of the United States, unless otherwise provided in
the related prospectus supplement. Upon receipt thereof by the stock warrant
agent, the stock warrant agent will requisition from the transfer agent for the
ordinary shares or the preferred shares, as the case may be, for issuance and
delivery to or upon the written order of the exercising warrantholder, a
certificate representing the number of ordinary shares or preferred shares
purchased. If less than all of the stock warrants evidenced by any stock
warrant certificate are exercised, the stock warrant agent shall deliver to the
exercising warrantholder a new stock warrant certificate representing the
unexercised stock warrants.
Antidilution and Other Provisions
The exercise price payable and the number of ordinary shares or preferred
shares purchasable upon the exercise of each stock warrant and the number of
stock warrants outstanding will be subject to adjustment in certain events,
including the issuance of a stock dividend to holders of ordinary shares or
preferred shares, respectively, or a combination, subdivision or
reclassification of ordinary shares or preferred shares, respectively. In lieu
of adjusting the number of ordinary shares or preferred shares purchasable upon
exercise of
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each stock warrant, ACE may elect to adjust the number of stock warrants. No
adjustment in the number of shares purchasable upon exercise of the stock
warrants will be required until cumulative adjustments require an adjustment of
at least 1% thereof. ACE may, at its option, reduce the exercise price at any
time. No fractional shares will be issued upon exercise of stock warrants, but
ACE will pay the cash value of any fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger, or sale or
conveyance of the property of ACE as an entirety or substantially as an
entirety, the holder of each outstanding stock warrant shall have the right to
the kind and amount of shares of stock and other securities and property
(including cash) receivable by a holder of the number of ordinary shares or
preferred shares into which such stock warrants were exercisable immediately
prior thereto.
No Rights as Shareholders
Holders of stock warrants will not be entitled, by virtue of being such
holders, to vote, to consent, to receive dividends, to receive notice as
shareholders with respect to any meeting of shareholders for the election of
directors of ACE or any other matter, or to exercise any rights whatsoever as
shareholders of ACE.
DESCRIPTION OF THE WARRANTS TO PURCHASE DEBT SECURITIES
The following statements with respect to the debt warrants are summaries of,
and subject to, the detailed provisions of a debt warrant agreement to be
entered into by ACE and a debt warrant agent to be selected at the time of
issue. The debt warrant agreement may include or incorporate by reference
standard warrant provisions substantially in the form of the Standard Debt
Securities Warrant Provisions filed as an exhibit to the registration statement
of which this prospectus forms a part.
General
The debt warrants, evidenced by debt warrant certificates, may be issued
under the debt warrant agreement independently or together with any other
securities offered by any prospectus supplement and may be attached to or
separate from such other offered securities. If debt warrants are offered, the
related prospectus supplement will describe the designation and terms of the
debt warrants, including without limitation the following:
.the offering price, if any;
. the designation, aggregate principal amount and terms of the ACE debt
securities purchasable upon exercise of the debt warrants;
. if applicable, the date on and after which the debt warrants and the
related offered securities will be separately transferable;
. the principal amount of ACE debt securities purchasable upon exercise of
one debt warrant and the price at which such principal amount of ACE
debt securities may be purchased upon exercise;
. the date on which the right to exercise the debt warrants shall commence
and the date on which such right shall expire;
. a discussion of certain United States Federal income tax considerations;
. whether the warrants represented by the debt warrant certificates will
be issued in registered or bearer form;
. the currency, currencies or currency units in which the offering price,
if any, and exercise price are payable;
. the antidilution provisions of the debt warrants; and
. any other terms of the debt warrants.
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Warrantholders will not have any of the rights of holders of ACE debt
securities, including the right to receive the payment of principal of, any
premium or interest on, or any additional amounts with respect to, the ACE debt
securities or to enforce any of the covenants of the ACE debt securities or the
applicable ACE indenture except as otherwise provided in the applicable ACE
indenture.
Exercise of Debt Warrants
Debt warrants may be exercised by surrendering the debt warrant certificate
at the office of the debt warrant agent, with the form of election to purchase
on the reverse side of the debt warrant certificate properly completed and
executed (with signature(s) guaranteed by a bank or trust company, by a broker
or dealer which is a member of the National Association of Securities Dealers,
Inc. or by a member of a national securities exchange), and by payment in full
of the exercise price, as set forth in the related prospectus supplement. Upon
the exercise of debt warrants, ACE will issue the ACE debt securities in
authorized denominations in accordance with the instructions of the exercising
warrantholder. If less than all of the debt warrants evidenced by the debt
warrant certificate are exercised, a new debt warrant certificate will be
issued for the remaining number of debt warrants.
DESCRIPTION OF PREFERRED SECURITIES
Each ACE Trust will be governed by the terms of the applicable restated trust
agreement. Under the restated trust agreement of an ACE Trust, the ACE Trust
may issue, from time to time, only one series of preferred securities. The
preferred securities will have the terms set forth in the restated trust
agreement or made a part of the restated trust agreement by the Trust Indenture
Act, and described in the related prospectus supplement. These terms will
mirror the terms of the ACE INA subordinated debt securities purchased by the
ACE Trust using the proceeds from the sale of its preferred securities and its
common securities. The ACE INA subordinated debt securities issued to an ACE
Trust will be guaranteed by ACE on a subordinated basis and are referred to as
the "corresponding ACE INA subordinated debt securities" relating to that ACE
Trust. See "Use of Proceeds."
The following summary sets forth the material terms and provisions of each
restated trust agreement and the preferred securities to which any prospectus
supplement relates. Because this summary is not complete, you should refer to
the form of restated trust agreement and to the Trust Indenture Act for
complete information regarding the terms and provisions of that agreement and
of the preferred securities, including the definitions of some of the terms
used below. The form of restated trust agreement filed as an exhibit to the
registration statement of which this prospectus forms a part is incorporated by
reference in this summary. Whenever particular sections or defined terms of a
restated trust agreement are referred to, such sections or defined terms are
incorporated herein by reference, and the statements in connection with which
such reference is made is qualified in its entirety by such reference.
Issuance, Status and Guarantee of Preferred Securities
Under the terms of the restated trust agreement for each ACE Trust, the
Administrative Trustees will issue the preferred securities on behalf of that
ACE Trust. The preferred securities will represent preferred beneficial
interests in the ACE Trust and the holders of the preferred securities will be
entitled to a preference in certain circumstances as regards distributions and
amounts payable on redemption or liquidation over the common securities of such
ACE Trust, as well as other benefits under the corresponding restated trust
agreement. The preferred securities of an ACE Trust will rank equally, and
payments will be made on the preferred securities pro rata, with the common
securities of that ACE Trust except as described under "--Subordination of
Common Securities." The Property Trustee will hold legal title to the
corresponding ACE INA subordinated debt securities in trust for the benefit of
the holders of the related preferred securities and common securities. The
common securities and the preferred securities of an ACE Trust are collectively
referred to as the "trust securities" of that ACE Trust.
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ACE will issue a guarantee agreement for the benefit of the holders of each
ACE Trust's preferred securities (the "preferred securities guarantee" for
those preferred securities). Under each preferred securities guarantee, ACE
will guarantee on a subordinated basis payment of distributions on the related
preferred securities and amounts payable on redemption or liquidation of such
preferred securities, but only to the extent that the related ACE Trust has
funds on hand to make such payments. See "Description of Preferred Securities
Guarantees."
Distributions
Distributions on the preferred securities will be cumulative, will accumulate
from the original issue date and will be payable on the dates as specified in
the related prospectus supplement. In the event that any date on which
distributions are payable on the preferred securities is not a Business Day,
payment of the distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional distributions
or other payment in respect of any such delay), except that, if such Business
Day is in the next succeeding calendar year, payment of such distribution 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
(each date on which distributions are payable in accordance with the foregoing,
a "distribution date"). (Section 4.1). A "Business Day" is any day other than a
Saturday or a Sunday, or a day on which banking institutions in The City of New
York are authorized or required by law or executive order to remain closed or a
day on which the corporate trust office of the Property Trustee or the trustee
for the corresponding ACE INA subordinated debt securities is closed for
business. (Section 1.1).
Distributions on each preferred security will be payable at a rate specified
in the related prospectus supplement. The amount of distributions payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months unless otherwise specified in the related prospectus supplement.
Distributions to which holders of preferred securities are entitled will
accumulate additional distributions at the rate per annum if and as specified
in the related prospectus supplement. References to "distributions" include any
accumulated or additional distributions unless otherwise stated. (Section 4.1).
If provided in the applicable prospectus supplement, ACE INA has the right
under the ACE INA subordinated indenture to defer the payment of interest at
any time or from time to time on any series of corresponding ACE INA
subordinated debt securities for an Extension Period which will be specified in
the related prospectus supplement. No Extension Period may extend beyond the
stated maturity of the corresponding ACE INA subordinated debt securities. See
"Description of ACE INA Debt Securities and ACE Guarantee--Option to Extend
Interest Payment Date." As a consequence of any such extension, distributions
on the corresponding preferred securities would be deferred (but would continue
to accumulate additional distributions at the rate per annum set forth in the
prospectus supplement for such preferred securities, which will match the
interest rate payable on the corresponding ACE INA subordinated debt securities
during the Extension Period) by the ACE Trust which issued such preferred
securities during any such Extension Period. (Section 4.1)
The funds of each ACE Trust available for distribution to holders of its
preferred securities will be limited to payments under the corresponding ACE
INA subordinated debt securities in which the ACE Trust will invest the
proceeds from the issuance and sale of its trust securities. If ACE INA or ACE
does not make interest payments on those corresponding ACE INA subordinated
debt securities, the Property Trustee will not have funds available to pay
distributions on the related preferred securities. The payment of distributions
(if and to the extent the ACE Trust has funds legally available for the payment
of such distributions and cash sufficient to make such payments) is guaranteed
by ACE on a limited basis as set forth herein under "Description of Preferred
Securities Guarantees."
Distributions on the preferred securities will be payable to the holders
thereof as they appear on the register of such ACE Trust on the relevant record
dates. As long as the preferred securities remain in book- entry form, the
record dates will be one Business Day prior to the relevant distribution dates.
Subject to any
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applicable laws and regulations and the provisions of the applicable restated
trust agreement, each distribution payment will be made as described under
"Global Preferred Securities." In the event any preferred securities are not in
book-entry form, the relevant record date for such preferred securities will be
the date at least 15 days prior to the relevant distribution date, as specified
in the related prospectus supplement. (Section 4.1)
Redemption or Exchange
Mandatory Redemption. Upon any repayment or redemption, in whole or in part,
of any corresponding ACE INA subordinated debt securities held by an ACE Trust,
whether at stated maturity, upon earlier redemption or otherwise, the proceeds
from such repayment or redemption shall simultaneously be applied by the
Property Trustee, upon not less than 30 nor more than 60 days notice to holders
of trust securities, to redeem, on a pro rata basis, preferred securities and
common securities having an aggregate stated liquidation amount equal to the
aggregate principal amount of the corresponding ACE INA subordinated debt
securities so repaid or redeemed. The redemption price per trust security will
be equal to the stated liquidation amount thereof plus accumulated and unpaid
distributions thereon to the date of redemption, plus the related amount of
premium, if any, and any additional amounts paid by ACE INA or ACE upon the
concurrent repayment or redemption of the corresponding ACE INA subordinated
debt securities (the "redemption price"). (Section 4.2) If less than all of any
series of corresponding ACE INA subordinated debt securities are to be repaid
or redeemed on a redemption date, then the proceeds from such repayment or
redemption shall be allocated to the redemption pro rata of the related
preferred securities and the common securities. (Section 4.2)
ACE INA will have the right to redeem any series of corresponding ACE INA
subordinated debt securities (1) at any time, in whole but not in part, upon
the occurrence of a Special Event and subject to the further conditions
described under "Description of ACE INA Debt Securities and ACE Guarantee--
Redemption," or (2) as may be otherwise specified in the applicable prospectus
supplement.
Special Event Redemption or Distribution of Corresponding ACE INA
Subordinated Debt Securities. If a Special Event relating to the preferred
securities and common securities of an ACE Trust shall occur and be continuing,
ACE INA has the right to redeem the corresponding ACE INA subordinated debt
securities, in whole but not in part, and thereby cause a mandatory redemption
of such preferred securities and common securities, in whole but not in part,
at the redemption price within 90 days following the occurrence of the Special
Event. At any time, ACE INA has the right to dissolve the related ACE Trust and
after satisfaction of the liabilities of creditors of such ACE Trust as
provided by applicable law, cause such corresponding ACE INA subordinated debt
securities to be distributed to the holders of such preferred securities and
common securities in liquidation of the ACE Trust. If ACE INA does not elect to
redeem the corresponding ACE INA subordinated debt securities upon the
occurrence of a Special Event, the applicable preferred securities will remain
outstanding, and in the event a Tax Event has occurred and is continuing,
Additional Sums may be payable on the corresponding ACE INA subordinated debt
securities. "Additional Sums" means the additional amounts as may be necessary
in order that the amount of distributions then due and payable by an ACE Trust
on the outstanding preferred securities and common securities of the ACE Trust
shall not be reduced as a result of any additional taxes, duties and other
governmental charges to which such ACE Trust has become subject as a result of
a Tax Event. (Section 1.1)
On and from the date fixed for any distribution of corresponding ACE INA
subordinated debt securities upon dissolution of an ACE Trust (1) the trust
securities will no longer be deemed to be outstanding, (2) the depositary or
its nominee, as the record holder of the applicable preferred securities, will
receive a registered global certificate or certificates representing the
corresponding ACE INA subordinated debt securities to be delivered upon such
distribution, upon surrender of the related preferred securities certificates
for exchange and (3) any certificates representing such preferred securities
not so surrendered for exchange will be deemed to represent beneficial
interests in the corresponding ACE INA subordinated debt securities having an
aggregate principal amount equal to the aggregate stated liquidation amount of
such preferred securities, and accruing interest at the rate provided for in
such debt securities (which will equal the distribution rate on the preferred
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securities) until such certificates are presented to the Administrative
Trustees or their agent for exchange. (Section 9.4)
There can be no assurance as to the market prices for the preferred
securities or the corresponding ACE INA subordinated debt securities that may
be distributed in exchange for preferred securities if a dissolution and
liquidation of an ACE Trust were to occur. Accordingly, the preferred
securities that you may purchase, or the corresponding ACE INA subordinated
debt securities that you may receive on dissolution and liquidation of an ACE
Trust, may trade at a discount to the price that you paid to purchase the
preferred securities.
Redemption Procedures
Preferred securities redeemed on each redemption date shall be redeemed at
the redemption price with the applicable proceeds from the contemporaneous
redemption of the corresponding ACE INA subordinated debt securities.
Redemptions of the preferred securities shall be made and the redemption price
shall be payable on each redemption date only to the extent that the related
ACE Trust has funds on hand available for the payment of such redemption price.
See also "--Subordination of Common Securities."
If an ACE Trust gives a notice of redemption (which notice will be
irrevocable) in respect of its preferred securities, then, by 12:00 noon, New
York City time, on the redemption date, to the extent funds are available, the
Property Trustee will deposit irrevocably with the depositary for the preferred
securities funds sufficient to pay the applicable redemption price and will
give the depositary irrevocable instructions and authority to pay the
redemption price to the holders of such preferred securities. If such preferred
securities are no longer in book-entry form, the Property Trustee, to the
extent funds are available, will irrevocably deposit with the paying agent for
such preferred securities funds sufficient to pay the applicable redemption
price and will give such paying agent irrevocable instructions and authority to
pay the redemption price to the holders thereof upon surrender of their
certificates evidencing such preferred securities. Notwithstanding the
foregoing, distributions payable on or prior to the redemption date for any
preferred securities called for redemption shall be payable to the holders of
such preferred 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 immediately prior to the close of business on the
date of such deposit, all rights of the holders of such preferred securities so
called for redemption will cease, except the right of the holders of such
preferred securities to receive the redemption price, but without interest, and
such preferred securities will cease to be outstanding. In the event that any
date on which any redemption price is payable is not a Business Day, then
payment of the redemption price payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. In the event that payment of the redemption price in respect of
preferred securities called for redemption is improperly withheld or refused
and not paid either by the ACE Trust or by ACE pursuant to the preferred
securities guarantee as described under "Description of Preferred Securities
Guarantees", distributions on such preferred securities will continue to
accumulate at the then applicable rate, from the redemption date originally
established by the ACE Trust for such preferred securities to the date such
redemption price is actually paid, in which case the actual payment date will
be the date fixed for redemption for purposes of calculating the redemption
price.
Subject to applicable law (including, without limitation, United States
Federal securities law), ACE or its subsidiaries, including ACE INA, may at any
time and from time to time purchase outstanding preferred securities by tender,
in the open market or by private agreement.
Payment of the redemption price on the preferred securities shall be made to
the applicable recordholders as they appear on the register for such preferred
securities on the relevant record date, which shall be one Business Day prior
to the relevant redemption date; provided, however, that in the event that any
preferred securities are not in book-entry form, the relevant record date for
such preferred securities shall be a date at least 15 days prior to the
redemption date, as specified in the applicable prospectus supplement.
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If less than all of the preferred securities and common securities issued by
an ACE Trust are to be redeemed on a redemption date, then the aggregate
liquidation amount of such preferred securities and common securities to be
redeemed shall be allocated pro rata to the preferred securities and the common
securities based upon the relative liquidation amounts of such classes. The
particular preferred securities to be redeemed shall be selected on a pro rata
basis not more than 60 days prior to the redemption date by the Property
Trustee from the outstanding preferred securities not previously called for
redemption, by such method (including without limitation by lot) as the
Property Trustee shall deem fair and appropriate. The Property Trustee shall
promptly notify the trust registrar in writing of the preferred securities
selected for redemption and, in the case of any preferred securities selected
for partial redemption, the liquidation amount thereof to be redeemed. For all
purposes of each restated trust agreement, unless the context otherwise
requires, all provisions relating to the redemption of preferred securities
shall relate, in the case of any preferred securities redeemed or to be
redeemed only in part, to the portion of the liquidation amount of preferred
securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of trust securities to be
redeemed at its registered address. Unless each of ACE INA and ACE defaults in
payment of the redemption price on the corresponding ACE INA subordinated debt
securities, on and after the redemption date interest will cease to accrue on
such ACE INA subordinated debt securities or portions thereof (and
distributions will cease to accrue on the related preferred securities or
portions thereof) called for redemption. (Section 4.2)
Subordination of Common Securities
Payment of distributions on, and the redemption price of, each ACE Trust's
preferred securities and common securities, as applicable, shall be made pro
rata based on the liquidation amount of such preferred securities and common
securities; provided, however, that if on any distribution date or redemption
date an event of default under the corresponding ACE INA subordinated debt
securities shall have occurred and be continuing, no payment of any
distribution on, or redemption price of, any of the ACE Trust's common
securities, and no other payment on account of the redemption, liquidation or
other acquisition of such common securities, shall be made unless payment in
full in cash of all accumulated and unpaid distributions on all of the ACE
Trust's outstanding preferred securities for all distribution periods
terminating on or prior thereto, or in the case of payment of the redemption
price the full amount of such redemption price on all of the ACE Trust's
outstanding preferred securities then called for redemption, 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 ACE Trust's preferred securities then due and payable.
In the case of any Event of Default under the restated trust agreement
resulting from a event of default under the corresponding ACE INA subordinated
debt securities, the holder of such ACE Trust's common securities will be
deemed to have waived any right to act with respect to any such Event of
Default under the applicable restated trust agreement until the effect of all
such Events of Default with respect to such preferred securities have been
cured, waived or otherwise eliminated. Until any such Events of Default under
the applicable restated trust agreement with respect to the preferred
securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the holders of such preferred securities
and not on behalf of the holder of the ACE Trust's common securities, and only
the holders of such preferred securities will have the right to direct the
Property Trustee to act on their behalf. (Section 4.3)
Liquidation Distribution Upon Dissolution of ACE Trust
Pursuant to each restated trust agreement, each ACE Trust shall automatically
dissolve upon expiration of its term and shall dissolve on the first to occur
of:
1. certain events of bankruptcy, dissolution or liquidation of ACE INA or
ACE;
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2. the written direction to the Property Trustee from ACE INA, as
Depositor, at any time (which direction is optional and wholly within the
discretion of ACE INA, as Depositor) to dissolve the ACE Trust and
distribute corresponding ACE INA subordinated debt securities having an
aggregate principal amount equal to the aggregate stated liquidation amount
of the trust securities to the holders of the trust securities in exchange
for the trust securities;
3. the redemption of all of the ACE Trust's trust securities following a
Special Event;
4. the redemption of all of the ACE Trust's preferred securities as
described under "Description of Preferred Securities--Redemption or
Exchange--Mandatory Redemption"; and
5. the entry of an order for the dissolution of the ACE Trust by a court
of competent jurisdiction. (Section 9.2)
If an early dissolution occurs as described in clause (1), (2) or (5) above
or upon the date designated for automatic dissolution of the ACE Trust, the ACE
Trust shall be liquidated by the ACE Trustees as expeditiously as the ACE
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of such ACE Trust as provided by applicable law, to
the holders of such trust securities corresponding ACE INA subordinated debt
securities having an aggregate principal amount equal to the aggregate stated
liquidation amount of the trust securities. However, if such distribution is
determined by the Property Trustee not to be practical, such holders will be
entitled to receive out of the assets of the ACE Trust available for
distribution to holders, after satisfaction of liabilities to creditors of such
ACE Trust as provided by applicable law, an amount equal to, in the case of
holders of preferred securities, the aggregate of the liquidation amount plus
accumulated and unpaid distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If such Liquidation Distribution
can be paid only in part because such ACE Trust has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by such ACE Trust on its preferred securities shall be
paid on a pro rata basis. The Holder of such ACE Trust's common securities will
be entitled to receive distributions upon any such liquidation pro rata with
the holders of its preferred securities, except that if an event of default
under the corresponding ACE INA subordinated debt securities has occurred and
is continuing, the preferred securities shall have a priority over the common
securities. (Section 9.4)
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under each
restated trust agreement with respect to the applicable preferred securities
(whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the occurrence of an event of default in respect of the corresponding
ACE INA subordinated debt securities (see "Description of ACE INA Debt
Securities and ACE Guarantee--Events of Default"); or
(2) default by the Property Trustee in the payment of any distribution when
it becomes due and payable, and continuation of such default for a
period of 30 days; or
(3) default by the Property Trustee in the payment of any redemption price
of any trust security when it becomes due and payable; or
(4) default in the performance, or breach, in any material respect, of any
covenant or warranty of the ACE Trustees in such restated trust
agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is dealt with in clause (2)
or (3) above), and continuation of such default or breach for a period
of 60 days after there has been given, by registered or certified mail,
to the defaulting ACE Trustee or Trustees by the holders of at least
25% in aggregate liquidation preference of the outstanding preferred
securities of the applicable ACE Trust, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under such restated trust
agreement; or
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(5) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by ACE INA, as
Depositor, to appoint a successor Property Trustee within 60 days
thereof. (Section 1.1)
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 such ACE Trust's preferred
securities, the Administrative Trustees and ACE INA, as Depositor, unless such
Event of Default shall have been cured or waived. (Section 8.2) ACE INA, as
Depositor, 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 each restated
trust agreement. (Sections 8.15 and 8.16)
If an event of default under the corresponding ACE INA subordinated debt
securities has occurred and is continuing, the preferred securities shall have
a preference over the common securities upon dissolution of each ACE Trust as
described above. See "--Liquidation Distribution Upon Dissolution of ACE
Trust." The existence of an Event of Default under the restated trust agreement
does not entitle the holders of preferred securities to accelerate the maturity
thereof.
Removal of ACE Trustees
Unless a event of default under the corresponding ACE INA subordinated debt
securities shall have occurred and be continuing, any ACE Trustee may be
removed at any time by the holder of the common securities. If an event of
default under the corresponding ACE INA subordinated debt securities 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 preferred securities. In no event will the holders of the
preferred securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
holder of the common securities. No resignation or removal of an ACE 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 applicable restated trust agreement.
(Section 8.10)
Co-Trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at any time
or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the property of any
ACE Trust may at the time be located, ACE INA, as Depositor, and the
Administrative Trustees shall have power to appoint one or more persons either
to act as a co-trustee, jointly with the Property Trustee, of all or any part
of the property of such ACE Trust, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the applicable restated trust agreement. In case an event of
default under the corresponding ACE INA subordinated debt securities has
occurred and is continuing, the Property Trustee alone shall have power to make
such appointment. (Section 8.9)
Merger or Consolidation of ACE 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 ACE Trustee shall be a party
shall be the successor of such ACE Trustee under each restated trust agreement,
provided such corporation shall be otherwise qualified and eligible. (Section
8.12)
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Mergers, Consolidations, Amalgamations or Replacements of the ACE Trusts
An ACE Trust may not merge with or into, convert into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any corporation or other entity, except
as described below or as described in "Liquidation Distribution Upon
Dissolution of ACE Trust." An ACE Trust may, at the request of ACE INA, with
the consent of only the Administrative Trustees and without the consent of the
holders of the preferred securities, merge with or into, convert into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any State, provided, that
1. such successor entity either (a) expressly assumes all of the
obligations of such ACE Trust with respect to the preferred securities or
(b) substitutes for the preferred securities other securities having
substantially the same terms as the preferred securities (the "Successor
Securities") so long as the Successor Securities rank the same as the
preferred securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise,
2. ACE expressly appoints a trustee of such successor entity possessing
the same powers and duties as the Property Trustee as the holder of the
corresponding ACE INA subordinated debt securities,
3. the Successor Securities are listed or traded, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the preferred securities
are then listed or traded, if any,
4. such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the preferred securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization,
5. such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the preferred securities
(including any Successor Securities) in any material respect,
6. such successor entity has a purpose substantially identical to that of
the ACE Trust,
7. prior to such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, ACE INA has received an opinion
from independent counsel to the ACE 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 preferred
securities (including any Successor Securities) in any material respect,
and (b) following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the ACE Trust nor any
successor entity will be required to register as an "investment company"
under the Investment Company Act, and
8. ACE INA 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 preferred securities guarantee.
Notwithstanding the foregoing, an ACE Trust shall not, except with the
consent of holders of 100% in liquidation amount of the preferred securities,
consolidate, amalgamate, merge with or into, convert into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, convert into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the ACE Trust or the successor entity to be classified as other
than a grantor trust for United States Federal income tax purposes. (Section
9.5)
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Voting and Preemptive Rights
Except as provided below and under "--Removal of ACE Trustees," "Description
of ACE INA Debt Securities and ACE Guarantee--Events of Default," "Description
of Preferred Securities Guarantees--Amendments and Assignment" and as otherwise
required by law and the applicable restated trust agreement, the holders of the
preferred securities will have no voting rights. Holders of the preferred
securities have no preemptive or similar rights. (Sections 5.14 and 6.1)
Amendment of Restated Trust Agreements
Each restated trust agreement may be amended from time to time by ACE INA and
the ACE Trustees, without the consent of the holders of the trust securities:
1. to cure any ambiguity, correct or supplement any provisions in such
restated trust agreement that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or questions
arising under such restated trust agreement, which shall not be
inconsistent with the other provisions of such restated trust agreement, or
2. to modify, eliminate or add to any provisions of such restated trust
agreement to such extent as shall be necessary to ensure that the ACE 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 ACE Trust will not be required to register as an
"investment company" under the Investment Company Act;
provided, however, that in the case of clause (1), such action shall not
adversely affect in any material respect the interests of any holder of trust
securities. Any such amendments of a restated trust agreement shall become
effective when notice thereof is given to the holders of trust securities of
the applicable ACE Trust.
Each restated trust agreement may be amended by the ACE Trustees and ACE INA
with the consent of holders representing not less than a majority (based upon
liquidation amounts) of the outstanding trust securities, and receipt by the
ACE Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the ACE Trustees in accordance with such
amendment will not affect the ACE Trust's status as a grantor trust for United
States Federal income tax purposes or the ACE Trust's exemption from status as
an "investment company" under the Investment Company Act. However, without the
consent of each holder of trust securities, such restated trust agreement may
not be amended to:
1. change the amount or timing of any distribution on the trust
securities or otherwise adversely affect the amount of any distribution
required to be made in respect of the trust securities as of a specified
date, or
2. restrict the right of a holder of trust securities to institute suit
for the enforcement of any such payment on or after such date. (Section
10.2)
So long as any corresponding ACE INA subordinated debt securities are held by
the Property Trustee, the ACE Trustees shall not:
1. direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the ACE INA subordinated indenture,
or executing any trust or power conferred on that trustee with respect to
such corresponding ACE INA subordinated debt securities,
2. waive any past default that is waivable under Section 5.13 of the ACE
INA subordinated indenture (as described in "Description of the ACE INA
Debt Securities and ACE Guarantee-- Modification and Waiver"),
3. exercise any right to rescind or annul a declaration that the
principal of all the ACE INA subordinated debt securities shall be due and
payable, or
4. consent to any amendment, modification or termination of the ACE INA
subordinated indenture or such corresponding ACE INA subordinated debt
securities, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate liquidation amount of all outstanding preferred
securities.
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However, where a consent under the ACE INA subordinated indenture would
require the consent of each holder of corresponding ACE INA subordinated debt
securities affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the corresponding preferred
securities. The ACE Trustees shall not revoke any action previously authorized
or approved by a vote of the holders of the preferred securities except by
subsequent vote of the holders of the preferred securities. The Property
Trustee shall notify each holder of preferred securities of any notice of
default with respect to the corresponding ACE INA subordinated debt securities.
In addition to obtaining the foregoing approvals of the holders of the
preferred securities, prior to taking any of the foregoing actions, the ACE
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that the ACE Trust will not be classified as an association taxable as a
corporation for United States Federal income tax purposes on account of such
action. (Section 6.1)
Any required approval or action of holders of preferred securities may be
given or taken at a meeting of holders of preferred securities convened for
such purpose or pursuant to written consent. The Property Trustee will cause a
notice of any meeting at which holders of preferred securities are entitled to
vote to be given to each holder of record of preferred securities in the manner
set forth in each restated trust agreement. (Sections 6.2, 6.3 and 6.6)
No vote or consent of the holders of preferred securities will be required
for an ACE Trust to redeem and cancel its preferred securities in accordance
with the applicable restated trust agreement.
Notwithstanding that holders of preferred securities are entitled to vote or
consent under any of the circumstances described above, any of the preferred
securities that are owned by ACE INA, the ACE Trustees or any affiliate of ACE
INA or any ACE Trustees, shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
Global Preferred Securities
The preferred securities of an ACE Trust may be issued in whole or in part in
the form of one or more global preferred securities that will be deposited
with, or on behalf of, the depositary identified in the prospectus supplement.
The specific terms of the depositary arrangement with respect to the
preferred securities of an ACE Trust will be described in the related
prospectus supplement. ACE INA anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a global preferred security, and the deposit of such
global preferred security with or on behalf of the depositary, the depositary
for such global preferred security or its nominee will credit, on its bookentry
registration and transfer system, the respective aggregate liquidation amounts
of the individual preferred securities represented by such global preferred
securities to the accounts of participants. Such accounts shall be designated
by the underwriters or agents with respect to such preferred securities or by
ACE INA if such preferred securities are offered and sold directly by ACE INA.
Ownership of beneficial interests in a global preferred security will be
limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in such global preferred
security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the depositary or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons who hold through participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a global preferred security.
So long as the depositary for a global preferred security, or its nominee, is
the registered owner of such global preferred security, such depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
preferred securities represented by such global preferred security for all
purposes under the restated trust agreement governing such preferred
securities. Except as provided below, owners of beneficial
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interests in a global preferred security will not be entitled to have any of
the individual preferred securities represented by such global preferred
security registered in their names, will not receive or be entitled to receive
physical delivery of any such preferred securities in definitive form and will
not be considered the owners or holders thereof under the restated trust
agreement.
Payments of any liquidation amount, premium or distributions in respect of
individual preferred securities registered in the name of a depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the global preferred security representing such
preferred securities. None of ACE, ACE INA, the Property Trustee, any paying
agent, or the securities registrar for such preferred securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the global
preferred security representing such preferred securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
ACE INA expects that the depositary or its nominee, upon receipt of any
payment in respect of a global preferred security representing any ACE Trust's
preferred securities, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interest in
the aggregate liquidation amount of such global preferred security for such
preferred securities as shown on the records of such depositary or its nominee.
ACE INA also expects that payments by participants to owners of beneficial
interests in such global preferred security held through such participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such
participants.
Unless otherwise specified in the applicable prospectus supplement, the
restated trust agreement of each ACE Trust will provide that (1) if ACE INA
advises the ACE Trustees in writing that the depositary is no longer willing or
able to act as depositary and ACE fails to appoint a qualified successor within
90 days, (2) ACE INA at its option advises the ACE Trustees in writing that it
elects to terminate the book-entry system through the depositary or (3) after
the occurrence of an event of default under the corresponding ACE INA
subordinated debt securities, owners of preferred securities representing at
least a majority of liquidation amount of such preferred securities advise the
Property Trustee in writing that the continuation of a book-entry system
through the depositary is no longer in their best interests, then the global
preferred securities will be exchanged for preferred securities in definitive
form in accordance with the instructions of the depositary. It is expected that
such instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in global
preferred securities. Individual preferred securities so issued will be issued
in authorized denominations.
Payment and Paying Agency
Payments of distributions in respect of the preferred securities shall be
made to the depositary, which shall credit the relevant accounts at the
depositary on the applicable distribution dates or, if any ACE Trust's
preferred securities 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 that ACE Trust. (Section 4.4) Unless
otherwise specified in the applicable prospectus supplement, the paying agent
shall initially be The First National Bank of Chicago and any co-paying agent
chosen by The First National Bank of Chicago and acceptable to the
Administrative Trustees and ACE. The paying agent shall be permitted to resign
as paying agent upon 30 days written notice to the Administrative Trustees, the
Property Trustee and ACE INA. In the event The First National Bank of Chicago
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 ACE INA) to act as paying agent. (Section 5.9)
Registrar and Transfer Agent
Unless otherwise specified in the applicable prospectus supplement, The First
National Bank of Chicago will act as registrar and transfer agent for the
preferred securities.
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Registration of transfers and exchanges of preferred securities will be
effected without charge by or on behalf of each ACE Trust, but upon payment of
any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. The ACE Trusts will not be required to register or
cause to be registered the transfer of their preferred securities after such
preferred securities have been called for redemption. (Section 5.4)
Information Concerning the Property Trustee
The Property Trustee undertakes to perform only those duties specifically set
forth in each restated trust agreement, provided that it must exercise the same
degree of care as a prudent person would exercise 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 applicable
restated trust agreement at the request of any holder of preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby. If in performing its duties under
the restated trust agreement, the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the
applicable restated trust agreement or is unsure of the application of any
provision of the applicable restated trust agreement, and the matter is not one
on which holders of preferred securities are entitled under such restated trust
agreement to vote, then the Property Trustee shall take such action as is
directed by ACE INA. If it is not so directed, the Property Trustee shall take
such action as it deems advisable and in the best interests of the holders of
the trust securities and will have no liability except for its own bad faith,
negligence or willful misconduct. (Sections 8.1 and 8.3)
Administrative Trustees
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the ACE Trusts in such a way that no ACE Trust will
be deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States Federal income tax purposes and so that the corresponding ACE
INA subordinated debt securities will be treated as indebtedness of ACE INA for
United States Federal income tax purposes. In this connection, ACE INA and the
Administrative Trustees are authorized to take any action not inconsistent with
applicable law, the certificate of trust of each ACE Trust or each restated
trust agreement, that ACE INA 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 related preferred securities.
DESCRIPTION OF PREFERRED SECURITIES GUARANTEES
Concurrently with the issuance by each ACE Trust of its preferred securities,
ACE will execute and deliver a preferred securities guarantee for the benefit
of the holders from time to time of such preferred securities. The First
National Bank of Chicago will act as indenture trustee ("Guarantee Trustee")
under each preferred securities guarantee for the purposes of compliance with
the Trust Indenture Act, and each preferred securities guarantee will be
qualified as an indenture under the Trust Indenture Act. Because the following
summary of certain provisions of the preferred securities guarantees is not
complete, you should refer to the form of preferred securities guarantee and
the Trust Indenture Act for more complete information regarding the provisions
of each preferred securities guarantee, including the definitions of some of
the terms used below. The form of the preferred securities guarantee has been
filed as an exhibit to the registration statement of which this prospectus
forms a part. Reference in this summary to preferred securities means that ACE
Trust's preferred securities to which a preferred securities guarantee relates.
The Guarantee Trustee will hold each preferred securities guarantee for the
benefit of the holders of the related ACE Trust's preferred securities.
General
ACE will irrevocably agree to pay in full on a subordinated basis, to the
extent described herein, the Guarantee Payments (as defined below) (without
duplication of amounts theretofore paid by or on behalf of the ACE Trust) to
the holders of the preferred securities, as and when due, regardless of any
defense, right of setoff
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or counterclaim that such ACE Trust may have or assert other than the defense
of payment. The following payments with respect to the preferred securities, to
the extent not paid by or on behalf of the related ACE Trust (the "Guarantee
Payments"), will be subject to the preferred securities guarantee:
1. any accrued and unpaid distributions required to be paid on such
preferred securities, to the extent that the ACE Trust has funds on hand
available for payment at such time,
2. the redemption price, including all accrued and unpaid distributions
to the redemption date, with respect to any preferred securities called for
redemption, to the extent that the ACE Trust has funds on hand available
for payment at such time, and
3. upon a voluntary or involuntary dissolution, winding up or liquidation
of the ACE Trust (unless the corresponding ACE INA subordinated debt
securities are distributed to holders of such preferred securities), the
lesser of (a) the Liquidation Distribution, to the extent such ACE Trust
has funds available for payment at such time and (b) the amount of assets
of such ACE Trust remaining available for distribution to holders of
preferred securities.
ACE's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by ACE to the holders of the applicable
preferred securities or by causing the ACE Trust to pay such amounts to such
holders. (Section 5.1)
Each preferred securities guarantee will be an irrevocable guarantee on a
subordinated basis of the related ACE Trust's payment obligations under the
preferred securities, but will apply only to the extent that such related ACE
Trust has funds sufficient to make such payments. Each preferred securities
guarantee is, to that extent, a guarantee of payment and not a guarantee of
collection. See "--Status of the Preferred Securities Guarantees."
If ACE INA or ACE does not make interest payments on the corresponding ACE
INA subordinated debt securities held by an ACE Trust, the ACE Trust will not
be able to pay distributions on the preferred securities and will not have
funds legally available for payment. Each preferred securities guarantee will
rank subordinate and junior in right of payment to all Senior Indebtedness of
ACE (including all ACE debt securities and ACE's obligations as guarantor under
the ACE INA subordinated indenture) as described below under "--Status of the
Preferred Securities Guarantees" and in the related prospectus supplement.
Because ACE is a holding company, its rights and the rights of its creditors
(including the holders of preferred securities who are creditors of ACE by
virtue of a preferred securities guarantee) and shareholders, to participate in
any distribution of assets of any subsidiary upon such subsidiary's liquidation
or reorganization or otherwise would be subject to the prior claims of the
subsidiary's creditors, except to the extent that ACE may itself be a creditor
with recognized claims against the subsidiary. The right of creditors of ACE
(including the holders of preferred securities who are creditors of ACE by
virtue of a preferred securities guarantee) to participate in the distribution
of stock owned by ACE in certain of its subsidiaries, including ACE's insurance
subsidiaries, may also be subject to approval by certain insurance regulatory
authorities having jurisdiction over such subsidiaries. Except as otherwise
provided in the applicable prospectus supplement, the preferred securities
guarantees do not limit the ability of ACE or ACE INA to incur or issue other
secured or unsecured debt, whether under an indenture or otherwise.
ACE's obligations described herein and in any accompanying prospectus
supplement, through the applicable preferred securities guarantee, the ACE INA
subordinated indenture (including the ACE guarantee of the ACE INA subordinated
debt securities) and any supplemental indentures thereto and the expense
agreement described below, taken together, constitute a full, irrevocable and
unconditional guarantee by ACE of payments due on the preferred 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 ACE Trust's obligations under
the preferred securities. See "The ACE Trusts," "Description of Preferred
Securities," and "Description of ACE INA Debt Securities and ACE Guarantee."
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ACE will also agree to guarantee the obligations of each ACE Trust with
respect to the common securities issued by the ACE Trust to the same extent as
under the preferred securities guarantee, except that if an Event of Default
under the ACE INA subordinated indenture has occurred and is continuing, the
holders of preferred securities under the preferred securities guarantee will
have priority over the holders of the common securities under the common
securities guarantee with respect to distributions and payments on liquidation,
redemption or otherwise.
Status of the Preferred Securities Guarantees
Each preferred securities guarantee will constitute an unsecured obligation
of ACE and will rank subordinate and junior in right of payment to all Senior
Indebtedness of ACE (including all ACE debt securities and ACE's obligations as
guarantor under the ACE INA subordinate indenture). (Section 6.2) For purposes
of any preferred securities guarantee, "Senior Indebtedness" means all
Indebtedness of ACE (including its obligations as guarantor under the ACE INA
subordinated indenture) outstanding at any time, except (a) the Indebtedness
under the preferred securities guarantee, (b) Indebtedness as to which, by the
terms of the instrument creating or evidencing the same, it is provided that
such Indebtedness is subordinated to or ranks equally with the preferred
securities guarantee or to other Indebtedness of ACE which is subordinated to
or ranks equally with the preferred securities guarantee, (c) Indebtedness of
ACE to an affiliate of ACE, (d) interest accruing after the filing of a
petition initiating any bankruptcy, insolvency or other similar proceeding
unless such interest is an allowed claim enforceable against ACE in a
proceeding under federal or state bankruptcy laws, (e) trade accounts payable
and (f) similar preferred securities guarantees issued by ACE on behalf of
holders of preferred securities of any other ACE Trust or any trust,
partnership or other entity affiliated with ACE which is a financing vehicle of
ACE or any affiliate of ACE in connection with the issuance by such entity of
preferred securities or other similar securities that are guaranteed by ACE
pursuant to an instrument that ranks equally with or junior in right of payment
to the preferred securities guarantee. "Indebtedness" has the same meaning
given to that term under the ACE indentures. (Section 1.1).
Each preferred securities guarantee will rank equally with all other similar
preferred securities guarantees issued by ACE on behalf of holders of preferred
securities of any other ACE Trust or any trust, partnership or other entity
affiliated with ACE which is a financing vehicle of ACE or any affiliate of ACE
in connection with the issuance by such entity of preferred securities or other
similar securities that are guaranteed by ACE pursuant to an instrument that
ranks equally with or junior in right of payment to the preferred securities
guarantee. (Section 6.3). Each preferred securities guarantee will constitute a
guarantee of payment and not of collection. This means that the guaranteed
party may, to the extent permitted by law, institute a legal proceeding
directly against ACE to enforce its rights under the preferred securities
guarantee without first instituting a legal proceeding against any other person
or entity (including the applicable ACE Trust) (Section 5.4). Each preferred
securities guarantee will not be discharged except by payment of the Guarantee
Payments in full to the extent not paid by the ACE Trust or upon distribution
to the holders of the preferred securities of the corresponding ACE INA
subordinated debt securities. None of the preferred securities guarantees
places a limitation on the amount of additional Indebtedness that may be
incurred by ACE or ACE INA. ACE expects from time to time to incur additional
Indebtedness that will rank senior to the preferred securities guarantees.
Payment of Additional Amounts
ACE will make all Guarantee Payments pursuant to the preferred securities
guarantee without withholding or deduction at source for, or on account of, any
present or future taxes, fees, duties, assessments or governmental charges of
whatever nature imposed or levied by or on behalf of the Cayman Islands or
Bermuda (each, a "taxing jurisdiction") or any political subdivision or taxing
authority thereof or therein, unless such taxes, fees, duties, assessments or
governmental charges are required to be withheld or deducted by (x) the laws
(or any regulations or rulings promulgated thereunder) of a taxing jurisdiction
or any political subdivision or taxing authority thereof or therein or (y) an
official position regarding the application, administration, interpretation or
enforcement of any such laws, regulations or rulings (including, without
limitation, a holding
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by a court of competent jurisdiction or by a taxing authority in a taxing
jurisdiction or any political subdivision thereof). If a withholding or
deduction at source is required, ACE will, subject to certain limitations and
exceptions described below, pay to the holder of any related preferred
securities such additional amounts as may be necessary so that every Guarantee
Payment pursuant to the preferred securities guarantee made to such holder,
after such withholding or deduction, will not be less than the amount provided
for in such preferred securities guarantee to be then due and payable.
ACE will not be required to pay any additional amounts for or on account of:
1. any tax, fee, duty, assessment or governmental charge of whatever
nature which would not have been imposed but for the fact that such holder
(a) was a resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or was physically present in, the
relevant taxing jurisdiction or any political subdivision thereof or
otherwise had some connection with the relevant taxing jurisdiction other
than by reason of the mere ownership of preferred securities, or receipt of
payment under such preferred securities, (b) presented such preferred
security for payment in the relevant taxing jurisdiction or any political
subdivision thereof, unless such preferred security could not have been
presented for payment elsewhere, or (c) presented such preferred security
for payment more than 30 days after the date on which the payment in
respect of such preferred security first became due and payable or provided
for, whichever is later, except to the extent that the holder would have
been entitled to such additional amounts if it had presented such preferred
security for payment on any day within that 30-day period;
2. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
3. any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the holder or the beneficial owner of
such preferred security to comply with any reasonable request by ACE or the
applicable ACE Trust addressed to the holder within 90 days of such request
(a) to provide information concerning the nationality, residence or
identity of the holder or such beneficial owner or (b) to make any
declaration or other similar claim or satisfy any information or reporting
requirement, which in either case is required or imposed by statute,
treaty, regulation or administrative practice of the relevant taxing
jurisdiction or any political subdivision thereof as a precondition to
exemption from all or part of such tax, assessment or other governmental
charge; or
4. any combination of items (1), (2) and (3).
In addition, ACE will not pay any additional amounts with respect to any
Guarantee Payment to any holder who is a fiduciary or partnership or other than
the sole beneficial owner of the related preferred security to the extent such
payment would be required by the laws of the relevant taxing jurisdiction (or
any political subdivision or relevant taxing authority thereof or therein) to
be included in the income for tax purposes of a beneficiary or partner or
settlor with respect to such fiduciary or a member of such partnership or a
beneficial owner who would not have been entitled to such additional amounts
had it been the holder of such preferred security. (Section 5.8)
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related preferred securities (in which case no
consent will be required), no preferred securities guarantee may be amended
without the prior approval of the holders of not less than a majority of the
aggregate liquidation amount of such outstanding preferred securities. (Section
8.2). All guarantees and agreements contained in each preferred securities
guarantee shall bind the successors, assigns, receivers, trustees and
representatives of ACE and shall inure to the benefit of the holders of the
related preferred securities then outstanding. (Section 8.1) Except in
connection with a consolidation, amalgamation or merger or conveyance, transfer
or lease involving ACE that is permitted under the ACE INA subordinated
indenture and under which the person formed by such
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consolidation or amalgamation or into which ACE is merged or which acquires or
leases the properties and assets of ACE agrees in writing to perform ACE's
obligations under the preferred securities guarantee, ACE may not assign its
obligations thereunder.
Events of Default
An event of default under each preferred securities guarantee will occur upon
the failure of ACE to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate liquidation
amount of the related preferred securities 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 such preferred securities guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under such preferred securities guarantee. (Section 5.4)
Any holder of the preferred securities may institute a legal proceeding
directly against ACE to enforce its rights under such preferred securities
guarantee without first instituting a legal proceeding against the ACE Trust,
the Guarantee Trustee or any other person or entity. (Section 5.4)
ACE, as guarantor, is required to file annually with the Guarantee Trustee a
certificate as to whether or not ACE is in compliance with all the conditions
and covenants applicable to it under the preferred securities guarantee.
(Section 2.4)
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of a
default by ACE in performance of any preferred securities guarantee, undertakes
to perform only such duties as are specifically set forth in each preferred
securities guarantee and, after default with respect to any preferred
securities guarantee, 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.
(Section 3.1). Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by any preferred
securities guarantee at the request of any holder of any preferred securities
unless it is offered reasonable indemnity against the costs, expenses, and
liabilities that might be incurred thereby. (Section 3.2)
Termination of the Preferred Securities Guarantees
Each preferred securities guarantee will terminate and be of no further force
and effect upon (1) full payment of the redemption price of the related
preferred securities, (2) the distribution of the corresponding ACE INA
subordinated debt securities to the holders of the related preferred securities
or (3) upon full payment of the amounts payable upon liquidation of the related
ACE Trust. Each preferred securities guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of the
related preferred securities must restore payment of any sums paid with respect
to such preferred securities or such preferred securities guarantee. (Section
7.1)
New York Law to Govern
Each preferred securities guarantee will be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and performed in that state. (Section 8.5)
The Expense Agreement
Pursuant to the expense agreement entered into by ACE under the restated
trust agreement, ACE will irrevocably and unconditionally guarantee to each
person or entity to whom an ACE Trust becomes indebted or liable, the full
payment of any costs, expenses or liabilities of the ACE Trust, other than
obligations of the ACE Trust to pay to the holders of the preferred securities
or other similar interests in the ACE Trust of the amounts due such holders
pursuant to the terms of the preferred securities or such other similar
interests, as the case may be.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
ACE may issue stock purchase contracts, representing contracts obligating
holders to purchase from ACE, and obligating ACE to sell to the holders, a
specified number of ordinary shares at a future date or dates. The price per
ordinary share may be fixed at the time the stock purchase contracts are issued
or may be determined by reference to a specific formula set forth in the stock
purchase contracts. The stock purchase contracts may be issued separately or as
a part of stock purchase units consisting of a stock purchase contract and, as
security for the holder's obligations to purchase the ordinary shares under the
stock purchase contracts, either (1) senior debt securities or subordinated
debt securities of ACE INA, fully and unconditionally guaranteed by ACE, (2)
debt obligations of third parties, including U.S. Treasury securities, or (3)
preferred securities of an ACE Trust. The stock purchase contracts may require
us to make periodic payments to the holders of the stock purchase units or vice
versa, and such payments may be unsecured or prefunded on some basis. The stock
purchase contracts may require holders to secure their obligations in a
specified manner and in certain circumstances we may deliver newly issued
prepaid stock purchase contracts upon release to a holder of any collateral
securing such holder's obligations under the original stock purchase contract.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units and, if applicable, prepaid stock
purchase contracts. The description in the prospectus supplement will not
purport to be complete and will be qualified in its entirety by reference to
(1) the stock purchase contracts, (2) the collateral arrangements and
depositary arrangements, if applicable, relating to such stock purchase
contracts or stock purchase units and (3) if applicable, the prepaid stock
purchase contracts and the document pursuant to which such prepaid stock
purchase contracts will be issued.
PLAN OF DISTRIBUTION
ACE, ACE INA and/or any ACE Trust may sell offered securities in any one or
more of the following ways from time to time: (1) through agents; (2) to or
through underwriters; (3) through dealers; or (4) directly to purchasers. The
prospectus supplement with respect to the offered securities will set forth the
terms of the offering of the offered securities, including the name or names of
any underwriters, dealers or agents; the purchase price of the offered
securities and the proceeds to ACE, ACE INA and/or an ACE Trust from such sale;
any underwriting discounts and commissions or agency fees and other items
constituting underwriters' or agents' compensation; any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
and any securities exchange on which such offered securities may be listed. Any
initial public offering price, discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
The distribution of the offered securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase offered securities may be solicited by agents designated
by ACE from time to time. Any such agent involved in the offer or sale of the
offered securities in respect of which this prospectus is delivered will be
named, and any commissions payable by ACE, ACE INA and/or the applicable ACE
Trust to such agent will be set forth, in the applicable prospectus supplement.
Unless otherwise indicated in such prospectus supplement, any such agent will
be acting on a reasonable best efforts basis for the period of its appointment.
Any such agent may be deemed to be an underwriter, as that term is defined in
the Securities Act, of the offered securities so offered and sold.
If offered securities are sold by means of an underwritten offering, ACE, ACE
INA and/or the applicable ACE Trust will execute an underwriting agreement with
an underwriter or underwriters, and the names of the specific managing
underwriter or underwriters, as well as any other underwriters, and the terms
of the
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transaction, including commissions, discounts and any other compensation of the
underwriters and dealers, if any, will be set forth in the prospectus
supplement which will be used by the underwriters to make resales of the
offered securities. If underwriters are utilized in the sale of the offered
securities, the offered securities will be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public offering
prices or at varying prices determined by the underwriters at the time of sale.
Offered securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by the managing
underwriters. If any underwriter or underwriters are utilized in the sale of
the offered securities, unless otherwise indicated in the prospectus
supplement, the underwriting agreement will provide that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters with respect to a sale of offered securities will be obligated to
purchase all such offered securities of a series if any are purchased.
ACE, ACE INA and/or the applicable ACE Trust may grant to the underwriters
options to purchase additional offered securities, to cover over-allotments, if
any, at the public offering price (with additional underwriting discounts or
commissions), as may be set forth in the prospectus supplement relating
thereto. If ACE, ACE INA and/or the applicable ACE Trust grants any over-
allotment option, the terms of such over-allotment option will be set forth in
the prospectus supplement relating to such offered securities.
If a dealer is utilized in the sales of offered securities in respect of
which this prospectus is delivered, ACE, ACE INA and/or the applicable ACE
Trust will sell such offered securities to the dealer as principal. The dealer
may then resell such offered securities to the public at varying prices to be
determined by such dealer at the time of resale. Any such dealer may be deemed
to be an underwriter, as such term is defined in the Securities Act, of the
offered securities so offered and sold. The name of the dealer and the terms of
the transaction will be set forth in the related prospectus supplement.
Offers to purchase offered securities may be solicited directly by ACE, ACE
INA and/or the applicable ACE Trust and the sale thereof may be made by ACE,
ACE INA and/or the applicable ACE Trust directly to institutional investors or
others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the related prospectus supplement.
Offered securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for ACE, ACE INA and/or the applicable ACE
Trust. Any remarketing firm will be identified and the terms of its agreements,
if any, with ACE, ACE INA and/or an ACE Trust and its compensation will be
described in the applicable prospectus supplement. Remarketing firms may be
deemed to be underwriters, as such term is defined in the Securities Act, in
connection with the offered securities remarketed thereby.
Agents, underwriters, dealers and remarketing firms may be entitled under
relevant agreements entered into with ACE, ACE INA and/or the applicable ACE
Trust to indemnification by ACE, ACE INA and/or the applicable ACE Trust
against certain civil liabilities, including liabilities under the Securities
Act that may arise from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a material fact in
this prospectus, any supplement or amendment hereto, or in the registration
statement of which this prospectus forms a part, or to contribution with
respect to payments which the agents, underwriters or dealers may be required
to make.
If so indicated in the prospectus supplement, ACE, ACE INA and/or the
applicable ACE Trust will authorize underwriters or other persons acting as
ACE's, ACE INA's and/or the applicable ACE Trust's agents to solicit offers by
certain institutions to purchase offered securities from ACE, ACE INA and/or
the applicable ACE Trust, pursuant to contracts providing for payments and
delivery on a future date. Institutions with which
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such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
ACE, ACE INA and/or the applicable ACE Trust. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the offered securities shall not at the time of delivery be prohibited under
the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
Each series of offered securities will be a new issue and, other than the
ordinary shares, which are listed on the NYSE, will have no established trading
market. ACE, ACE INA and/or the applicable ACE Trust may elect to list any
series of offered securities on an exchange, and in the case of the ordinary
shares, on any additional exchange, but, unless otherwise specified in the
applicable prospectus supplement, none of ACE, ACE INA or any ACE Trust shall
be obligated to do so. No assurance can be given as to the liquidity of the
trading market for any of the offered securities.
Underwriters, dealers, agents and remarketing firms may be customers of,
engage in transactions with, or perform services for, ACE and its subsidiaries
in the ordinary course of business.
LEGAL OPINIONS
Certain legal matters with respect to United States and New York law will be
passed upon for ACE, ACE INA and the ACE Trusts by Mayer, Brown & Platt,
Chicago, Illinois. The validity of the preferred securities under Delaware law
will be passed upon on behalf of ACE, ACE INA and the ACE Trusts by Richards,
Layton & Finger, P.A., Wilmington, Delaware. Certain legal matters with respect
to Cayman Islands law will be passed upon for ACE by Maples and Calder, George
Town, Grand Cayman, Cayman Islands, British West Indies. Certain legal matters
with respect to Bermuda law will be passed upon for ACE by Conyers Dill &
Pearman, Hamilton, Bermuda. Certain legal matters will be passed upon for the
underwriters, dealers or agents, if any, by Brown & Wood LLP, New York, New
York. Mayer, Brown & Platt and Brown & Wood LLP will rely on the opinion of
Maples and Calder with respect to Cayman Islands law and the opinion of
Conyers, Dill & Pearman with respect to Bermuda law.
EXPERTS
The consolidated financial statements and financial statement schedules
incorporated in this prospectus by reference to ACE's Annual Report on Form 10-
K for the year ended September 30, 1998 have been so incorporated in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing. Any audited
financial statements and schedules that are incorporated or that are deemed to
be incorporated by reference into this prospectus that are the subject of a
report by independent accountants will be so incorporated by reference in
reliance upon such reports and upon the authority of such firms as experts in
accounting and auditing to the extent covered by consents of these accountants
filed with the SEC.
The CIGNA Corporation Property and Casualty Businesses Combined Financial
Statements incorporated in this prospectus by reference to ACE's Form 8-K
current report (date of earliest event reported: May 19, 1999) have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
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ENFORCEMENT OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
ACE is a Cayman Islands company. In addition, some of its officers and
directors, as well as some of the experts named in this prospectus, reside
outside the United States, and all or much of its assets and their assets are
or may be located in jurisdictions outside the United States. Therefore,
investors may have difficulty effecting service of process within the United
States upon those persons or recovering against ACE or them on judgments of
U.S. courts, including judgments based upon the civil liability provisions of
the U.S. Federal securities laws. However, investors may serve ACE with process
in the United States with respect to actions against it arising out of or in
connection with violations of U.S. Federal securities laws relating to offers
and sales of the securities covered by this prospectus by serving CT
Corporation System, 1633 Broadway, New York, New York 10019, its United States
agent irrevocably appointed for that purpose.
ACE has been advised by Maples and Calder, its Cayman Islands counsel, that
there is doubt as to whether the courts of the Cayman Islands would enforce (i)
judgments of U.S. courts based upon the civil liability provisions of the U.S.
Federal securities laws obtained in actions against it or its directors and
officers, as well as experts named in this prospectus, who reside outside the
United States or (ii) original actions brought in the Cayman Islands against
such persons or ACE predicated solely upon U.S. Federal securities laws. ACE
has also been advised by Maples and Calder that there is no treaty in effect
between the United States and the Cayman Islands providing for such
enforcement, and there are grounds upon which Cayman Islands courts may not
enforce judgments of United States courts. Certain remedies available under the
laws of United States jurisdictions, including certain remedies available under
the U.S. Federal securities laws, would not be allowed in Cayman Islands courts
as contrary to that nations's public policy.
WHERE YOU CAN FIND MORE INFORMATION
ACE
ACE files annual, quarterly and special reports, proxy statements and other
information with the SEC. ACE's SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document ACE files with the SEC at its public reference facilities in
Washington, D.C., New York, New York or Chicago, Illinois. You can also obtain
copies of the documents at prescribed rates by writing to the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference facilities. ACE's SEC filings are also available at the office
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. For
further information on obtaining copies of ACE's public filings at the NYSE,
you should call (212) 656-5060.
ACE is allowed to "incorporate by reference" the information it files with
the SEC, which means that ACE can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that ACE files
subsequently with the SEC will automatically update and supersede the
information included and/or incorporated by reference in this prospectus. ACE
incorporates by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the initial filing of the registration
statement that contains this prospectus and prior to the time that ACE, ACE INA
and the ACE Trusts sell all of the securities offered by this prospectus:
. ACE's Annual Report on Form 10-K for the fiscal year ended September 30,
1998;
. ACE's Annual Report on Form 10-K/A for the fiscal year ended September
30, 1998;
. ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1998;
. ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1999;
. ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1999;
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. ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999;
. ACE's Current Report on Form 8-K filed December 23, 1998;
. ACE's Current Report on Form 8-K filed January 14, 1999;
. ACE's Current Report on Form 8-K/A filed January 14, 1999;
. ACE's Current Report on Form 8-K filed May 10, 1999;
. ACE's Current Report on Form 8-K filed May 19, 1999;
. ACE's Current Report on Form 8-K filed July 19, 1999; and
. ACE's Current Report on Form 8-K/A filed September 16, 1999.
You may request a copy of these filings (other than exhibits, unless that
exhibit is specifically incorporated by reference into that filing) at no cost,
by writing or telephoning ACE at the following address:
Investor Relations
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton, HM 08, Bermuda
Telephone: (441) 299-9283
ACE INA
ACE INA is a newly formed entity and has no direct operations. ACE INA is
directly and indirectly wholly owned by ACE. The obligations of ACE INA under
its debt securities will be fully and unconditionally guaranteed by ACE. See
"Description of ACE INA Debt Securities and ACE Guarantee." ACE INA is not
currently subject to the information reporting requirements under the Exchange
Act. ACE INA will become subject to the reporting requirements upon the
effectiveness of the registration statement that contains this prospectus,
although ACE INA intends to seek and expects to receive an exemption from those
requirements. So long as any guaranteed debt securities of ACE INA are
outstanding, ACE will include in the footnotes to its audited consolidated
financial statements summarized consolidated financial information concerning
ACE INA.
The ACE Trusts
There are no separate financial statements of the ACE Trusts in this
prospectus. ACE does not believe the financial statements would be helpful to
the holders of the preferred securities of the ACE Trusts because:
. ACE, a reporting company under the Exchange Act, will directly or
indirectly own all of the voting securities of each ACE Trust;
. None of the ACE Trusts has any independent operations or proposes to
engage in any activity other than issuing securities representing
undivided beneficial interests in the assets of the ACE Trust and
investing the proceeds in subordinated debt securities issued by ACE INA
and fully and unconditionally guaranteed by ACE; and
. The obligations of each ACE Trust under the preferred securities will be
fully and unconditionally guaranteed by ACE. See "Description of ACE INA
Debt Securities and ACE Guarantee" and "Description of Preferred
Securities Guarantees."
None of the ACE Trusts is currently subject to the information reporting
requirements of the Exchange Act. Each ACE Trust will become subject to the
requirements upon the effectiveness of the registration statement that contains
this prospectus, although each ACE Trust intends to seek and expects to receive
an exemption from those requirements. If the ACE Trusts did not receive such an
exemption, the expenses of operating the ACE Trusts would increase, as would
the likelihood that ACE would exercise its option to dissolve and liquidate the
ACE Trusts early.
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300,000 Capital Securities
[ACE LOGO]
ACE Capital Trust II
9.70% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
Fully and Unconditionally Guaranteed by
ACE Limited
--------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------
Merrill Lynch & Co.
Chase Securities Inc.
First Union Securities, Inc.
Salomon Smith Barney
Banc of America Securities LLC
Morgan Stanley Dean Witter
SG Cowen
March 29, 2000
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