<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
REGISTRATION NOS. 333-49271 AND
333-49271-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHILADELPHIA CONSOLIDATED HOLDING CORP.
PCHC FINANCING I
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
PENNSYLVANIA 23-2202671 - PHILADELPHIA CONSOLIDATED HOLDING CORP.
DELAWARE TO BE APPLIED FOR - PCHC FINANCING I
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF EACH REGISTRANT)
</TABLE>
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PA 19004
(610) 617-7900
FAX: (610) 617-7600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF EACH
OF THE REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. JAMES J. MAGUIRE, PRESIDENT
OR
MR. CRAIG P. KELLER, SECRETARY
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PENNSYLVANIA 19004
(610) 617-7900
FAX: (610) 617-7600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JASON M. SHARGEL, ESQUIRE JOHN W. OSBORN, ESQUIRE
WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
TWELFTH FLOOR, PACKARD BUILDING 919 THIRD AVENUE
111 SOUTH 15TH STREET NEW YORK, NY 10022
PHILADELPHIA, PENNSYLVANIA 19102-2678 (212) 735-3000
(215) 977-2216 FAX: (212) 735-2000
FAX: (215) 977-2334
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: from time
to time after the effective date of this registration statement as determined by
market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 16, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL , 1998)
9,000,000 FELINE PRIDES(SM)
(CONSISTING OF INCOME PRIDES(SM) AND GROWTH PRIDES(SM))
PHILADELPHIA CONSOLIDATED
HOLDING CORP. [BELL LOGO]
[PHILADELPHIA INSURANCE COMPANIES]
,000,000 TRUST PREFERRED SECURITIES(SM)
PCHC FINANCING I
% TRUST ORIGINATED PREFERRED SECURITIES(SM)("TOPRS"(SM))
(LIQUIDATION AMOUNT $10 PER TRUST PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED TO
THE EXTENT SET FORTH HEREIN BY
PHILADELPHIA CONSOLIDATED HOLDING CORP.
------------------------
The securities offered hereby are 9,000,000 FELINE PRIDES(SM) ("FELINE
PRIDES") of Philadelphia Consolidated Holding Corp., a Pennsylvania corporation
("Philadelphia Consolidated" or the "Company"), and at least 1,000,000 %
Trust Originated Preferred Securities (the "Trust Preferred Securities" and,
together with the FELINE PRIDES, the "Securities") of PCHC Financing I, a
statutory business trust formed under the laws of the State of Delaware (the
"Trust"), having a stated liquidation amount per Trust Preferred Security equal
to $10. Initially, up to 8,000,000 Trust Preferred Securities will be issued
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES.
Prior to the offering made hereby there has been no public market for the
Securities. Application will be made to have the Income PRIDES and the Growth
PRIDES listed on the Nasdaq National Market (the "NNM") of The Nasdaq Stock
Market Inc., subject to official notice of issuance. If the Trust Preferred
Securities are separately traded to a sufficient extent that the applicable
market listing requirements are met, the Company will endeavor to cause such
securities to be listed on the market on which the Income PRIDES and the Growth
PRIDES are then listed including, if applicable, the NNM. On April 15, 1998, the
last reported sale price of the Common Stock on the NNM was $21 1/2 per share.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PUBLIC(1)
--------------------
$ per Income PRIDES
$ per Growth PRIDES
$ per Trust Preferred Security
<TABLE>
<CAPTION>
=====================================================================================================================
UNDERWRITING PROCEEDS TO
COMMISSION(2) COMPANY(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total(4)................................................ $ $
=====================================================================================================================
</TABLE>
(1) Plus, as applicable, accrued distributions, interest and Contract Adjustment
Payments, if any, from April , 1998. The purchase price of each Income
PRIDES and Growth PRIDES will be allocated between the related Purchase
Contract and the related Trust Preferred Security, in the case of Income
PRIDES, and interest in a Treasury Security, in the case of Growth PRIDES,
as applicable, in proportion to their respective fair market values at the
time of purchase. See "Certain Federal Income Tax Consequences -- FELINE
PRIDES -- Allocation of Purchase Price."
(2) Philadelphia Consolidated and the Trust have agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by Philadelphia Consolidated estimated at
$ ; such amount does not include $ used to purchase the
Treasury Securities component of the 1,000,000 Growth PRIDES.
(4) Philadelphia Consolidated and the Trust have granted to the Underwriter
30-day options to purchase up to an additional Income PRIDES,
Growth PRIDES and Trust Preferred Securities, to cover
over-allotments, if any; provided, however, that the Underwriter must
purchase at least as many Trust Preferred Securities as Growth PRIDES. If
such options are exercised in full, the total Underwriting Commission and
Proceeds to Philadelphia Consolidated will be $ and $ (such
amount does not include $ used to purchase the Treasury Securities
component of the Growth PRIDES), respectively. See "Underwriting."
------------------------
The Securities are offered by the Underwriter, subject to prior sale, when,
as and if issued to and accepted by it, and subject to approval of certain legal
matters by counsel for the Underwriter and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the
Securities offered hereby will be made in New York, New York on or about April
, 1998.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus Supplement is April , 1998.
- ---------------
(SM) Service Mark of Merrill Lynch & Co., Inc.
<PAGE> 3
(cover continued from previous page)
and held as a component of the FELINE PRIDES. The FELINE PRIDES offered hereby
will initially consist of (A) up to 8,000,000 units (referred to as "Income
PRIDES(SM)") with a Stated Amount, per Income PRIDES, of $10 (the "Stated
Amount") and (B) at least 1,000,000 units (referred to as "Growth PRIDES(SM)")
with a face amount, per Growth PRIDES, equal to the Stated Amount; to the extent
the number of Growth PRIDES offered hereby is increased, the number of separate
Trust Preferred Securities offered hereby will be increased by at least that
number. Each Income PRIDES will initially consist of a unit comprised of (a) a
stock purchase contract (a "Purchase Contract") under which (i) the holder will
purchase from Philadelphia Consolidated not later than , 2001 (the
"Purchase Contract Settlement Date"), for $10, a number of newly issued shares
of common stock, no par value per share (the "Common Stock"), of Philadelphia
Consolidated equal to the Settlement Rate described herein, and (ii)
Philadelphia Consolidated will pay the holder unsecured contract adjustment
payments ("Contract Adjustment Payments"), if any, at the rate of % of the
Stated Amount per annum and (b) either beneficial ownership of a Trust Preferred
Security or, upon the occurrence of a Tax Event Redemption (as defined herein)
prior to the Purchase Contract Settlement Date, the Applicable Ownership
Interest (as defined herein). Each Growth PRIDES will initially consist of a
unit comprised of (a) a Purchase Contract under which (i) the holder will
purchase from Philadelphia Consolidated on the Purchase Contract Settlement
Date, for $10, a number of newly issued shares of Common Stock of Philadelphia
Consolidated, equal to the Settlement Rate, and (ii) Philadelphia Consolidated
will pay the holder Contract Adjustment Payments, if any, at the rate of %
of the Stated Amount per annum, and (b) a 1/100 undivided beneficial ownership
interest in a % zero-coupon U.S. Treasury Security (CUSIP No. ) having
a principal amount equal to $1,000 and maturing on , 2001 (the
"Treasury Securities"). Philadelphia Consolidated will, directly or indirectly,
own all the common securities (the "Common Securities" and, together with the
Trust Preferred Securities, the "Trust Securities") representing undivided
beneficial ownership interests in the assets of the Trust. The Trust exists for
the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in an equivalent amount of Debentures of Philadelphia Consolidated, due
, 2003 and initially bearing interest at % per annum (the
"Debentures"). As long as the FELINE PRIDES are in the form of Income PRIDES or
Growth PRIDES, the related Trust Preferred Securities or Treasury Securities or
the Treasury Portfolio (as defined herein), as applicable, will be pledged to
the Collateral Agent (as defined herein), to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts.
The number of shares of Common Stock issuable upon settlement of each
Purchase Contract on the Purchase Contract Settlement Date (the "Settlement
Rate") will be calculated as follows: (a) if the Applicable Market Value (as
defined herein) is equal to or greater than $ (the "Threshold Appreciation
Price," which is approximately % above the last reported sale price of the
Common Stock set forth on the cover page of the final Prospectus Supplement (the
"Reference Price")), the Settlement Rate will be ; (b) if the Applicable
Market Value is less than the Threshold Appreciation Price but greater than the
Reference Price, the Settlement Rate will be equal to the Stated Amount divided
by the Applicable Market Value; and (c) if the Applicable Market Value is less
than or equal to the Reference Price, the Settlement Rate will be .
Aggregate payments of % of the Stated Amount per annum will be made or
accrue on each Income PRIDES quarterly in arrears on February 16, May 16, August
16 and November 16 of each year, commencing , 1998, until the Purchase
Contract Settlement Date. These payments will consist of cumulative cash
distributions on the related Trust Preferred Securities or Treasury Portfolio,
as applicable, payable at the rate of % of the stated liquidation amount
per annum, and Contract Adjustment Payments, if any, payable by Philadelphia
Consolidated at the rate of % of the stated liquidation amount per annum,
subject in the case of Trust Preferred Securities and Contract Adjustment
Payments, if any, to Philadelphia Consolidated's right to defer payment of such
amounts. Contract Adjustment Payments, if any, payable by Philadelphia
Consolidated at the rate of % of the Stated Amount per annum, will be made
or accrue on each Growth PRIDES quarterly in arrears on February 16, May 16,
August 16 and November 16 of each year, commencing , 1998, until the
Purchase Contract Settlement Date, subject to Philadelphia Consolidated's right
to defer such payments. In addition, original issue discount ("OID") will accrue
on the related Treasury
S-2
<PAGE> 4
Security. Subject to Philadelphia Consolidated's right to defer such payments,
holders of each Trust Preferred Security will receive cumulative cash
distributions, payable quarterly in arrears, on February 16, May 16, August 16
and November 16 of each year, commencing , 1998 at the rate of %
of the stated liquidation amount per annum. Such quarterly distributions on the
Trust Preferred Securities will constitute a portion of the quarterly
distribution on the related Income PRIDES. The ability of the Trust to make the
quarterly distributions on the Trust Preferred Securities will be solely
dependent upon the receipt of corresponding interest payments from Philadelphia
Consolidated on the Debentures. Philadelphia Consolidated will have the right at
any time, and from time to time, limited to a period not extending beyond the
maturity date of the Debentures, to defer the interest payments due on the
Debentures. As a consequence of such deferral, quarterly distributions on the
Trust Preferred Securities and the Income PRIDES (to the extent that all or a
portion of the quarterly distribution on the Income PRIDES is comprised of the
quarterly distributions on the Trust Preferred Securities) would be deferred,
but would continue to accrue with interest, at the rate of % of the Stated
Amount per annum, compounded quarterly. Philadelphia Consolidated will have the
right at any time, and from time to time, limited to a period not extending
beyond the Purchase Contract Settlement Date, to defer Contract Adjustment
Payments, if any. As a consequence of such deferral, such portion of the
cumulative quarterly distributions on the Income PRIDES that is comprised of the
Contract Adjustment Payments, if any, and the quarterly cash distributions on
the Growth PRIDES would be deferred; however, such deferred Contract Adjustment
Payments, if any, would continue to accrue at the rate of % per annum,
compounded quarterly at the higher of (i) the rate that would accrue on Income
PRIDES for such payments and (ii) the rate that would accrue on Growth PRIDES
for such payments.
The distribution rate on the Trust Preferred Securities and the interest
rate on the related Debentures outstanding on and after the Purchase Contract
Settlement Date will be reset on the third Business Day (as defined herein)
immediately preceding the Purchase Contract Settlement Date to a rate per annum
(the "Reset Rate") to be determined by the reset agent (the "Reset Agent") equal
to the sum of (x) a spread amount (the "Reset Spread") and (y) the rate of
interest on the Two-Year Benchmark Treasury (as defined herein).
The payment of distributions and certain redemptions out of monies held by
the Trust and payments on liquidation of the Trust will be guaranteed by
Philadelphia Consolidated (the "Guarantee") to the extent described herein and
under "Description of the Guarantee."
Philadelphia Consolidated's obligations in respect of the Debentures will
be senior unsecured obligations of Philadelphia Consolidated. Philadelphia
Consolidated's obligations in respect of the Guarantee and the Contract
Adjustment Payments, if any, will be subordinated and junior in right of payment
only to Philadelphia Consolidated's obligations under the Senior Indebtedness
(as defined herein). "Senior Indebtedness" means indebtedness of any kind of
Philadelphia Consolidated unless the instrument under which such indebtedness is
incurred expressly provides that it is in parity or subordinate in right of
payment to the Contract Adjustment Payments, if any, and the Guarantee.
If the holder of an Income PRIDES has not notified the Purchase Contract
Agent (as defined herein), in the manner described herein, of its intention to
settle the related Purchase Contract with separate cash, the Remarketing Agent
(as defined herein), pursuant to the terms of the Remarketing Agreement (as
defined herein), will use its reasonable efforts to remarket the related Trust
Preferred Security (bearing the Reset Rate) on the third Business Day
immediately preceding the Purchase Contract Settlement Date for settlement on
the Purchase Contract Settlement Date at a price of approximately 100.5% of such
Trust Preferred Security's stated liquidation amount plus accrued and unpaid
distributions (including deferred distributions, if any) thereon. The proceeds
from such remarketing, in an amount equal to the aggregate stated liquidation
amount of such Trust Preferred Securities, will automatically be applied to
satisfy in full such holder's obligation to purchase Common Stock under the
related Purchase Contract. In addition, after deducting as a remarketing fee
(the "Remarketing Fee") an amount not exceeding 25 basis points (.25%) of the
aggregate stated liquidation amount of the remarketed securities from any amount
received in connection with such remarketing in excess of the aggregate stated
liquidation amount of such Trust Preferred Securities plus any accrued and
unpaid distributions (including deferred distributions, if any), the Remarketing
Agent will remit the remaining portion of the proceeds, if any, to the Purchase
Contract Agent for the benefit of such
S-3
<PAGE> 5
holder. If, despite using its reasonable efforts, the Remarketing Agent fails to
remarket the Trust Preferred Securities (other than to Philadelphia
Consolidated) at a price not less than 100% of their aggregate stated
liquidation amount plus accrued and unpaid distributions (including deferred
distributions, if any), the remarketing will be deemed to have failed (a "Failed
Remarketing") and Philadelphia Consolidated will exercise its rights as a
secured party to dispose of the Trust Preferred Securities in accordance with
applicable law and satisfy in full, from the proceeds of such disposition, such
holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided that, if Philadelphia Consolidated exercises such rights as
a secured party with respect to such Trust Preferred Securities, any accrued and
unpaid distributions (including any deferred distributions, if any) on such
Trust Preferred Securities will be paid in cash by Philadelphia Consolidated to
the holder of record of such Trust Preferred Securities. Holders of Trust
Preferred Securities that are not components of Income PRIDES may elect, in the
manner described below, to have their Trust Preferred Securities remarketed by
the Remarketing Agent.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder (including an Underwriter) of an Income
PRIDES may substitute for the related Trust Preferred Securities held by the
Collateral Agent zero-coupon U.S. Treasury Securities (CUSIP No. ), which
are principal strips of the % U.S. Treasury Securities that mature on the
Business Day immediately preceding the Purchase Contract Settlement Date (the
"Treasury Securities"), thereby creating Growth PRIDES. Such Treasury Securities
will be pledged with the Collateral Agent to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts. In the event that
Contract Adjustment Payments, if any, are at a higher rate for Growth PRIDES
than for Income PRIDES, holders of Income PRIDES wishing to create Growth PRIDES
will also be required to deliver cash in an amount equal to the excess of the
Contract Adjustment Payments, if any, that would have accrued since the last
Payment Date through the date of substitution on the Growth PRIDES being created
by such holders, over the Contract Adjustment Payments, if any, that have
accrued over the same time period on the related Income PRIDES.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder (including an Underwriter) of a Growth
PRIDES may substitute for the related Treasury Securities held by the Collateral
Agent Trust Preferred Securities, thereby creating Income PRIDES. Such Trust
Preferred Securities will be pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under the related Purchase
Contracts. Upon the substitution of Trust Preferred Securities for the related
Treasury Securities as collateral, such Treasury Securities will be released to
the Growth PRIDES holder as described herein.
If a Failed Remarketing has occurred, each holder of Trust Securities (or,
following the distribution of the Debentures upon a dissolution of the Trust as
described herein, the holders of such Debentures) holding such Trust Securities
(or Debentures, as the case may be) following the Purchase Contract Settlement
Date will have the right, in the case of the Trust Securities, to require the
Trust to distribute their pro rata share of the Debentures to The First National
Bank of Chicago (the "Exchange Agent") and the Exchange Agent will put such
Debentures to Philadelphia Consolidated on behalf of such holders (or in the
case of the persons who hold the Debentures directly, such persons will have the
right to put their Debentures directly to Philadelphia Consolidated) on
, 2001, upon at least three Business Days' prior notice, at a price
equal to the principal amount thereof, plus accrued and unpaid interest
(including deferred interest), if any, thereon.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts through the early delivery of cash to the Purchase
Contract Agent in the manner described herein, (ii) in the case of Income
PRIDES, has settled the related Purchase Contracts with separate cash on the
Business Day immediately preceding the Purchase Contract Settlement Date
pursuant to prior notification to the Purchase Contract Agent, (iii) has had the
Trust Preferred Securities related to such holder's Purchase Contract remarketed
in the manner described herein in connection with settling such Purchase
Contracts, or (iv) an event described under "Description of the Purchase
Contracts -- Termination" has occurred, then (A) in the case of Income PRIDES
(unless a Tax Event Redemption has occurred) Philadelphia Consolidated will
exercise its rights as a secured party to dispose of the Trust Preferred
Securities in accordance with applicable law and (B) in the case of Growth
PRIDES or Income PRIDES (in the event that a Tax Event Redemption has occurred),
the
S-4
<PAGE> 6
principal amount of the related Treasury Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as applicable, when
paid at maturity, will automatically be applied, pursuant to the exercise of
such rights by Philadelphia Consolidated to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contracts.
In the event that a holder of either Income PRIDES or Growth PRIDES effects
the early settlement of the related Purchase Contracts through the delivery of
cash or settles (in the case of Income PRIDES) such Purchase Contracts with cash
on the Business Day immediately preceding the Purchase Contract Settlement Date,
the related Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Treasury Securities, as the case may be,
will be released to the holder as described herein.
Philadelphia Consolidated will have the right at any time to dissolve the
Trust and, after satisfaction of liabilities to creditors, cause the Debentures
to be distributed to the holders of the Trust Securities.
The Debentures (and, thus, the Trust Securities) are redeemable at the
option of Philadelphia Consolidated, in whole but not in part, upon the
occurrence and continuation of a Tax Event (as defined herein) under the
circumstances described herein (a "Tax Event Redemption"). If Philadelphia
Consolidated so redeems all of the Debentures, the Trust must redeem all of the
Trust Securities at a redemption price (the "Redemption Price") per Trust
Security equal to the Redemption Amount (as defined herein) plus accrued and
unpaid distributions including deferred distributions, if any, thereon to the
date fixed for redemptions and pay in cash such Redemption Price to the holders
of such Trust Securities. If such Tax Event Redemption occurs prior to the
Purchase Contract Settlement Date, the Redemption Price payable in liquidation
of the Income PRIDES holders' interests in the Trust or in the Debentures will
be distributed to the Collateral Agent, who in turn will apply an amount equal
to the Redemption Amount of such Redemption Price to purchase, on behalf of the
holders of Income PRIDES, the Treasury Portfolio and remit the remaining
portion, if any, of such Redemption Price to the Purchase Contract Agent for
payment to the holder of such Income PRIDES. See "Description of the
Debentures -- Tax Event Redemption." Such Treasury Portfolio will be substituted
for the Trust Preferred Securities and will be pledged to the Collateral Agent
to secure such Income PRIDES holders' obligations to purchase the Common Stock
under their Purchase Contracts.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES AND
THE COMMON STOCK OF PHILADELPHIA CONSOLIDATED. SUCH TRANSACTIONS MAY INCLUDE
STABILIZING TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
S-5
<PAGE> 7
PROSPECTUS SUPPLEMENT SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and
consolidated financial statements (including the notes thereto) of the Company
appearing elsewhere in the accompanying Prospectus, this Prospectus Supplement
or in the documents incorporated herein or in the accompanying Prospectus by
reference. All financial information in this Prospectus Supplement is presented
in conformity with generally accepted accounting principles ("GAAP") unless
otherwise specified. A listing of the pages on which certain definitions of
capitalized terms used in this Prospectus Supplement Summary and elsewhere in
this Prospectus Supplement are defined is set forth in the "Index of Terms for
Prospectus Supplement" herein. Except as otherwise noted, all information in
this Prospectus Supplement assumes no exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, (i) "Philadelphia
Consolidated" or the "Company" refers to Philadelphia Consolidated Holding Corp.
and its subsidiaries, (ii) the "Insurance Subsidiaries" refers to Philadelphia
Indemnity Insurance Company ("PIIC") and Philadelphia Insurance Company ("PIC"),
collectively, and (iii) "MIA" refers to Maguire Insurance Agency, Inc., an
underwriting manager.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement and the
accompanying Prospectus, and certain information filed or to be filed with the
Securities and Exchange Commission (the "Commission") and incorporated by
reference in the accompanying Prospectus, contain or will contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's
actual results could differ materially from those set forth in the
forward-looking statements. See "Risk Factors" in this Prospectus Supplement for
a discussion of certain factors that might cause such a difference.
THE COMPANY
The Company designs, underwrites, and markets (i) specialized property and
casualty insurance products for select markets, primarily targeting the auto
rental and leasing industries, non-profit organizations, assisted living and
nursing home facilities, homeowners associations, the health, fitness and
wellness industry and private schools and (ii) select classes of professional
liability products.
The Company seeks to achieve underwriting profits through conservative
underwriting and pricing discipline and differentiates itself through the
development of value-added coverage and service enhancements. The Company's
strategy consists of (i) a "mixed" marketing approach wherein its direct sales
production underwriting organization also markets through "preferred agents" and
a network of independent insurance brokers, (ii) value-added coverage
enhancements which strengthen its niche position and (iii) delivery of quality
service to policyholders.
The Insurance Subsidiaries are rated "A+" (Superior) by A.M. Best Company
and have also been assigned an "A" claims-paying ability rating by Standard &
Poor's. Over the five years ended December 31, 1997, the Company has achieved
(i) an 87.7% average statutory combined ratio versus an industry average (as
reported by A.M. Best Company) of 105.7%; (ii) a 33.7% compound annual growth
rate in gross written premiums, from $37.2 million at December 31, 1992 to
$159.1 million at December 31, 1997; (iii) a 75.7% compound annual growth rate
in net operating income; and (iv) an average return on average adjusted equity
of 16.6%. For the year ended December 31, 1997, the Company achieved an average
policy renewal rate of approximately 85%. For the three month period ended March
31, 1998, gross written premiums and net operating income were $40.3 million and
$4.5 million, respectively, as compared to $34.6 million and $3.6 million,
respectively, for the three month period ended March 31, 1997. As of March 31,
1998, the Company had total assets of $311.1 million and shareholders' equity of
$119.7 million.
The Company's principal products include (i) primary liability automobile
policies for rental car companies and their customers, as well as excess
liability and primary physical damage policies protecting the
S-6
<PAGE> 8
rental car company only, (ii) excess bodily injury and property damage liability
policies for rental car customers, (iii) a full range of liability and physical
damage policies for automobile leasing companies and their customers, (iv)
package policies and directors' and officers liability ("D&O") policies for
non-profit organizations, (v) specialty professional liability policies for
independent insurance agents, (vi) a miscellaneous professional liability
program offered to an array of professional groups and (vii) a proprietary
package of professional liability coverages for public and private companies.
The following table sets forth, for the years ended December 31, 1997 and
1996, the gross written premiums for the Company's insurance product lines and
the relative percentages that such premiums represented.
<TABLE>
<CAPTION>
GROSS WRITTEN PREMIUMS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996
---------------------- ----------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial Automobile........................... $ 18,415 11.6% $ 18,506 13.5%
Excess Liability................................ 59,296 37.3 56,411 41.2
Commercial Package.............................. 60,012 37.7 43,707 32.0
Specialty Lines................................. 20,748 13.0 16,558 12.1
Involuntary..................................... 620 .4 1,673 1.2
-------- ----- -------- -----
Total........................................... $159,091 100.0% $136,855 100.0%
======== ===== ======== =====
</TABLE>
The Company distributes its products (i) directly through its production
underwriting organization, (ii) through its "preferred agent" program and (iii)
through a network of independent brokers. At year-end 1997, the production
underwriting organization consisted of 100 employees located in 38 proprietary
field offices in major markets across the U.S. The production underwriting
organization includes telemarketing staffs at the Company's regional offices and
its home office.
The Company has formed strong business relationships with "preferred
agents," brokers selected by the Company on the basis of their specialization in
certain of the Company's business niches. At year-end 1997, the Company had 35
preferred agent relationships. In addition, the Company has relationships with
approximately 4,000 brokers either as a result of customers' existing
relationships with such brokers or through brokers actively seeking the
Company's expertise in one of its specialty products. Approximately 47% of total
1997 gross premium was produced directly by the production underwriting
organization. The remaining 53% was produced indirectly through the Company's 35
preferred agents (11%) and its independent broker relationships (42%). The
Company supplements its marketing efforts through trade shows, direct mailings,
and advertisements placed in select national trade magazines.
The Company continually seeks out and evaluates new product opportunities,
consistent with its focus on select market niches. Using market intelligence
gathered by its production underwriting organization and home office staff, the
Company believes it is positioned to create products which are responsive to
customer needs. In the product development process, the Company incorporates
features which differentiate its policies and services from those of its
competitors on non-price terms. The Company thoroughly trains its production
underwriting organization to promote these distinctive features.
The Company seeks acquisition opportunities, which may include books of
business, to complement its niche markets or parallel its conservative
underwriting and pricing discipline. The Company has had discussions relating to
possible acquisitions with a number of parties, but has not reached agreement
with respect to the terms of any such acquisition and, accordingly, there is no
assurance that any such transaction will be completed.
PIIC is a Pennsylvania-domiciled property and casualty insurance company.
PIIC is licensed as a property and casualty insurer in 48 states. PIC, also
domiciled in Pennsylvania, writes surplus lines property and casualty policies
in 37 states. MIA acts as underwriting manager for the Insurance Subsidiaries,
providing marketing, underwriting, claims management, investment and general
administration services.
The Company is listed on the NNM under the symbol "PHLY."
S-7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following summary consolidated financial data have been derived from
the consolidated financial statements of Philadelphia Consolidated and should be
read in conjunction with the consolidated financial statements of Philadelphia
Consolidated and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus Supplement.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Gross Written Premiums................... $159,091 $136,855 $104,180 $ 89,099 $ 57,085
Net Written Premiums..................... $111,797 $ 83,994 $ 62,072 $ 55,398 $ 40,645
Net Earned Premiums...................... $100,555 $ 72,050 $ 58,188 $ 52,085 $ 37,484
Net Investment Income.................... 9,703 7,910 6,506 4,902 3,269
Net Realized Investment Gain (Loss)...... (16) 260 181 (1,697) 1,327
Other Income............................. 228 282 309 314 1,169
-------- -------- -------- -------- --------
Total Revenue.................. $110,470 $ 80,502 $ 65,184 $ 55,604 $ 43,249
======== ======== ======== ======== ========
Net Income............................... $ 16,870 $ 13,374 $ 9,830 $ 5,973 $ 4,232
======== ======== ======== ======== ========
PER SHARE DATA:
Basic Earnings Per Share(1)(2)........... $1.38 $1.13 $0.85 $0.51 $0.60
Diluted Earnings Per Share(1)(2)......... $1.13 $0.94 $0.72 $0.45 $0.48
OTHER DATA:
Combined Ratio (GAAP basis)(3)........... 85.9% 86.5% 86.5% 89.4% 91.1%
Return on Shareholders' Equity(4)........ 19.5% 18.8% 16.8% 14.3% 13.4%
BALANCE SHEET DATA:
Total Investments........................ $217,666 $168,578 $134,406 $ 89,256 $ 73,628
Total Assets............................. 288,126 225,938 174,148 140,718 116,135
Total Shareholders' Equity............... 111,284 85,642 68,316 52,600 49,018
SELECTED STATUTORY DATA FOR INSURANCE
SUBSIDIARIES:
Policyholders' Surplus................... $105,985 $ 81,906 $ 67,500 $ 56,027 $ 51,197
Combined Ratio........................... 84.4% 86.8% 86.7% 89.4% 91.0%
</TABLE>
- ---------------
(1) 1996, 1995, 1994 and 1993 restated to reflect a two for one split of
Philadelphia Consolidated's common stock distributed in November 1997.
(2) 1996, 1995, 1994, 1993 earnings per share amounts restated in accordance
with the provisions of SFAS No. 128 adopted as of December 31, 1997.
(3) The sum of the net loss and loss adjustment expenses and acquisition costs
and other underwriting expenses divided by net earned premiums.
(4) Based on net operating income (net income less after tax net realized
investment gain or losses) for the twelve month period divided by average
shareholders' equity for the twelve month period (excluding any unrealized
investment gains or losses and goodwill).
S-8
<PAGE> 10
THE TRUST
PCHC Financing I is a statutory business trust created under Delaware law
pursuant to (i) a declaration of trust, dated as of April 2, 1998, executed by
Philadelphia Consolidated, as sponsor (the "Sponsor"), and certain of the
trustees of the Trust (the "Philadelphia Consolidated Trustees") and (ii) the
filing of a certificate of trust with the Secretary of State of the State of
Delaware on April 2, 1998. Such declaration will be amended and restated in its
entirety (as so amended and restated, the "Declaration") substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. The Declaration will be qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Trust exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial ownership interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities in the
Debentures and (iii) engaging in only those other activities necessary,
appropriate, convenient or incidental thereto. See "The Trust."
THE OFFERING
Securities Offered......... 9,000,000 FELINE PRIDES, consisting of up to
8,000,000 Income PRIDES and at least 1,000,000
Growth PRIDES and 1,000,000 separate Trust
Preferred Securities. Up to 8,000,000 Trust
Preferred Securities will be initially issued and
held as a component of the Income PRIDES. To the
extent that the number of Growth PRIDES offered
hereby is increased, the number of separate Trust
Preferred Securities offered hereby will be
increased by at least that number.
Issuers.................... Philadelphia Consolidated Holding Corp. and PCHC
Financing I.
Stated Amount.............. $10 per FELINE PRIDES.
Listing of the Income
PRIDES, Growth PRIDES and
Trust Preferred
Securities............... Application will be made to have the Income PRIDES
and the Growth PRIDES listed on the NNM, subject to
official notice of issuance. If the Trust Preferred
Securities are separately traded to a sufficient
extent that the applicable market listing
requirements are met, the Company will endeavor to
cause such securities to be listed on the market on
which the Income PRIDES and the Growth PRIDES are
then listed including, if applicable, the NNM. See
"Underwriting."
NNM Symbol of Common
Stock...................... "PHLY"
Use of Proceeds............ All or substantially all of the proceeds from the
sale of the Growth PRIDES will be used to purchase
the underlying Treasury Securities to be
transferred to holders of the Growth PRIDES
pursuant to the terms thereof and the remainder, if
any, will be paid to the Company. All of the
proceeds from the sale of the Trust Preferred
Securities that are not components of Income PRIDES
and from the sale of the Common Securities and all
or substantially all of the proceeds from the sale
of the Income PRIDES will be invested by the Trust
in Debentures of Philadelphia Consolidated, and the
remainder of the proceeds from the sale of the
Income PRIDES, if any, will be paid to the Company.
Philadelphia Consolidated currently anticipates
using all of the net proceeds from the sale of the
Debentures, the Income PRIDES and the Growth
PRIDES, estimated to be approximately $
million, for general corporate purposes, which may
include acquisitions (including, without
limitation, acquisitions of programs or books of
business),
S-9
<PAGE> 11
capital expenditures, capital contributions to its
subsidiaries and the repurchase by Philadelphia
Consolidated of its Common Stock.
Components of FELINE
PRIDES................... The 9,000,000 FELINE PRIDES offered hereby will
initially consist of (A) up to 8,000,000 units
referred to as Income PRIDES and (B) at least
1,000,000 units referred to as Growth PRIDES; to
the extent that the number of Growth PRIDES offered
hereby is increased, the number of separate Trust
Preferred Securities offered hereby will be
increased by at least that number. Each Income
PRIDES will initially consist of a unit comprised
of (a) a Purchase Contract under which (i) the
holder will purchase from Philadelphia Consolidated
on the Purchase Contract Settlement Date, for an
amount of cash equal to the Stated Amount, a number
of newly issued shares of Common Stock of
Philadelphia Consolidated equal to the Settlement
Rate, and (ii) Philadelphia Consolidated will pay
Contract Adjustment Payments, if any, at the rate
of % of the Stated Amount per annum to the
holder, subject to the right of Philadelphia
Consolidated to defer such payments, and (b) either
beneficial ownership of a % Trust Originated
Preferred Security, having a stated liquidation
amount equal to $10, representing an undivided
beneficial ownership interest in the assets of the
Trust or, upon the occurrence of a Tax Event
Redemption prior to the Purchase Contract
Settlement Date, the appropriate Applicable
Ownership Interest in the Treasury Portfolio. The
purchase price of each Income PRIDES will be
allocated between the related Purchase Contract and
the related Trust Preferred Security in proportion
to their respective fair market values at the time
of purchase. See "Certain Federal Income Tax
Consequences -- FELINE PRIDES -- Allocation of
Purchase Price."
Philadelphia Consolidated may at any time dissolve
the Trust and, after satisfaction of liabilities to
creditors of the Trust, if any, to cause the
Debentures to be distributed to the holders of the
Trust Preferred Securities. References herein to
Trust Preferred Securities, unless the context
otherwise requires, mean (i) the Trust Preferred
Securities or (ii) the Debentures which have been
delivered to the holders of the Trust Preferred
Securities upon dissolution of the Trust. In
addition, as described below, upon the occurrence
of a Tax Event (as defined herein) prior to the
Purchase Contract Settlement Date, Philadelphia
Consolidated may at its option cause the Debentures
(and, thus, the Trust Preferred Securities) to be
redeemed at the Redemption Price and the Treasury
Portfolio will be substituted for the redeemed
Trust Preferred Securities in the manner described
herein to secure the Income PRIDES holders'
obligations under their related Purchase Contracts.
The distribution rate and the payment dates for the
Trust Preferred Securities will be the same as the
interest rate and the payment dates for the
Debentures, which will be the sole assets of the
Trust. As long as a FELINE PRIDES is in the form of
an Income PRIDES or Growth PRIDES, the related
Trust Preferred Securities, Treasury Securities or
the Treasury Portfolio, as applicable, will be
pledged pursuant to a pledge agreement, to be dated
as of April , 1998 (the "Pledge Agreement"),
between Philadelphia Consolidated, The Chase
Manhattan Bank, as collateral agent for
Philadelphia Consolidated (together with any
successor thereto in such capacity, the "Collateral
Agent"), and the Purchase Contract Agent (as
defined
S-10
<PAGE> 12
herein) to secure the holder's obligation to
purchase Common Stock under the related Purchase
Contract.
Each Growth PRIDES will initially consist of a unit
with a face amount of $10 comprised of (a) a
Purchase Contract under which (i) the holder will
purchase from Philadelphia Consolidated on the
Purchase Contract Settlement Date, for an amount in
cash equal to the Stated Amount, a number of newly
issued shares of Common Stock of Philadelphia
Consolidated, equal to the Settlement Rate, and
(ii) Philadelphia Consolidated will pay the holder
Contract Adjustment Payments, if any, at the rate
of % of the Stated Amount per annum, subject
to the right of Philadelphia Consolidated to defer
such payments, and (b) a 1/100 undivided beneficial
ownership interest in a % Treasury Security
having a principal amount at maturity equal to
$1,000 and maturing on , 2001. The
purchase price of each Growth PRIDES will be
allocated between the related Purchase Contract and
the related interest in a Treasury Security in
proportion to their respective fair market values
at the time of purchase. See "Certain Federal
Income Tax Consequences -- FELINE
PRIDES -- Allocation of Purchase Price."
Purchase Contract
Agreement.................. The FELINE PRIDES will be issued under a Purchase
Contract Agreement, to be dated as of April ,
1998 (the "Purchase Contract Agreement"), between
Philadelphia Consolidated and The First National
Bank of Chicago, as agent for the holders of the
FELINE PRIDES (together with any successor thereto
in such capacity, the "Purchase Contract Agent").
Creating Growth PRIDES..... Each holder of an Income PRIDES may substitute for
the related Trust Preferred Securities or the
Applicable Ownership Interest of the Treasury
Portfolio held by the Collateral Agent zero-coupon
U.S. Treasury Securities in an amount per Income
PRIDES equal to the stated liquidation amount per
Trust Preferred Security. Such Treasury Securities
will be pledged with the Collateral Agent to secure
the holder's obligation to purchase Common Stock
under the related Purchase Contracts. Such
substitutions may be made only in integral
multiples of 100 Income PRIDES; provided, however,
that, if the Treasury Portfolio has become a
component of the Income PRIDES, holders of Income
PRIDES may make such substitutions only in integral
multiples of 4,000,000 Income PRIDES at any time on
or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date. In
the event that Contract Adjustment Payments, if
any, are at a higher rate for Growth PRIDES than
for Income PRIDES, holders of Income PRIDES wishing
to create Growth PRIDES also will be required to
deliver cash in an amount equal to the excess of
the Contract Adjustment Payments, if any, that
would have accrued since the last Payment Date
through the date of substitution on the Growth
PRIDES being created by such holders, over the
Contract Adjustment Payments, if any, that have
accrued over the same time period on the related
Income PRIDES.
Creating Income PRIDES..... Each holder of Growth PRIDES may, on or prior to
the fifth Business Day immediately preceding the
Purchase Contract Settlement Date, create Income
PRIDES by delivering 100 Growth PRIDES to the
Purchase Contract Agent plus 100 Trust Preferred
Securities to the
S-11
<PAGE> 13
Collateral Agent in exchange for 100 Income PRIDES
and the release of the related Treasury Security to
such holder; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
holders of Growth PRIDES may make such substitution
(but using the Applicable Ownership Interest of the
Treasury Portfolio rather than Trust Preferred
Securities) only in integral multiples of 4,000,000
Growth PRIDES at any time on or prior to the second
Business Day immediately preceding the Purchase
Contract Settlement Date. Such Trust Preferred
Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may
be, will be pledged with the Collateral Agent to
secure the holder's obligation to purchase Common
Stock under the related Purchase Contracts.
Current Payments........... Holders of Income PRIDES will be entitled to
receive aggregate cash distributions at a rate of
% of the Stated Amount per annum from and
after , 1998, payable quarterly in
arrears, consisting of cumulative cash
distributions on the related Trust Preferred
Securities payable at the rate of % of the
stated liquidation amount per annum, or on the
Treasury Portfolio, payable at the rate of %
of the Stated Amount per annum, as applicable, and
Contract Adjustment Payments, if any, payable by
Philadelphia Consolidated at the rate of % of
the Stated Amount per annum, subject (in the case
of both the distributions on the Trust Preferred
Securities and of the Contract Adjustment Payments,
if any,) to Philadelphia Consolidated's right to
defer the payment of such amounts. The ability of
the Trust to make the quarterly distributions on
the related Trust Preferred Securities will be
solely dependent upon the receipt of corresponding
interest payments from Philadelphia Consolidated on
the Debentures. Philadelphia Consolidated's
obligations with respect to the Debentures will be
senior and unsecured and will rank on a parity in
right of payment with all other senior unsecured
obligations of Philadelphia Consolidated.
If a Tax Event Redemption has occurred, quarterly
distributions on the appropriate Applicable
Ownership Interest will not be deferred.
Holders of Growth PRIDES will be entitled to
receive quarterly cash distributions of Contract
Adjustment Payments, if any, payable by
Philadelphia Consolidated at the rate of % of
the Stated Amount per annum, subject to
Philadelphia Consolidated's rights of deferral
described herein. In addition, OID would continue
to accrue on the related Treasury Securities. See
"Risk Factors -- Right to Defer Current Payments."
Contract Adjustment
Payments................... Contract Adjustment Payments, if any, will be fixed
at a rate per annum of % of the Stated Amount
per Purchase Contract in the case of Income PRIDES,
and % of the Stated Amount per Purchase
Contract in the case of Growth PRIDES. Contract
Adjustment Payments will be specified as a
component of the distributions on the Income PRIDES
or Growth PRIDES only if and to the extent that the
distribution rate on the Trust Preferred Securities
or the yield on the Treasury Securities, as
determined on the date on which the Income PRIDES
or Growth PRIDES are priced for sale, is less than
the aggregate distribution rate or yield required
on such date for the offer and sale of the Income
PRIDES or Growth PRIDES at the price to public
S-12
<PAGE> 14
specified on the cover page of this Prospectus
Supplement. Accordingly, the final Prospectus
Supplement will indicate whether and to what extent
Contract Adjustment Payments will be required to be
made by the Company. See "Description of the
Purchase Contracts -- Contract Adjustment
Payments." The Contract Adjustment Payments, if
any, will be subordinated and junior in right of
payment to the Senior Indebtedness. See
"Description of the Purchase Contracts -- Contract
Adjustment Payments."
Option to Defer Current
Payments................. Philadelphia Consolidated has the right at any
time, and from time to time, limited to a period
not extending beyond the maturity date of the
Debentures, to defer the interest payments due on
the Debentures. As a consequence of such deferral,
the corresponding quarterly distributions to
holders of Trust Preferred Securities and Income
PRIDES would be deferred (but despite such
deferral, would continue to accumulate quarterly
and would accrue interest thereon compounded
quarterly at the rate of % per annum through
and including , 2001, and at the Reset
Rate thereafter). Philadelphia Consolidated also
has the right to defer the payment of Contract
Adjustment Payments, if any, on the related
Purchase Contracts until no later than the Purchase
Contract Settlement Date; however, such deferred
Contract Adjustment Payments, if any, will bear
additional Contract Adjustment Payments, if any, at
the rate of % per annum (the higher of (i) the
rate that would accrue on Income PRIDES for such
payments and (ii) the rate that would accrue on
Growth PRIDES for such payments) (such deferred
Contract Adjustment Payments together with such
additional Contract Adjustment Payments shall be
referred to as the "Deferred Contract Adjustment
Payments"). See "Description of the Purchase
Contracts -- Contract Adjustment Payments." If
interest payments on the Debentures or the Contract
Adjustment Payments, if any, are deferred,
Philadelphia Consolidated has agreed, among other
things, not to declare or pay any dividend on or
repurchase its capital stock (subject to certain
exceptions) during the period of such deferral. If
a Tax Event Redemption has occurred, quarterly
distributions on the appropriate Applicable
Ownership Interest of the Treasury Portfolio will
not be deferred.
In the event that Philadelphia Consolidated elects
to defer the payment of Contract Adjustment
Payments, if any, on the related Purchase Contracts
until the Purchase Contract Settlement Date, each
holder of the related Income PRIDES or Growth
PRIDES will receive on the Purchase Contract
Settlement Date in respect of such Deferred
Contract Adjustment Payments, in lieu of a cash
payment, a number of shares of Common Stock equal
to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to such holder divided
by (y) the Applicable Market Value (as defined
herein). See "Description of the Purchase
Contracts -- Option to Defer Contract Adjustment
Payments."
Payment Dates.............. Subject to the deferral provisions described
herein, the current payments described above in
respect of the Income PRIDES and Growth PRIDES will
be payable quarterly in arrears on February 16, May
16, August 16 and November 16 of each year,
commencing , 1998, through and including
(i) in the case of the Contract Adjustment
Payments, if
S-13
<PAGE> 15
any, the earlier of the Purchase Contract
Settlement Date or the most recent such quarterly
date on or prior to any early settlement of the
related Purchase Contracts and (ii) in the case of
Trust Preferred Securities that are components of
Income PRIDES, the most recent such quarterly date
on or prior to the earlier of the Purchase Contract
Settlement Date and the date the liquidation amount
of a Trust Preferred Security, together with all
accumulated and unpaid distributions thereon (each,
a "Payment Date") is paid in full.
Remarketing................ Unless a Tax Event Redemption has occurred,
pursuant to a remarketing agreement (the
"Remarketing Agreement") dated as of April ,
1998, among Philadelphia Consolidated, the Trust,
the Purchase Contract Agent and a nationally
recognized investment banking firm chosen by
Philadelphia Consolidated (the "Remarketing
Agent"), and subject to the terms of a Remarketing
Underwriting Agreement to be dated as of the third
Business Day immediately preceding the Purchase
Contract Settlement Date among such parties (the
"Remarketing Underwriting Agreement"), the Trust
Preferred Securities of such Income PRIDES holders
who have failed to notify the Purchase Contract
Agent, on or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date, of their intention to settle the
related Purchase Contracts with separate cash, will
be remarketed on the third Business Day immediately
preceding the Purchase Contract Settlement Date.
The Remarketing Agent will use its reasonable
efforts to remarket such Trust Preferred Securities
(bearing the Reset Rate) on such date for
settlement on the Purchase Contract Settlement Date
at a price of approximately 100.5% of the aggregate
stated liquidation amount of such Trust Preferred
Security, plus accrued and unpaid distributions
(including any deferred distributions), if any,
thereon. The portion of the proceeds from such
remarketing equal to the aggregate stated
liquidation amount of such Trust Preferred
Securities will be automatically applied to satisfy
in full such Income PRIDES holders' obligations to
purchase Common Stock under the related Purchase
Contracts. In addition, after deducting as the
Remarketing Fee an amount not exceeding 25 basis
points (.25%) of the aggregate stated liquidation
amount of the remarketed securities from any amount
of such proceeds in excess of the aggregate stated
liquidation amount of the remarketed Trust
Preferred Securities plus any accrued and unpaid
distributions (including any deferred
distributions), the Remarketing Agent will remit
the remaining portion of the proceeds, if any, for
the benefit of such holder. Income PRIDES holders
whose Trust Preferred Securities are so remarketed
will not otherwise be responsible for any
Remarketing Fee in connection therewith. If,
despite using its reasonable efforts, the
Remarketing Agent cannot remarket the related Trust
Preferred Securities (other than to Philadelphia
Consolidated) of such holders of Income PRIDES at a
price not less than 100% of the aggregate stated
liquidation amount of such Trust Preferred
Securities plus accrued and unpaid distributions,
including deferred distributions, if any, resulting
in a Failed Remarketing, Philadelphia Consolidated
will exercise its rights as a secured party to
dispose of the Trust Preferred Securities in
accordance with applicable law and to satisfy in
full, from the proceeds of such disposition, such
holder's obligation to purchase Common Stock under
the related Purchase Contracts, provided, that if
Philadelphia Consolidated exer-
S-14
<PAGE> 16
cises such rights as a secured party with respect
to such Trust Preferred Securities, any accrued and
unpaid distributions (including any deferred
distributions) on such Trust Preferred Securities
will be paid in cash by Philadelphia Consolidated
to the holder of record of such Trust Preferred
Securities. Philadelphia Consolidated will cause a
notice of such Failed Remarketing to be published
on the second Business Day immediately preceding
the Purchase Contract Settlement Date. It is
currently anticipated that Merrill Lynch, Pierce,
Fenner & Smith Incorporated will be the Remarketing
Agent. See "Description of the Purchase
Contracts -- Remarketing."
Purchase Contract
Settlement Date............ , 2001.
Settlement of Purchase
Contracts.................. On the Business Day immediately preceding the
Purchase Contract Settlement Date, unless a holder
of Income PRIDES or Growth PRIDES (i) has settled
the related Purchase Contracts through the early
delivery of cash to the Purchase Contract Agent in
the manner described herein, (ii) in the case of
Income PRIDES, has settled the related Purchase
Contracts with separate cash on the Business Day
prior to the Purchase Contract Settlement Date
pursuant to prior notification to the Purchase
Contract Agent, (iii) in the case of Income PRIDES,
has had the Trust Preferred Securities related to
such holder's Purchase Contracts remarketed in the
manner described herein in connection with settling
such Purchase Contracts, or (iv) an event described
under "Description of the Purchase
Contracts -- Termination" has occurred, (A) in the
case of Income PRIDES (unless a Tax Event
Redemption has occurred), Philadelphia Consolidated
will exercise its rights as a secured party to
dispose of the related Trust Preferred Securities
in accordance with the applicable law and will
satisfy in full, from the proceeds of such
disposition, such holder's obligation to purchase
Common Stock under the related Purchase Contracts,
and (B) in the case of Growth PRIDES or Income
PRIDES (if a Tax Event Redemption has occurred) the
principal amount of the related Treasury Securities
or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as applicable, when paid at
maturity, will automatically be applied, pursuant
to the exercise of such rights by Philadelphia
Consolidated to satisfy in full such holder's
obligation to purchase Common Stock under the
related Purchase Contracts.
In the event that a holder of either Income PRIDES
or Growth PRIDES effects the early settlement of
the related Purchase Contracts through the delivery
of cash or, in the case of an Income PRIDES,
settles such Purchase Contracts with cash on the
Business Day immediately preceding the Purchase
Contract Settlement Date, the related Trust
Preferred Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or the
Treasury Securities, as the case may be, will be
released to such holder as described herein.
Settlement Rate............ The number of newly issued shares of Common Stock
issuable upon settlement of each Purchase Contract
on the Purchase Contract Settlement Date (the
"Settlement Rate") will be calculated as follows
(subject to adjustment under certain
circumstances): (a) if the Applicable Market Value
is equal to or greater than $ (the
"Threshold
S-15
<PAGE> 17
Appreciation Price," which is approximately %
above the last reported sale price of the Common
Stock set forth on the cover page of the final
Prospectus Supplement (the "Reference Price")), the
Settlement Rate will be equal to the Stated Amount
divided by the Threshold Appreciation Price, which
is ; accordingly, if, between the date of
the final Prospectus Supplement and the period
during which the Applicable Market Value is
measured, the market price for the Common Stock
increases to an amount that is higher than the
Threshold Appreciation Price, the aggregate market
value of the shares of Common Stock issued upon
settlement of each Purchase Contract (assuming that
such market value is the same as the Applicable
Market Value of such Common Stock) will be higher
than the Stated Amount, and if such market price is
the same as the Threshold Appreciation Price, the
aggregate market value of such shares (assuming
that such market value is the same as the
Applicable Market Value of such Common Stock) will
be equal to the Stated Amount; (b) if the
Applicable Market Value is less than the Threshold
Appreciation Price but greater than the Reference
Price, the Settlement Rate will be equal to the
Stated Amount divided by the Applicable Market
Value; accordingly, if the market price for the
Common Stock increases between the date of the
final Prospectus Supplement and the period during
which the Applicable Market Value is measured but
such market price is less than the Threshold
Appreciation Price, the aggregate market value of
the shares of Common Stock issued upon settlement
of each Purchase Contract (assuming that such
market value is the same as the Applicable Market
Value of such Common Stock) will be equal to the
Stated Amount; and (c) if the Applicable Market
Value is less than or equal to the Reference Price,
the Settlement Rate will be equal to the Stated
Amount divided by the Reference Price, which is
; accordingly, if the market price for
the Common Stock decreases between the date of the
final Prospectus Supplement and the period during
which the Applicable Market Value is measured, the
aggregate market value of the shares of Common
Stock issued upon settlement of each Purchase
Contract (assuming that such market value is the
same as the Applicable Market Value of such Common
Stock) will be less than the Stated Amount, and if
such market price stays the same, the aggregate
market value of such shares (assuming that such
market value is the same as the Applicable Market
Value of such Common Stock) will be equal to the
Stated Amount. "Applicable Market Value" means the
average of the Closing Price (as defined herein)
per share of Common Stock on each of the twenty
consecutive Trading Days (as defined herein) ending
on the third Trading Day immediately preceding the
Purchase Contract Settlement Date. See "Description
of the Purchase Contracts -- General."
Early Settlement........... A holder of Income PRIDES may settle the related
Purchase Contracts on or prior to the fifth
Business Day immediately preceding the Purchase
Contract Settlement Date in the manner described
herein, but only in integral multiples of 100
Income PRIDES; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
holders of Income PRIDES may settle early only in
integral multiples of 4,000,000 Income PRIDES at
any time on or prior to the second Business Day
immediately preceding the Purchase Con-
S-16
<PAGE> 18
tract Settlement Date. A holder of Growth PRIDES
may settle the related Purchase Contracts on or
prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date in
the manner described herein (in either case, an
"Early Settlement"). Upon Early Settlement, (i) the
holder's rights to receive Deferred Contract
Adjustment Payments, if any, on the Purchase
Contracts being settled will be forfeited, (ii) the
holder's right to receive additional Contract
Adjustment Payments, if any, in respect of such
Purchase Contracts will terminate and (iii) no
adjustment will be made to or for the holder on
account of Deferred Contract Adjustment Payments,
or any amount accrued in respect of Contract
Adjustment Payments, if any. See "Description of
the Purchase Contracts -- Early Settlement."
Termination................ The Purchase Contracts and the rights and
obligations of Philadelphia Consolidated and the
holders of the FELINE PRIDES thereunder (including
the right thereunder to receive accrued or Deferred
Contract Adjustment Payments, if any, and the
obligation to purchase Common Stock) will
automatically terminate upon the occurrence of
certain events of bankruptcy, insolvency or
reorganization with respect to Philadelphia
Consolidated. Upon such termination, the Collateral
Agent will release the related Trust Preferred
Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Treasury
Securities, as the case may be, held by it to the
Purchase Contract Agent for distribution to the
holders, subject in the case of the Treasury
Portfolio to the Purchase Contract Agent's
disposition of the subject securities for cash, and
the payment of such cash to the holders, to the
extent that the holder would otherwise have been
entitled to receive less than $1,000 of any such
security. Upon such termination, there may be a
delay before such release and distribution. In the
event that Philadelphia Consolidated becomes the
subject of a case under the United States
Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code"), such delay may occur as a
result of the automatic stay under the Bankruptcy
Code and continue until such automatic stay has
been lifted. Philadelphia Consolidated expects any
such delay to be limited. See "Description of the
Purchase Contracts -- Termination."
Voting and Certain Other
Rights..................... Holders of Trust Preferred Securities will not be
entitled to vote to appoint, remove or replace, or
to increase or decrease the number of Regular
Trustees (as defined herein) and will generally
have no voting rights except in the limited
circumstances described under "Description of Trust
Preferred Securities -- Voting Rights." Holders of
Purchase Contracts forming part of the Income
PRIDES or Growth PRIDES in their capacities as such
holders will have no voting or other rights in
respect of the Common Stock.
TRUST PREFERRED SECURITIES
The Trust.................. The Trust is a Delaware statutory business trust.
The sole assets of the Trust will consist of the
Debentures. Philadelphia Consolidated will directly
or indirectly own all of the Common Securities
representing common undivided beneficial ownership
interests in the assets of the Trust.
S-17
<PAGE> 19
Trust Preferred
Securities................. % Trust Preferred Securities (liquidation
amount $10 per Trust Preferred Security),
representing preferred, undivided beneficial
ownership interests in the assets of the Trust.
Distributions.............. Distributions on the Trust Preferred Securities
that are components of Income PRIDES will
constitute all or a portion of the distributions on
the Income PRIDES, will be cumulative, will accrue
from the first date of issuance of the Trust
Preferred Securities and will be payable initially
at the annual rate of % of the liquidation
amount of $10 per Trust Preferred Security to but
excluding the Purchase Contract Settlement Date,
and in the case of Trust Preferred Securities that
remain outstanding on and after the Purchase
Contract Settlement Date, from the Purchase
Contract Settlement Date to but excluding
, 2003, at the Reset Rate, in each case, when, as
and if funds are available for payment. Subject to
the distribution deferral provisions, distributions
will be payable quarterly in arrears on each
February 16, May 16, August 16 and November 16,
commencing , 1998.
Market Rate Reset.......... The applicable quarterly distribution rate on the
Trust Securities and the interest rate on the
Debentures on and after the Purchase Contract
Settlement Date, will be reset on the third
Business Day immediately preceding the Purchase
Contract Settlement Date to the Reset Rate,
determined by the Reset Agent as the rate the Trust
Securities should bear in order for a Trust
Security to have an approximate market value of
100.5% of the Stated Amount on the third Business
Day immediately preceding the Purchase Contract
Settlement Date, provided, that Philadelphia
Consolidated may limit such Reset Rate to be no
higher than the rate on the Two-Year Benchmark
Treasury plus 200 basis points (2%). Such market
value may be less than 100.5% if the Reset Spread
is limited to a maximum of 2%. It is currently
anticipated that Merrill Lynch, Pierce, Fenner &
Smith Incorporated will be the Reset Agent. See
"Description of the Trust Preferred
Securities -- Market Rate Reset."
Optional Remarketing....... Pursuant to the Remarketing Agreement and subject
to the terms of Remarketing Underwriting Agreement,
on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date,
but no earlier than the Payment Date immediately
preceding the Purchase Contract Settlement Date,
holders of separate Trust Preferred Securities that
are not components of Income PRIDES may elect to
have their Trust Preferred Securities remarketed,
by delivering their Trust Preferred Securities
along with a notice of such election to The Chase
Manhattan Bank as custodial agent (the "Custodial
Agent"). Holders of Trust Preferred Securities
electing to have their Trust Preferred Securities
remarketed will also have the right to withdraw
such election on or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date. See "Description of the Trust
Preferred Securities -- Optional Remarketing."
Distribution Deferral
Provisions................. The ability of the Trust to pay distributions on
the Trust Preferred Securities will be solely
dependent on the receipt of interest payments from
Philadelphia Consolidated on the Debentures.
Philadelphia Consolidated will have the right at
any time, and from time to time, to defer the
interest payments due on the Debentures for
successive extension periods (the "Extension
Periods") limited, in the aggregate, to a period
not
S-18
<PAGE> 20
extending beyond the maturity date of the
Debentures. The corresponding quarterly
distributions on the Trust Preferred Securities
would be deferred by the Trust (but would continue
to accumulate quarterly and would accrue interest,
compounded quarterly, at the rate of % per
annum through and including , 2001, and
at the Reset Rate thereafter) until the end of any
such Extension Period. If a deferral of an interest
payment occurs, the holders of the Trust Preferred
Securities will be required to accrue interest
income for United States federal income tax
purposes in advance of the receipt of any
corresponding cash distribution with respect to
such deferred interest payment. See "Risk
Factors -- Right to Defer Current Payments,"
"Description of the Trust Preferred
Securities -- Distributions" and "Certain Federal
Income Tax Consequences -- Trust Preferred
Securities -- Interest Income and Original Issue
Discount."
Rights Upon Deferral of
Distribution............. During any period in which interest payments on the
Debentures are deferred, interest will accrue on
the Debentures (compounded quarterly) and the
corresponding quarterly distributions on the Trust
Preferred Securities will continue to accumulate
with interest thereon at the rate of % per
annum through and including , 2001, and
at the Reset Rate thereafter, compounded quarterly.
Liquidation Preference..... In the event of any liquidation of the Trust, and
after satisfaction of liabilities to creditors of
the Trust, if any, holders will be entitled to
receive Debentures in an aggregate principal amount
equal to the aggregate stated liquidation amount of
the Trust Preferred Securities.
Put Option Upon a Failed
Remarketing.............. If a Failed Remarketing has occurred, holders of
Trust Securities (or, following the distribution of
the Debentures upon a dissolution of the Trust as
described herein, the holders of such Debentures)
holding such Trust Securities (or Debentures, as
the case may be) following the Purchase Contract
Settlement Date will have the right, in the case of
Trust Securities, to require the Trust to
distribute their pro rata share of the Debentures
to the Exchange Agent who will put such Debenture
to Philadelphia Consolidated on behalf of such
holders (or, in the case of persons who hold the
Debentures directly, such persons shall have the
right to put such Debentures directly to
Philadelphia Consolidated) on , 2001,
upon at least three Business Days' prior notice, at
a price equal to the principal amount, plus accrued
and unpaid interest (including deferred interest),
if any, thereon. See "Description of the
Debentures -- Put Option."
Distribution of
Debentures................. In certain circumstances involving an Investment
Company Event, or upon the determination by
Philadelphia Consolidated, at any time, to do so,
the Trust would be dissolved, with the result that,
after satisfaction of liabilities to creditors of
the Trust, if any, Debentures with an aggregate
principal amount equal to the aggregate stated
liquidation amount of the Trust Preferred
Securities would be distributed to the holders of
the Trust Preferred Securities, including the
Collateral Agent, on a pro rata basis. In such
event an Income PRIDES would thereafter consist of
beneficial ownership of a Debenture with a
principal amount equal to the Stated Amount of such
Income PRIDES and the related Purchase Contract,
and such Debenture would be otherwise treated as if
it were a
S-19
<PAGE> 21
Trust Preferred Security. See "Description of the
Trust Preferred Securities -- Distribution of
Debentures."
Tax Event Redemption....... The Debentures (and, thus, the Trust Securities)
are redeemable, at the option of Philadelphia
Consolidated, on not less than 30 days or more than
60 days prior written notice in whole but not in
part upon the occurrence and continuation of a Tax
Event under the circumstances described herein at a
Redemption Price equal to, for each Debenture, the
Redemption Amount together with accrued and unpaid
distributions (including deferred distributions).
See "Description of the Debentures -- Tax Event
Redemption." If Philadelphia Consolidated so
redeems all of the Debentures, the Trust must
redeem all of the Trust Securities and pay in cash
such Redemption Price to the holders of such Trust
Securities. If such Tax Event Redemption occurs
prior to the Purchase Contract Settlement Date, the
Redemption Price payable in liquidation of any
Income PRIDES holders' interest in the Trust, will
be distributed to the Collateral Agent, which in
turn will apply an amount equal to the Redemption
Amount of such Redemption Price to purchase the
Treasury Portfolio on behalf of the holders of
Income PRIDES and remit the remaining portion, if
any, of such Redemption Price to the Purchase
Contract Agent for payment to holders of such
Income PRIDES. The Treasury Portfolio will be
substituted for the Trust Preferred Security and
will be pledged with the Collateral Agent to secure
such Income PRIDES holders' obligations to purchase
the Common Stock under their Purchase Contracts.
Other than in the event of a Tax Event Redemption,
Philadelphia Consolidated will not have the ability
to redeem the Debentures prior to their stated
maturity date. See "Description of the
Debentures -- Tax Event Redemption of Trust
Preferred Securities."
Guarantee.................. Philadelphia Consolidated will irrevocably and
unconditionally guarantee, on a subordinated
unsecured basis, the payment in full of (i)
distributions on the Trust Preferred Securities to
the extent the Trust has funds available therefor,
(ii) the redemption price of Trust Preferred
Securities in respect of which the related
Debentures have been repurchased by Philadelphia
Consolidated on the Purchase Contract Settlement
Date, to the extent the Trust has funds available
therefor, and (iii) the liquidation amount of the
Trust Preferred Securities or the Redemption Price
upon a Tax Event Redemption, to the extent the
Trust has assets available for distribution to
holders of Trust Preferred Securities in the event
of a dissolution of the Trust. Philadelphia
Consolidated's obligations under the Guarantee will
be subordinated and junior in right of payment to
Philadelphia Consolidated's obligations under any
Senior Indebtedness. See "Description of the
Guarantee."
Debentures................. Unless a Tax Event Redemption has occurred, the
Debentures will mature on , 2003, and
will bear interest initially at the rate of %
per annum, payable quarterly in arrears on each
February 16, May 16, August 16 and November 16,
commencing , 1998. The interest rate on
the Debentures, and the distribution rate on the
Trust Preferred Securities, that remain outstanding
after the Purchase Contract Settlement Date will be
reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to
the Reset Rate determined by the Reset Agent. See
"Description of Debentures -- Interest." Interest
payments on the Debentures may be deferred
S-20
<PAGE> 22
from time to time by Philadelphia Consolidated for
successive Extension Periods not extending, in the
aggregate, beyond the stated maturity date of the
Debentures. During any Extension Period, interest
at the rate of % per annum through and
including , 2001, and at the Reset Rate
thereafter would continue to accrue and compound
quarterly. Upon the termination of any Extension
Period and the payment of all amounts then due,
Philadelphia Consolidated may commence a new
Extension Period, provided such new Extension
Period does not extend beyond the stated maturity
date of the Debentures. No interest shall be due
during an Extension Period until the end of such
period. During an Extension Period, Philadelphia
Consolidated will be prohibited (subject to certain
exceptions) from paying dividends on or purchasing
any of its capital stock and making certain other
restricted payments until quarterly interest
payments are resumed and all amounts then due on
the Debentures are paid. The Debentures will be
senior unsecured obligations of Philadelphia
Consolidated and will rank on a parity with all of
Philadelphia Consolidated's other senior unsecured
obligations. See "Description of the Debentures."
Federal Income Tax
Consequences Related to
the Income PRIDES, Growth
PRIDES and Trust
Preferred Securities..... The Debentures may be issued with OID, in which
case a beneficial owner of Income PRIDES or Trust
Preferred Securities will be required to include
its pro rata share of such OID in income on a
constant yield to maturity basis. In addition, a
beneficial owner of Income PRIDES and Trust
Preferred Securities will include in gross income
its pro rata share of the stated interest on the
Debentures when such interest income is paid or
accrued in accordance with its regular method of
tax accounting. Philadelphia Consolidated intends
to report the Contract Adjustment Payments, if any,
as income to holders of Income PRIDES and Growth
PRIDES, but holders should consult their tax
advisors concerning the possibility that the
Contract Adjustment Payments, if any, may be
treated as loans, purchase price adjustments,
rebates or option premiums rather than being
includible in income on a current basis. A
beneficial owner of Growth PRIDES will be required
to include in gross income its allocable share of
any OID with respect to the Treasury Securities as
it accrues on a constant yield to maturity basis.
If a Tax Event Redemption has occurred, a
beneficial owner of Income PRIDES will be required
to include in gross income its allocable share of
OID on the Treasury Portfolio as it accrues on a
constant yield to maturity basis. See "Certain
Federal Income Tax Consequences."
S-21
<PAGE> 23
EXPLANATORY DIAGRAMS
For illustrative purposes only, the following diagrams demonstrate some of
the key features of Purchase Contracts, Income PRIDES and Growth PRIDES and the
transformation of Income PRIDES into Growth PRIDES and Trust Preferred
Securities. The hypothetical percentages, coupon rates and time periods below
are for illustration only. There can be no assurance that the actual percentage
of shares delivered will be limited by the range of hypothetical percentages
shown. In addition, there can be no assurance that payment rates on the FELINE
PRIDES will be at the levels set forth below or that Contract Adjustment
Payments will constitute a component of the Income PRIDES or Growth PRIDES.
The following diagrams and the related text are not complete, are general
in nature and are qualified in their entirety by more detailed information
appearing elsewhere in the accompanying Prospectus, this Prospectus Supplement
and in documents which are on file with the Commission.
FELINE PRIDES PURCHASE CONTRACT
- Income PRIDES and Growth PRIDES both include a Purchase Contract under
which the investor agrees to purchase shares of Common Stock of
Philadelphia Consolidated at the end of three years. In addition, such
Purchase contracts include specified Contract Adjustment Payments, if
any, shown in the diagrams on the following pages.
[GRAPH]
PURCHASE CONTRACT
<TABLE>
<CAPTION>
VALUE OF DELIVERED SHARES QUANTITY OF DELIVERED SHARES
AT MATURITY AT MATURITY
- ------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C>
DELIVER
BETWEEN
DELIVER 83% AND DELIVER
100% OF 100% OF 83% OF
SHARES* SHARES** SHARES***
100% 121%
REFERENCE THRESHOLD REFERENCE THRESHOLD
PRICE APPRECIATION PRICE PRICE APPRECIATION PRICE
COMMON STOCK PRICE COMMON STOCK PRICE
[RIGHT ARROW] [RIGHT ARROW]
</TABLE>
- ---------------
* The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Reference Price.
** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Applicable Market Value.
*** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Threshold Appreciation Price.
S-22
<PAGE> 24
INCOME PRIDES
- Income PRIDES consist of two components as described below:
[GRAPH]
<TABLE>
<CAPTION>
TRUST PREFERRED
PURCHASE CONTRACT SECURITY
------------------------------- -------------------------------
<S> <C> <C>
(OWED TO INVESTOR) (OWED TO INVESTOR)
SHARES % PER ANNUM
+ + PAID QUARTERLY
CONTRACT ADJUSTMENT
PAYMENT (IF ANY) (RESET AT END OF YEAR 3)
% PER ANNUM
PAID QUARTERLY
$10 AT MATURITY $10 AT MATURITY
(END OF YEAR 3) (END OF YEAR 5)
(OWED TO COMPANY) (OWED TO INVESTOR)
</TABLE>
- The investor owns the Trust Preferred Security, but will pledge it to
Philadelphia Consolidated to secure its obligations under the Purchase
Contract.
GROWTH PRIDES
- Growth PRIDES consist of two components as described below:
[GRAPH]
<TABLE>
<CAPTION>
ZERO-COUPON
PURCHASE CONTRACT TREASURY SECURITY
------------------------------- -------------------------------
<S> <C> <C>
(OWED TO INVESTOR) (OWED TO INVESTOR)
SHARES
+
CONTRACT ADJUSTMENT
PAYMENT (IF ANY)
% PER ANNUM
PAID QUARTERLY
$10 AT MATURITY $10 AT MATURITY
(END OF YEAR 3) (END OF YEAR 3)
(OWED TO COMPANY) (OWED TO INVESTOR)
</TABLE>
- The investor owns the Zero-Coupon Treasury Security, but will pledge it
to Philadelphia Consolidated to secure its obligations under the Purchase
Contract.
S-23
<PAGE> 25
TRUST PREFERRED SECURITIES
- Trust Preferred Securities have the terms described below:
[GRAPH]
<TABLE>
<S> <C>
(OWED TO INVESTOR)
% PER ANNUM
PAID QUARTERLY
(RESET AT END OF YEAR 3)
$10 AT MATURITY
(END OF YEAR 5) >
</TABLE>
- The holder of Trust Preferred Securities that are a component of Income
PRIDES has an option at the end of year 3 to either:
- Cash settle each Purchase Contract for $10 and receive Trust Preferred
Securities whose rate has been reset at the end of year 3, or
- Cash settle each Purchase Contract by allowing the Trust Preferred
Securities to be included in the remarketing process.
- The holder of Trust Preferred Securities that are separate and not a
component of Income PRIDES has the option at the end of year 3 to either:
- Continue to hold the Trust Preferred Securities whose rate has been
reset at the end of year 3, or
- Deliver the Trust Preferred Securities to the Custodial Agent to be
included in the remarketing process.
S-24
<PAGE> 26
TRANSFORMING INCOME PRIDES INTO GROWTH PRIDES AND TRUST PREFERRED SECURITIES
- To create a Growth PRIDES, the investor separates an Income PRIDES into
its components -- the Purchase Contract and the Trust Preferred
Security -- and then combines the Purchase Contract with a specific
Zero-Coupon Treasury Security which matures concurrently with the
maturity of the Purchase Contract.
- The investor owns the Zero-Coupon Treasury Security but will pledge it to
Philadelphia Consolidated to secure its obligations under the Purchase
Contract.
- The Zero-Coupon Treasury Security together with the Purchase Contract
constitute a Growth PRIDES. The Trust Preferred Security which is no
longer a component of the Income PRIDES is tradeable as a separate
security.
[GRAPH]
<TABLE>
<CAPTION>
TRUST PREFERRED ZERO-COUPON TRUST PREFERRED
PURCHASE CONTRACT SECURITY PURCHASE CONTRACT TREASURY SECURITY SECURITY
- ----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(OWED TO (OWED TO (OWED TO (OWED TO
INVESTOR) INVESTOR) INVESTOR) INVESTOR)
SHARES PER ANNUM SHARES PER ANNUM
[RIGHT
+ + PAID QUARTERLY ARROW] + + +
CONTRACT CONTRACT
ADJUSTMENT (RESET AT END OF ADJUSTMENT
PAYMENT (IF ANY) YEAR 3) PAYMENT (IF ANY)
PER ANNUM PER ANNUM (RESET AN END OF
PAID QUARTERLY PAID QUARTERLY YEAR 3)
$10 AT MATURITY $10 AT MATURITY $10 AT MATURITY $10 AT MATURITY $10 AT MATURITY
(END OF YEAR 3) (END OF YEAR 5) (END OF YEAR 3) (END OF YEAR 5) (END OF YEAR 5)
(OWED TO (OWED TO (OWED TO
(OWED TO COMPANY) INVESTOR) (OWED TO COMPANY) INVESTOR) INVESTOR)
INCOME PRIDES GROWTH PRIDES
</TABLE>
- The investor can also transform Growth PRIDES and Trust Preferred
Securities into Income PRIDES.
- The transformation of Income PRIDES into Growth PRIDES and Trust
Preferred Securities, and the transformation of Growth PRIDES and Trust
Preferred Securities into Income PRIDES, require certain minimum amounts
of securities, as more fully described herein.
S-25
<PAGE> 27
RISK FACTORS
Potential purchasers of the FELINE PRIDES offered hereby should carefully
consider the risk factors set forth herein under "Risk Factors" as well as other
information contained in this Prospectus Supplement, the accompanying Prospectus
and the documents incorporated by reference therein.
INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON STOCK; RISK OF
DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial owners of the
related Trust Preferred Securities, Treasury Portfolio or Treasury Securities,
as the case may be, prior to the Purchase Contract Settlement Date, unless a
holder of FELINE PRIDES settles the related Purchase Contracts through the
delivery of cash to the Purchase Contract Agent in the manner described below or
the Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to Philadelphia
Consolidated), the proceeds derived from the remarketing of the Trust Preferred
Securities or the principal of the related Treasury Securities, or the
Applicable Ownership Interest of the Treasury Portfolio, when paid at maturity,
as the case may be, will automatically be applied to the purchase of a specified
number of shares of Common Stock on behalf of such holder. Thus, unless a holder
of Income PRIDES has cash settled, following the Purchase Contract Settlement
Date the holder will own shares of Common Stock rather than a beneficial
ownership interest in Trust Preferred Securities or the Treasury Portfolio, as
the case may be. See "Description of the Purchase Contracts -- General." There
can be no assurance that the market value of the Common Stock receivable by the
holder on the Purchase Contract Settlement Date will be equal to or greater than
the Stated Amount of the FELINE PRIDES held by such holder. If the Applicable
Market Value of the Common Stock is less than the Reference Price, then the
aggregate market value of the Common Stock issued to the holder in settlement of
each Purchase Contract on the Purchase Contract Settlement Date (assuming that
such market value is the same as the Applicable Market Value of such Common
Stock) will be less than the Stated Amount paid for the FELINE PRIDES and the
market value per share of such Common Stock will be less than the effective
price per share paid by each holder for such Common Stock on the date hereof, in
which case an investment in the Securities will result in an economic loss as of
the Purchase Contract Settlement Date. Accordingly, a holder of the FELINE
PRIDES assumes the risk that the market value of the Common Stock may decline,
and that such decline could be substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock because the market value of the Common
Stock to be received by a holder of Purchase Contracts on the Purchase Contract
Settlement Date (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will only exceed the Stated Amount if the
Applicable Market Value of the Common Stock exceeds the Threshold Appreciation
Price (which represents an appreciation of % over the Reference Price).
Moreover, in such event, holders of FELINE PRIDES would receive on the Purchase
Contract Settlement Date only % (the percentage equal to the Reference Price
divided by the Threshold Appreciation Price) of the shares of Common Stock that
such holders would have received if they had made a direct investment in the
Common Stock on the date hereof, and therefore would receive on the Purchase
Contract Settlement Date only % of the appreciation in the value of the Common
Stock in excess of the Threshold Appreciation Price through such date.
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock in
the secondary market, the general level of interest rates and the credit quality
of the Company. It is impossible to determine whether the price of the Common
Stock or interest rates will rise or fall. Trading prices of the Common Stock
will be influenced by the Company's operating results and prospects and by
economic, financial and other factors and market conditions that can
S-26
<PAGE> 28
affect the capital markets generally, including the level of, and fluctuations
in, the trading prices of stocks generally and sales of substantial amounts of
Common Stock in the market subsequent to the offering of the Securities or the
perception that such sales could occur. Fluctuations in interest rates may give
rise to opportunities of arbitrage based upon changes in the relative value of
the Common Stock underlying the Purchase Contracts and of the other components
of the FELINE PRIDES. Any such arbitrage could, in turn, affect the trading
prices of the Income PRIDES, Growth PRIDES, Trust Preferred Securities and
Common Stock.
LIMITED VOTING AND CERTAIN OTHER RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace or to increase or decrease the number of Philadelphia
Consolidated Trustees, and generally will have no voting rights except in the
limited circumstances described under "Description of the Trust Preferred
Securities -- Voting Rights." Holders of FELINE PRIDES will not be entitled to
any rights with respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other distributions in
respect thereof) unless and until such time as Philadelphia Consolidated shall
have delivered shares of Common Stock for FELINE PRIDES on the Purchase Contract
Settlement date or as a result of Early Settlement, as the case may be, and
unless the applicable record date, if any, for the exercise of such rights
occurs after such date. For example, in the event of an annual or special
meeting of the shareholders of Philadelphia Consolidated for which the record
date for determining the shareholders of record entitled to vote on matters
presented to such meeting occurs prior to such delivery, holders of FELINE
PRIDES will not be entitled to vote on the election of directors or any other
matter presented to such meeting for a vote thereon by the shareholders.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result of
Early Settlement is subject to adjustment for certain events arising from stock
splits and combinations, stock dividends and certain other actions of
Philadelphia Consolidated that modify its capital structure. See "Description of
the Purchase Contracts -- Anti-Dilution Adjustments." Such number of shares of
Common Stock to be received by such holders on the Purchase Contract Settlement
Date or as a result of Early Settlement will not be adjusted for other events,
such as offerings of Common Stock for cash or in connection with acquisitions.
Philadelphia Consolidated is not restricted from issuing additional Common Stock
during the term of either the Purchase Contracts or the Trust Preferred
Securities and has no obligation to consider the interests of the holders of
FELINE PRIDES for any reason. Additional issuances may materially and adversely
affect the price of the Common Stock and, because of the relationship of the
number of shares to be received on the Purchase Contract Settlement Date to the
price of the Common Stock, such other events may adversely affect the trading
price of Income PRIDES or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to determine how Income PRIDES, Growth PRIDES or Trust
Preferred Securities will trade in the secondary market or whether such market
will be liquid or illiquid. Income PRIDES and Growth PRIDES are novel securities
and there is currently no secondary market for either Income PRIDES or Growth
PRIDES. Application will be made to list the Income PRIDES and the Growth PRIDES
on the NNM. If Trust Preferred Securities are separately traded to a sufficient
extent that the applicable market listing requirements are met, the Company will
endeavor to cause such securities to be listed on the market on which the Income
PRIDES and the Growth PRIDES are then listed including, if applicable, the NNM.
There can be no assurance as to the liquidity of any market that may develop for
the Income PRIDES, the Growth PRIDES or the Trust Preferred Securities, the
ability of holders to sell such securities or whether a trading market, if it
develops, will continue. In addition, in the event that holders of Income PRIDES
or Growth PRIDES were to substitute Treasury Securities or Trust Preferred
Securities for Trust Preferred Securities or Treasury Securities, thereby
converting their Income PRIDES to Growth PRIDES or their
S-27
<PAGE> 29
Growth PRIDES to Income PRIDES, as the case may be, the liquidity of Income
PRIDES, Growth PRIDES and Trust Preferred Securities could be adversely
affected. There can be no assurance that the Income PRIDES or the Growth PRIDES
will not be delisted from the NNM or that trading in the Income PRIDES or the
Growth PRIDES will not be suspended as a result of the election by holders to
create Income PRIDES or Growth PRIDES through the substitution of collateral,
which could cause the number of Income PRIDES or Growth PRIDES to fall below the
current requirement for listing securities on the NNM that at least 1,000,000 of
each of the Income PRIDES or Growth PRIDES be outstanding at any time.
PLEDGED SECURITIES ENCUMBERED
Although the beneficial owners of FELINE PRIDES will be the beneficial
owners of the related Trust Preferred Securities, Treasury Portfolio or Treasury
Securities (together, the "Pledged Securities"), as applicable, those Pledged
Securities will be pledged with the Collateral Agent to secure the obligations
of the holders under the related Purchase Contracts. Thus, rights of the holders
to their Pledged Securities will be subject to Philadelphia Consolidated's
security interest. Additionally, notwithstanding the automatic termination of
the Purchase Contracts, in the event that Philadelphia Consolidated becomes the
subject of a case under the Bankruptcy Code, the delivery of the Pledged
Securities to holders of the FELINE PRIDES may be delayed by the imposition of
the automatic stay under Section 362 of the Bankruptcy Code.
INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of an Investment Company Event, the Trust will be
dissolved (except in the limited circumstances described in the following
sentence) with the result that Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of the Trust Preferred
Securities would be distributed to the holders of the Trust Preferred Securities
on a pro rata basis. Such dissolution and distribution shall be conditioned on
Philadelphia Consolidated being unable to avoid such Investment Company Event
within a 90-day period by taking some ministerial action or pursuing some other
reasonable measure that will have no adverse effect on the Trust, Philadelphia
Consolidated or the holders of the Trust Preferred Securities, and will involve
no material cost. In addition, Philadelphia Consolidated will have the right at
any time to dissolve the Trust. See "Description of the Trust Preferred
Securities -- Distribution of the Debentures."
There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Debentures in exchange for Trust Preferred
Securities upon a dissolution of the Trust. Because Income PRIDES will consist
of Debentures and related Purchase Contracts upon the occurrence of the
dissolution of the Trust as a result of an Investment Company Event or
otherwise, prospective purchasers of Income PRIDES are also making an investment
decision with regard to the Debentures and should carefully review all the
information regarding the Debentures contained herein. See "Description of the
Trust Preferred Securities -- Distribution of the Debentures" and "Description
of the Debentures -- General."
TAX EVENT REDEMPTION
The Debentures (and, thus, the Trust Securities) are redeemable, at the
option of Philadelphia Consolidated, on not less than 30 days or more than 60
days prior written notice, in whole but not in part, at any time prior to the
Purchase Contract Settlement Date upon the occurrence and continuation of a Tax
Event under the circumstances described herein at a Redemption Price equal to,
for each Debenture, the Redemption Amount plus accrued and unpaid distributions
(including deferred distributions). See "Description of the Debentures -- Tax
Event Redemption." If Philadelphia Consolidated so redeems all of the
Debentures, the Trust must redeem all of the Trust Securities and pay in cash
such Redemption Price to the holder of such Trust Securities. If the Tax Event
Redemption has occurred prior the Purchase Contract Settlement Date, the
Redemption Price payable in liquidation of the Income PRIDES holders' interest
in the Trust will be distributed to the Collateral Agent, which in turn will
apply an amount equal to the Redemption Amount of such Redemption Price to
purchase the Treasury Portfolio on behalf of the holders of Income PRIDES.
Holders of Trust Preferred Securities, not held in the form of Income PRIDES,
will receive redemption payments directly. The Treasury Portfolio will be
substituted for the Trust Preferred Securities and will be pledged with the
Collateral Agent to secure such Income PRIDES holders' obligations to purchase
S-28
<PAGE> 30
Philadelphia Consolidated's Common Stock under their Purchase Contracts. There
can be no assurance as to the impact on the market prices for the Income PRIDES
of the substitution of the Treasury Portfolio as collateral in replacement of
any Trust Preferred Securities so redeemed. See "Description of the Trust
Preferred Securities -- Optional Redemption." A Tax Event Redemption will be a
taxable event to the beneficial owners of the Trust Preferred Securities. See
"Certain Federal Income Tax Consequences -- Tax Event Redemption of Trust
Preferred Securities."
RIGHT TO DEFER CURRENT PAYMENTS
Philadelphia Consolidated may, at its option, defer the payment of Contract
Adjustment Payments, if any, on the Purchase Contracts until the Purchase
Contract Settlement Date. However, deferred installments of Contract Adjustment
Payments, if any, will bear Deferred Contract Adjustment Payments at the rate of
% per annum (compounding on each succeeding Payment Date) until paid (the
higher of (i) the rate that would accrue on Income PRIDES for such Payments and
(ii) the rate that would accrue on Growth PRIDES for such payments). If the
Purchase Contracts are settled early or terminated (upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to
Philadelphia Consolidated), the right to receive Contract Adjustment Payments,
if any, and Deferred Contract Adjustment Payments, if any, will also terminate.
In the event that Philadelphia Consolidated elects to defer the payment of
Contract Adjustment Payments, if any, on the Purchase Contracts until the
Purchase Contract Settlement Date, each holder of Purchase Contracts will
receive on the Purchase Contract Settlement Date in respect of the Deferred
Contract Adjustment Payments, in lieu of a cash payment, a number of shares of
Common Stock equal to (x) the aggregate amount of Deferred Contract Adjustment
Payments payable to such holder divided by (y) the Applicable Market Value. See
"Description of the Purchase Contracts -- Contract Adjustment Payments."
Philadelphia Consolidated also will have the right under the Indenture to
defer payments of interest on the Debentures by extending the interest payment
period at any time, and from time to time, on the Debentures. As a consequence
of such an extension, quarterly distributions on the Trust Preferred Securities,
held either as a component of the Income PRIDES or held separately, would be
deferred (but despite such deferrals would accrue interest at a rate of % per
annum through and including , 2001, and at the Reset Rate
thereafter, compounded on a quarterly basis) by the Trust during any such
Extension Period. Such right to extend the interest payment period for the
Debentures will be limited such that an Extension Period may not extend beyond
the stated maturity of the Debentures. During any such Extension Period, (a)
Philadelphia Consolidated shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of Philadelphia Consolidated in
connection with the satisfaction by Philadelphia Consolidated of its obligations
under any employee or agent benefit plans or the satisfaction by Philadelphia
Consolidated of its obligations pursuant to any contract or security outstanding
on the date of such event requiring Philadelphia Consolidated to purchase
capital stock of Philadelphia Consolidated, (ii) as a result of a
reclassification of Philadelphia Consolidated's capital stock or the exchange or
conversion of one class or series of Philadelphia Consolidated's capital stock
for another class or series of Philadelphia Consolidated's capital stock, (iii)
the purchase of fractional interests in shares of Philadelphia Consolidated's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (iv) dividends or
distributions in capital stock of Philadelphia Consolidated (or rights to
acquire capital stock) or repurchases or redemptions of capital stock solely
from the issuance or exchange of capital stock or (v) redemptions or repurchases
of any rights outstanding under a shareholder rights plan), (b) Philadelphia
Consolidated shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by
Philadelphia Consolidated that rank junior to the Debentures and (c)
Philadelphia Consolidated shall not make any guarantee payments with respect to
the foregoing (other than payments pursuant to the Guarantee). Prior to the
termination of any such Extension Period, Philadelphia Consolidated may further
extend the interest payment period; provided, that such Extension Period may not
extend beyond the stated maturity of the Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, Philadelphia
Consolidated may
S-29
<PAGE> 31
commence a new Extension Period, subject to the above requirements. See
"Description of the Trust Preferred Securities -- Distributions" and
"Description of the Debentures -- Option to Extend Interest Payment Period."
Philadelphia Consolidated believes, and intends to take the position, that
as of the issue date of the Debentures, the likelihood that it will exercise its
right to defer payments of stated interest on the Debentures is remote and that,
therefore, the Debentures should not be considered to be issued with OID as a
result of Philadelphia Consolidated's right to defer payments of stated interest
on the Debentures unless it actually exercises such deferral right. There is no
assurance that the Internal Revenue Service will agree with such position. See
"Certain Federal Income Tax Consequences -- Trust Preferred
Securities -- Interest Income and Original Issue Discount."
Should Philadelphia Consolidated exercise its right to defer payments of
interest by extending the interest payment period, each beneficial owner of
Trust Preferred Securities held either as a component of the Income PRIDES or
held separately would be required to include such beneficial owner's share of
the stated interest on the Trust Preferred Securities in gross income, as OID,
on daily economic accrual basis, regardless of such owner's method of tax
accounting and in advance of receipt of the cash attributable to such income. As
a result, each such beneficial owner of Trust Preferred Securities would
recognize income for United States federal income tax purposes in advance of the
receipt of cash attributable to such income, and would not receive the cash from
the Trust related to such income if such holder disposes of its Trust Preferred
Securities prior to the record date for the date on which distributions of such
amounts are made. See "Certain Federal Income Tax Consequences -- Trust
Preferred Securities -- Interest Income and Original Issue Discount."
Philadelphia Consolidated has no current intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Debentures. However, should Philadelphia Consolidated determine to exercise such
right in the future, the market price of the Trust Preferred Securities is
likely to be affected. A holder that disposes of its Trust Preferred Securities
during an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Trust Preferred Securities. In
addition, as a result of the existence of Philadelphia Consolidated's right to
defer interest payments, the market price of the Trust Preferred Securities
(which represent a preferred, undivided beneficial ownership interest in the
assets of the Trust) may be more volatile than the market price of other
securities that are not subject to such deferral. See "Certain Federal Income
Tax Consequences -- Trust Preferred Securities -- Interest Income and Original
Issue Discount."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES for
United States federal income tax purposes. As a result, certain United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PRIDES are not entirely clear. See "Certain Federal Income Tax
Consequences."
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Trust Preferred Securities constituting a part of the Income
PRIDES will be issued pursuant to the Declaration, which will be qualified under
the Trust Indenture Act, the Purchase Contract Agreement will not be qualified
as an indenture under the Trust Indenture Act and the Purchase Contract Agent
will not be required to qualify as a trustee thereunder. Accordingly, holders of
FELINE PRIDES will not have the benefit of the protections of the Trust
Indenture Act. The protections generally afforded the holder of the security
issued under an indenture that has been qualified under the Trust Indenture Act
include disqualification of the indenture trustee for "conflicting interests" as
defined under the Trust Indenture Act, provisions preventing a trustee that is
also a creditor of the issuer from improving its own credit position at the
expense of the security holders immediately prior to or after a default under
such indenture and the requirement that the indenture trustee deliver reports at
least annually with respect to certain matters concerning the indenture trustee
and the securities. Under the terms of the Purchase Contract Agreement, the
Purchase Contract Agent will have only limited obligations to the holders of
FELINE PRIDES. See "Certain
S-30
<PAGE> 32
Provisions of the Purchase Contract Agreement and the Pledge
Agreement -- Information Concerning the Purchase Contract Agent."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Trust Preferred Securities. The Guarantee guarantees to the holders of the Trust
Preferred Securities, on a subordinated unsecured basis, the payment of (i) any
accrued and unpaid distributions that are required to be paid on the Trust
Preferred Securities, to the extent the Trust has funds available therefor, (ii)
the redemption price, including all accumulated and unpaid distributions to the
date of redemption, of Trust Preferred Securities in respect of which the
related Debentures have been repurchased by Philadelphia Consolidated on the
Purchase Contract Settlement Date, to the extent the Trust has funds available
therefor, and (iii) upon a voluntary or involuntary dissolution of the Trust
(other than in connection with the distribution of Debentures to the holders of
Trust Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Trust Preferred
Securities to the date of payment to the extent the Trust has funds available
therefor or (b) the amount of assets of the Trust remaining available for
distribution to holders of the Trust Preferred Securities in liquidation of the
Trust. The majority in liquidation amount of the Trust Preferred Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under the Guarantee.
Notwithstanding the foregoing, any holder of the Trust Preferred Securities may
institute a legal proceeding directly against Philadelphia Consolidated to
enforce such holder's rights under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If Philadelphia Consolidated were to default on its obligation to pay
amounts payable on the Debentures or otherwise, the Trust would lack funds for
the payment of distributions or amounts payable on redemption of the Trust
Preferred Securities or otherwise, and, in such event, holders of the Trust
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, holders of the Trust Preferred Securities would rely on
the enforcement (1) by the Institutional Trustee of its rights as registered
holder of the Debentures against Philadelphia Consolidated pursuant to the terms
of the Indenture and the Debentures or (2) by such holder of the Institutional
Trustee's or such holder's own rights against Philadelphia Consolidated to
enforce payments on the Debentures. See "-- Enforcement of Certain Rights by
Holders of Trust Preferred Securities," "Description of the Debentures" and
"Description of the Guarantee." The Declaration provides that each holder of
Trust Preferred Securities, by acceptance thereof, agrees to the provisions of
the Guarantee and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, the holders of Trust Preferred Securities would rely on the
enforcement by the Institutional Trustee of its rights as registered holder of
the Debentures against Philadelphia Consolidated. In addition, the holders of a
majority in liquidation amount of the Trust Preferred Securities will have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the Institutional Trustee or to direct the exercise of any
trust or power conferred upon the Institutional Trustee under the Declaration,
including the right to direct the Institutional Trustee to exercise the remedies
available to it as the holder of the Debentures. The Indenture provides that the
Debt Trustee (as defined herein) shall give holders of Debentures notice of all
defaults or events of default within 30 days after occurrence. However, except
in the cases of a default or an event of default in payment on the Debentures,
the Debt Trustee will be protected in withholding such notice if its officers or
directors in good faith determine that withholding of such notice is in the
interest of such holders.
If the Institutional Trustee fails to enforce its rights under the
Debentures in respect of an Indenture Event of Default (as defined herein) after
a holder of record of Trust Preferred Securities has made a written request,
such holder of record of Trust Preferred Securities may, to the extent permitted
by applicable law,
S-31
<PAGE> 33
institute a legal proceeding against Philadelphia Consolidated to enforce the
Institutional Trustee's rights under the Debentures. In addition, if
Philadelphia Consolidated fails to pay interest or principal on the Debentures
on the date such interest or principal is otherwise payable, and such failure to
pay is continuing, a holder of Trust Preferred Securities may directly institute
a proceeding for enforcement of payment to such holder of the principal of or
interest on the Debentures having a principal amount equal to the aggregate
stated liquidation amount of the Trust Preferred Securities of such holder (a
"Direct Action") after the respective due date specified in the Debentures. In
connection with such a Direct Action, Philadelphia Consolidated shall have the
right under the Indenture to set off any payment made to such holder by
Philadelphia Consolidated. The holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures. See "Description of the Trust Preferred Securities -- Declaration
Events of Default."
LIMITED RIGHTS OF ACCELERATION
The Institutional Trustee, as holder of the Debentures, may accelerate
payment of the principal and accrued and unpaid interest on the Debentures only
upon the occurrence and continuation of a Declaration Event of Default or
Indenture Event of Default, which generally are limited to payment defaults,
breach of certain covenants, certain events of bankruptcy, insolvency and
reorganization of Philadelphia Consolidated and certain events of dissolution of
the Trust. See "Description of the Trust Preferred Securities -- Declaration
Events of Default." Accordingly, there is no right to acceleration upon default
by Philadelphia Consolidated of its payment obligations under the Guarantee.
TRADING PRICE OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying
Debentures. A holder who disposes of his Trust Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Debentures through the date of disposition in
income as ordinary income (i.e., interest or, possibly, OID), and to add such
amount to his adjusted tax basis in his pro rata share of the underlying
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis, a holder will recognize a loss for tax purposes.
See "Certain Federal Income Consequences -- Trust Preferred
Securities -- Interest Income and Original Issue Discount" and "-- Sales,
Exchanges or Other Dispositions of Trust Preferred Securities."
EFFECTS OF HOLDING COMPANY STRUCTURE
Philadelphia Consolidated is a holding company the principal assets of
which currently consist of substantially all of the capital stock of its
subsidiaries, (i) Philadelphia Indemnity Insurance Company ("PIIC") and
Philadelphia Insurance Company ("PIC" and, together with PIIC, the "Insurance
Subsidiaries"); and (ii) Maguire Insurance Agency, Inc. ("MIA" and, together
with the Insurance Subsidiaries, the "Subsidiaries"). The ability of the Trust
to pay amounts due on the Trust Preferred Securities is dependent upon the
ability of Philadelphia Consolidated to make payments on the Debentures as and
when required.
Philadelphia Consolidated's primary sources of funds are dividends from its
Subsidiaries and payments to it pursuant to certain tax allocation agreements
with the Insurance Subsidiaries. The Insurance Subsidiaries are insurance
companies that are subject to significant government regulation and the ability
of Philadelphia Consolidated to receive dividends and loans from the Insurance
Subsidiaries is restricted by such regulations. Accumulated statutory profits of
the Insurance Subsidiaries from which dividends may be paid totaled $59.7
million at December 31, 1997. Of this amount, the Insurance Subsidiaries are
entitled to pay a total of approximately $14.3 million of dividends in 1998
without obtaining prior approval from the Pennsylvania Department of Insurance.
Further, the right of Philadelphia Consolidated to participate in any
distribution of assets of any Subsidiary upon such Subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Trust
Preferred Securities to benefit indirectly from such distribution) is subject to
the prior claims of creditors of that Subsidiary, except to the extent, if any,
that Philadelphia Consolidated may itself be recognized as a creditor of that
Subsidiary. Accordingly, Philadelphia Consolidated's obligations in respect of
S-32
<PAGE> 34
the Debentures, the Guarantee and the Contract Adjustment Payments effectively
will be subordinated to all existing and future liabilities of the Subsidiaries.
At December 31, 1997, the Subsidiaries had total liabilities (excluding
liabilities owed to Philadelphia Consolidated) of approximately $176.7 million.
REGULATION
The Insurance Subsidiaries are subject to a substantial degree of
regulatory oversight, which generally is designed to protect the interests of
policyholders as opposed to investors. Such regulation relates to authorized
lines of business, capital and surplus requirements, investment parameters,
underwriting limitations, required participation in shared property-casualty
insurance markets or pooling arrangements, transactions with affiliates,
dividend limitations, changes in control and a variety of other financial and
non-financial components of an insurance company's business.
New regulations and legislation have been (and are being) proposed from
time to time to limit damage awards; to bring the industry under regulation by
the federal government; to control premiums, policy terminations and other
policy terms; and to impose new taxes and assessments. It is not possible to
determine whether any of these proposals will be adopted in any jurisdictions
and, if so, in what form or in what jurisdictions. Accordingly, the impact of
these initiatives on Philadelphia Consolidated is impossible to determine.
INDUSTRY FACTORS
The Insurance Subsidiaries write (i) specialized commercial property and
casualty insurance products for non-profit organizations, the auto rental and
leasing industries, assisted living and nursing home facilities, homeowners
associations, the health fitness and wellness industry and private schools and
(ii) select classes of professional liability insurance. Historically, the
financial performance of the commercial property and casualty insurance industry
has tended to fluctuate in cyclical patterns of soft markets followed by hard
markets. Although an individual company's financial performance is dependent on
its own specific business characteristics, the profitability of most commercial
property and casualty insurance companies tends to follow this cyclical market
pattern. At present, the property and casualty insurance industry is
experiencing a prolonged soft market; further deterioration of the market could
have an adverse effect on the financial condition and operations of the Company.
There can be no assurance that a hard market will emerge or that the current
market will not worsen.
COMPETITION
The commercial property and casualty insurance industry is highly
competitive. Many of the Company's existing and potential competitors are
larger, have considerably greater financial and other resources, have greater
experience in the insurance industry and offer a broader line of insurance
products than the Company. Not only does the Company compete with other
insurers, it also competes with other forms of insurance organizations such as
self-insurance mechanisms.
A.M. BEST AND STANDARD & POOR'S RATINGS
The Insurance Subsidiaries are rated "A+" (Superior) by A.M. Best Company.
According to A.M. Best Company, the "A+" (Superior) rating is assigned to
companies that have, on balance, superior financial strength, operating
performance and market profile when compared to the standards established by the
A.M. Best Company and have a very strong ability to meet their ongoing
obligations to policyholders. A.M. Best Company ratings are based upon factors
relevant to policyholders and are not directed toward the protection of
investors, such as holders of the Securities. The Insurance Subsidiaries also
possess an "A" claims paying ability rating by Standard & Poor's. According to
Standard & Poor's, insurers rated "A" offer good financial security for
policyholders. The Company believes that the ratings assigned by A.M. Best
Company and Standard & Poor's are important factors in marketing its products.
If these ratings were to be downgraded in the future, it is likely that the
Company's competitive position, and hence its financial condition and results of
operations, would be adversely affected.
S-33
<PAGE> 35
ADEQUACY OF RESERVES
The Company establishes reserves for losses and loss adjustment expenses
("LAE") representing the Company's best estimate of the losses and LAE it will
incur on existing insurance policies. The Company obtains annual certifications
of reserves by independent actuaries. While management believes that the
Company's reserves for losses and LAE are adequate, loss and LAE reserves
necessarily are based on assumptions as to future events. Accordingly, ultimate
losses and LAE may vary from established reserves. If the Company's reserves are
subsequently determined to be understated, the Company will be required to
increase reserves with a corresponding reduction in net income in the period in
which the deficiency is identified. Furthermore, changes in inflation, claim
settlement patterns, legislative activity and litigation trends may have a
substantial impact on the Company's future loss experience. Accordingly, there
can be no assurance that the Company's reserves will be adequate to cover
ultimate loss development. In the event the Company is required to strengthen
reserves, such action could result in a reduction in policyholders' surplus, a
downgrading of the Insurance Subsidiaries' A.M. Best pooled rating and/or
adverse regulatory consequences.
REINSURANCE
The Company cedes to reinsurers a portion of the risk on policies it writes
directly. Limiting its insurance risks through reinsurance will continue to be
important to the Company. The maintenance of reinsurance does not affect the
Company's direct liability to its policyholders on the business it writes
directly. Although the Company's reinsurance is currently maintained primarily
with one large reinsurer, rated "A" (Excellent) by A.M. Best, the reinsurer's
insolvency or inability to make payments under the terms of a reinsurance treaty
with the Company could have a material adverse effect on the Company. Moreover,
there can be no assurance that reinsurance will remain continuously available to
the Company to the same extent and on the same terms as are currently available.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is dependent on the efforts and
abilities of its principal executive officers, particularly James J. Maguire,
the Company's founder, principal shareholder, Chairman of the Board, President
and Chief Executive Officer. The Company maintains $5.0 million of "key man"
insurance on Mr. Maguire's life. However, Mr. Maguire does not have an
employment contract with the Company and there can be no assurance that he will
remain in his present positions for any period of time. If the Company were to
lose the services of Mr. Maguire or other principal executive officers, there
could be a material adverse effect on the Company's business.
CONTROLLING SHAREHOLDERS; ANTI-TAKEOVER EFFECT
James J. Maguire and his wife, Frances Maguire, beneficially own 44.1% of
the Common Stock. Accordingly, Mr. and Mrs. Maguire have a substantial level of
control over the Company and over matters submitted to its shareholders. Mr.
James J. and Mrs. Frances Maguire are likely to have the practical ability to
elect all of the directors of the Company and prevent a potential change of
control of the Company (even if advantageous to the public investors).
S-34
<PAGE> 36
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, dated as of April 2, 1998, executed by the
Sponsor and certain of the Philadelphia Consolidated Trustees and (ii) the
filing of a certificate of trust with the Secretary of State of the State of
Delaware on April 2, 1998. Such trust declaration 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 forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act.
Although, upon issuance of the Trust Preferred Securities, the holders of Income
PRIDES will be the beneficial owners of the related Trust Preferred Securities,
such Trust Preferred Securities will be pledged with the Collateral Agent to
secure the obligations of the holders under the related Purchase Contracts. See
"Description of the Purchase Contracts -- Pledged Securities and Pledge
Agreement" and "Description of the Trust Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." Philadelphia Consolidated will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to three percent of the total capital of the Trust. The Trust
exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial ownership interests in the assets of the
Trust, (ii) investing the proceeds of the Trust Securities in the Debentures and
(iii) engaging in only those other activities necessary, appropriate, convenient
or incidental thereto. The Trust has a term of approximately seven years, but
may dissolve earlier as provided in the Declaration.
The number of Philadelphia Consolidated Trustees initially is five. Three
of the Philadelphia Consolidated Trustees are persons who are employees or
officers of or who are affiliated with Philadelphia Consolidated (the "Regular
Trustees"). Pursuant to the Declaration, the fourth trustee will be a financial
institution that is unaffiliated with Philadelphia Consolidated, which trustee
serves as institutional trustee under the Declaration and as indenture trustee
for the purposes of compliance with the provisions of the Trust Indenture Act
(the "Institutional Trustee"). The fifth trustee, First Chicago Delaware Inc., a
financial institution that is unaffiliated with Philadelphia Consolidated, will
serve as 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, The First National Bank of Chicago will act as the trustee (the
"Guarantee Trustee") under the Guarantee. See "Description of the Guarantee" and
"Description of the Trust Preferred Securities -- Voting Rights."
The Institutional Trustee will hold title to the Debentures for the benefit
of the holders of the Trust Securities and the Institutional Trustee will have
the power to exercise all rights, powers and privileges under the Indenture as
the holder of the Debentures. In addition, the Institutional 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 Institutional 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 Trust Preferred Securities. Philadelphia Consolidated, as the
direct or indirect holder of all the Common Securities, will have the right to
appoint, remove or replace any Philadelphia Consolidated Trustee and to increase
or decrease the number of Philadelphia Consolidated Trustees; provided, however,
that the number of Philadelphia Consolidated Trustees shall be at least two, at
least one of which shall be a Regular Trustee. Philadelphia Consolidated will
pay all fees and expenses related to the Trust and the offering of the Trust
Securities. See "Description of the Debentures -- Miscellaneous."
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Declaration, the Trust Act and the Trust Indenture Act. See "Description of the
Trust Preferred Securities."
The Delaware Trustee currently is First Chicago Delaware Inc. and its
telephone number is (212)373-1191.
S-35
<PAGE> 37
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The high and low closing prices of the Common Stock, as reported by the
National Association of Securities Dealers (NNM ticker symbol: "PHLY"), for the
periods indicated, are presented below:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
First Quarter*............................................ $10 1/2 $ 8 1/8
Second Quarter*........................................... 11 1/4 9 1/8
Third Quarter*............................................ 10 5/8 8 3/8
Fourth Quarter*........................................... 12 1/8 10 5/8
1997:
First Quarter*............................................ $15 $11 1/4
Second Quarter*........................................... 17 9/16 14
Third Quarter*............................................ 23 1/4 16 1/2
Fourth Quarter............................................ 23 15 11/16
1998:
First Quarter............................................. $21 3/4 $16 3/4
Second Quarter (through April 15, 1998)................... $21 7/8 $20 23/32
</TABLE>
- ---------------
* Restated to reflect a two-for-one split of the Common Stock distributed in
November 1997.
Philadelphia Consolidated did not declare cash dividends on the Common
Stock in 1996 or 1997, and currently intends to retain its earnings to enhance
future growth. The payment of dividends will be determined by Philadelphia
Consolidated's Board of Directors and will be based on general business
conditions as well as legal and regulatory restrictions. As a holding company,
Philadelphia Consolidated is dependent upon dividends and other permitted
payments from its subsidiaries to pay cash dividends to its shareholders. The
ability of the Insurance Subsidiaries to pay dividends to Philadelphia
Consolidated is subject to regulatory limitations. See "Risk Factors -- Effects
of Holding Company Structure."
USE OF PROCEEDS
All or substantially all of the proceeds from the sale of the Growth PRIDES
will be used to purchase the underlying Treasury Securities to be transferred to
holders of the Growth PRIDES pursuant to the terms thereof, and the remainder,
if any, will be paid to the Company. All of the proceeds from the sale of the
Trust Preferred Securities that are not components of Income PRIDES and from the
sale of the Common Securities and all or substantially all of the proceeds from
the sale of the Income PRIDES will be invested by the Trust in Debentures of
Philadelphia Consolidated, and the remainder of the proceeds from the sale of
the Income PRIDES, if any, will be paid to the Company. Philadelphia
Consolidated currently anticipates using all of the net proceeds from the sale
of the Debentures, the Income PRIDES and the Growth PRIDES, estimated to be
approximately $ million, for general corporate purposes, which may include
acquisitions (including, without limitation, acquisitions of programs or books
of business), capital expenditures, capital contributions to its subsidiaries
and the repurchase by Philadelphia Consolidated of its Common Stock.
Philadelphia Consolidated has had discussions relating to possible acquisitions
with a number of parties, but has not reached agreement with respect to the
terms of any such acquisition and, accordingly, there is no assurance that any
such transaction will be completed.
S-36
<PAGE> 38
CONDENSED CONSOLIDATED CAPITALIZATION
The following table summarizes the actual consolidated capitalization of
Philadelphia Consolidated at December 31, 1997, and such capitalization adjusted
on a pro forma basis to reflect the sale of the FELINE PRIDES offered hereby and
the concurrent purchase by the Trust from Philadelphia Consolidated of $
million principal amount of Debentures. The table should be read in conjunction
with Philadelphia Consolidated's Annual Report on Form 10-K for the year ended
December 31, 1997 which is incorporated by reference herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
PRO FORMA
ADJUSTMENTS
FOR THE
ISSUANCE OF PRO FORMA
ACTUAL FELINE PRIDES(2)(3) AS ADJUSTED
-------- ------------------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Minority Interest in Consolidated Subsidiaries:
Company-obligated Mandatorily-redeemable
Preferred Securities of Subsidiary
Trust(1)..................................... $ -- $ 87,150 $
-------- -------- --------
Shareholders' Equity:
Preferred Stock, $.01 Par Value, 10,000,000
Shares Authorized, None Issued and
Outstanding..................................
Common Stock, No Par Value, 50,000,000 Shares
Authorized; 12,242,431 Shares Issued and
Outstanding(3)............................... 42,788
Notes Receivable from Shareholders.............. (1,422)
Unrealized Investment Appreciation
(Depreciation), Net of Deferred Income
Taxes........................................ 15,023
Retained Earnings............................... 54,895
-------- -------- --------
Total Shareholders' Equity.............. 111,284
-------- -------- --------
Total Capitalization.................... $111,284 $ $
======== ======== ========
</TABLE>
- ---------------
(1) Subsequent to the completion of the Offering, the assets of the Trust will
consist solely of approximately $ million in aggregate principal amount
of the Debentures with an interest rate of % and a maturity date of
, 2001. The assets described in the previous sentence may not be
adequate to meet the obligations of the Trust.
(2) The pro forma adjustments assume the Underwriters' over allotment is not
exercised.
(3) The present value of the Contract Adjustment Payments, if any, are charged
to Common Stock.
S-37
<PAGE> 39
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in Philadelphia
Consolidated's consolidated financial statements, with the Trust Preferred
Securities shown on Philadelphia Consolidated's balance sheet under the caption
"Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust." The financial statement footnotes to Philadelphia Consolidated's
consolidated financial statements will reflect that the sole asset of the Trust
will be the Debentures. Distributions on the Trust Preferred Securities will be
reflected as a charge to Philadelphia Consolidated's consolidated income,
identified as Minority Interest in Net Income of Consolidated Subsidiaries,
whether paid or accrued.
The Purchase Contracts are forward transactions in the Common Stock. Upon
settlement of a Purchase Contract, Philadelphia Consolidated will receive the
Stated Amount on such Purchase Contract and will issue the requisite number of
shares of Common Stock. The Stated Amount thus received will be credited to the
Common Stock account in shareholders' equity. The present value of the Contract
Adjustment Payments will initially be charged to equity, with an offsetting
credit to liabilities. Subsequent Contract Adjustment Payments will be allocated
between this liability account and interest expense based on a constant rate
calculation over the life of the transaction.
Prior to the issuance of shares of Common Stock, upon settlement of the
Purchase Contracts, it is anticipated that the FELINE PRIDES will be reflected
in Philadelphia Consolidated's earnings per share calculations using the
treasury stock method. Under this method, the number of shares of Common Stock
used in calculating earnings per share is deemed to be increased by the excess,
if any, of the number of shares issuable upon settlement of the Purchase
Contracts over the number of shares that could be purchased by Philadelphia
Consolidated in the market (at the average market price during the period) using
the proceeds receivable upon settlement. Consequently, it is anticipated there
will be no dilutive effect on Philadelphia Consolidated's earnings per share
except during periods when the average market price of Common Stock is above the
Threshold Appreciation Price.
S-38
<PAGE> 40
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information as of and for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993 has been derived from
previously published audited consolidated financial statements of Philadelphia
Consolidated, prepared in accordance with generally accepted accounting
principles, which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The consolidated financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements from which it has been derived and the
accompanying notes thereto incorporated by reference herein. See also,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Philadelphia
Consolidated and accompanying notes included herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Gross Written Premiums.......................... $ 159,091 $ 136,855 $ 104,180 $ 89,099 $ 57,085
Gross Earned Premiums........................... $ 150,128 $ 121,820 $ 99,507 $ 84,657 $ 53,506
Net Written Premiums............................ $ 111,797 $ 83,994 $ 62,072 $ 55,398 $ 40,645
Net Earned Premiums............................. $ 100,555 $ 72,050 $ 58,188 $ 52,085 $ 37,484
Net Investment Income........................... 9,703 7,910 6,506 4,902 3,269
Net Realized Investment Gain (Loss)............. (16) 260 181 (1,697) 1,327
Other Income.................................... 228 282 309 314 1,169
---------- ---------- ---------- ---------- ----------
Total Revenue.......................... 110,470 80,502 65,184 55,604 43,249
---------- ---------- ---------- ---------- ----------
Net Loss and Loss Adjustment Expenses........... 55,009 40,118 33,227 31,009 21,165
Acquisition Costs and Other Underwriting
Expenses...................................... 31,344 22,210 17,105 15,541 12,991
Other Operating Expenses........................ 1,909 1,386 2,564 1,347 3,038
Interest Expense................................ -- -- -- -- 459
---------- ---------- ---------- ---------- ----------
Total Losses and Expenses.............. 88,262 63,714 52,896 47,897 37,653
---------- ---------- ---------- ---------- ----------
Income Before Income Taxes...................... 22,208 16,788 12,288 7,707 5,596
Total Income Tax Expense............... 5,338 3,414 2,458 1,734 1,364
---------- ---------- ---------- ---------- ----------
Net Income............................. $ 16,870 $ 13,374 $ 9,830 $ 5,973 $ 4,232
---------- ---------- ---------- ---------- ----------
Weighted Average Common Shares Outstanding(1)... 12,193,659 11,879,506 11,627,702 11,627,702 7,046,442
Weighted Average Share Equivalents
Outstanding(1)................................ 2,736,039 2,373,742 2,049,004 1,647,902 1,771,252
---------- ---------- ---------- ---------- ----------
Weighted Average Share and Share Equivalents
Outstanding(1)................................ 14,929,698 14,253,248 13,676,706 13,275,604 8,817,694
========== ========== ========== ========== ==========
Basic Earnings Per Share(1)(2).................. $1.38 $1.13 $0.85 $0.51 $0.60
===== ===== ===== ===== =====
Diluted Earnings Per Share(1)(2)................ $1.13 $0.94 $0.72 $0.45 $0.48
===== ===== ===== ===== =====
YEAR END FINANCIAL POSITION:
Total Investments and Cash and Cash
Equivalents................................. $ 229,599 $ 180,061 $ 140,086 $ 105,720 $ 90,441
Total Assets.................................. 288,126 225,938 174,148 140,718 116,135
Unpaid Loss and Loss Adjustment Expenses...... 122,430 96,642 77,686 59,175 44,253
Total Shareholders' Equity.................... 111,284 85,642 68,316 52,600 49,018
Common Shares Outstanding(1).................. 12,242,431 12,079,612 11,627,702 11,627,702 11,627,702
INSURANCE OPERATING RATIOS (STATUTORY BASIS):
Net Loss and Loss Adjustment Expenses to Net
Earned Premiums............................. 55.3% 55.7% 57.1% 59.5% 56.5%
Underwriting Expenses to Net Written
Premiums.................................... 29.1% 31.1% 29.6% 29.9% 34.5%
--- --- --- --- ---
Combined Ratio.................................. 84.4% 86.8% 86.7% 89.4% 91.0%
=== === === === ===
A.M. Best Rating................................ A A A A A-
(Excellent) (Excellent) (Excellent) (Excellent) (Excellent)
</TABLE>
- ---------------
(1) 1996, 1995, 1994 and 1993 restated to reflect a two for one split of
Philadelphia Consolidated's common stock distributed in November 1997.
(2) 1996, 1995, 1994 and 1993 earnings per share amounts restated in accordance
with the provisions of SFAS No. 128 adopted as of December 31, 1997.
S-39
<PAGE> 41
BUSINESS
GENERAL
1997 represented the fourth consecutive year since its 1993 initial public
offering that the Company has reported growth in gross written premiums and net
income while experiencing a combined ratio substantially lower than the
commercial property and casualty insurance industry as a whole. The Company's
four year compound annual growth rate for gross written premiums and net income
was 29.2% and 41.3%, respectively, while the four year weighted average combined
ratio (GAAP basis) was 86.8%. The GAAP basis combined ratio is the sum of the
net loss and loss adjustment expenses and acquisition costs and other
underwriting expenses divided by net earned premiums. The Company believes its
profitable growth is attributable to adhering to conservative underwriting
guidelines and pricing discipline while supplementing historically profitable
product lines with growth in certain excess liability products, commercial
multi-peril products, and selected professional liability coverages.
The Insurance Subsidiaries are rated "A+" (Superior) by A.M. Best Company.
According to A.M. Best Company, the "A+" (Superior) rating is assigned to
companies that have, on balance, superior financial strength, operating
performance and market profile when compared to the standards established by the
A.M. Best Company and have a very strong ability to meet their ongoing
obligations to policyholders. A.M. Best Company ratings are based upon factors
relevant to policyholders and are not directed toward the protection of
investors. The Insurance Subsidiaries also possess an "A" claims paying ability
rating by Standard & Poor's. According to Standard & Poor's, insurers rated "A"
offer good financial security for policyholders. The Company believes that the
ratings assigned by A.M. Best Company and Standard & Poor's are important
factors in marketing its products.
BUSINESS STRATEGY
The Company designs property and casualty insurance products incorporating
value-added coverages and services for select target industries or niches. A
"mixed" marketing strategy is utilized wherein the Company's production
underwriting organization markets the Company's insurance products directly to
the insured or through the Company's 35 preferred agents, or also accepts
business from independent insurance brokers. The Company's production
underwriting organization, consisting of 100 professionals at year 1997,
operates from 38 proprietary field offices located across the United States and
includes telemarketing staffs at its regional offices and the Philadelphia Home
Office. Approximately 53% of the total 1997 gross premium was produced
indirectly through the Company's 35 preferred agents (11%) and its approximately
4,000 broker relationships (42%).
PRODUCT LINES
The following table sets forth, for the years ended December 31, 1997, 1996
and 1995, the gross written premiums for the Company's insurance product lines
and the relative percentages that such premiums represented.
<TABLE>
<CAPTION>
GROSS WRITTEN PREMIUMS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE DOLLARS PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial Automobile.... $ 18,415 11.6% $ 18,506 13.5% $ 17,294 16.6%
Excess Liability......... 59,296 37.3 56,411 41.2 51,907 49.8
Commercial Package....... 60,012 37.7 43,707 32.0 25,064 24.1
Specialty Lines.......... 20,748 13.0 16,558 12.1 8,505 8.2
Involuntary.............. 620 .4 1,673 1.2 1,410 1.3
-------- ----- -------- ----- -------- -----
Total.................... $159,091 100.0% $136,855 100.0% $104,180 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
S-40
<PAGE> 42
Commercial Automobile and Excess Liability. The Company has provided
Commercial Automobile Products to the leasing and rent-a-car industries for over
35 years. Products offered to the rent-a-car industry include coverage for the
business owner's property, dual interest liability, and physical damage on the
rental vehicle.
Additionally, through arrangements with a number of the largest rent-a-car
companies, the Company also offers its excess liability product at the rental
car counter to rent-a-car customers protecting them against liability for bodily
injury and property damage, which is in excess of the statutory coverage
provided with the rental vehicle and provides primary coverage over the renter's
personal automobile insurance coverage.
In keeping with its marketing philosophy, the Company includes a number of
special features in its rental car products and services in an attempt to
differentiate them from the competition. Such features include: catastrophic
comprehensive coverage for losses due to fire, lightening, windstorm, hail,
flood, earthquake and other specified causes; subrogation services on
self-insured physical damage; liability deductibles; and self-insured retention
programs.
The Company also offers a full range of liability and physical damage
coverages to automobile leasing companies and their customers. For the driver
(the lessee), coverages include both primary liability and physical damage
coverage on the vehicle. For the owner (the lessor), coverages include
contingent and excess liability over the primary liability layer which (i)
protects lessors in the event of a loss when the primary coverage is absent or
inadequate and (ii) provides contingent physical damage coverage. Additional
products offered to leasing companies include interim primary liability and
physical damage coverage, which protects the lessor of the vehicle before and
after it is delivered to the lessee; residual value coverage which guarantees
the value of the leased vehicle at the termination of the lease; and guaranteed
asset protection coverage which protects the lessor and lessee for the
difference between the leased vehicle's actual cash value and the lease or loan
net value in instances where the vehicle is stolen or damaged beyond repair.
Commercial Package. The Company has been providing Commercial Multi Peril
Package Policies ("Package Programs") to specific targeted niche markets for
over 10 years. Among the organizations to which the Company offers its specialty
niche Package Programs are non-profit social service agencies, introduced in
1988, health and fitness organizations, assisted living facilities, nursing
homes, private and specialty training schools, and condominium/homeowner
association facilities. The Package Programs policies provide a combination of
comprehensive liability, property and automobile coverages with limits up to
$1.0 million and umbrella limits on an optional basis up to $5.0 million. These
policies are further tailored to include special value-added features addressing
the unique aspects of each of the above niche markets differentiating the
Company's product offerings from those of its competitors.
Specialty Lines. The Company has been providing specialty professional
liability products for approximately ten years, initially offering Directors &
Officers Liability coverage to Nonprofit 501(c)(3) tax exempt organizations. The
Company's recent efforts have been focused on broadening the target market for
its specialty lines product offerings through the expansion of its field
production underwriting staff along with introducing new products. The Company
has significantly expanded its errors and omissions product offered to the
independent insurance agent along with its miscellaneous professional liability
program which is currently offered to an array of professionals including:
mortgage bankers, claims adjusters, lawyers, title abstractors, and financial
advisors. During 1996, the Company introduced a proprietary package of coverages
in its Executive Safeguard policy offered to public and private companies. The
coverages offered in the Executive Safeguard policy include: directors and
officers liability, employment practices liability, fiduciary liability, and
kidnap ransom insurance.
S-41
<PAGE> 43
The following table provides the geographic distribution of the Company's
risks insured as represented by direct earned premiums for all product lines for
the year ended December 31, 1997. No other state accounted for more than 2% of
total direct earned premiums for all product lines for the year ended December
31, 1997.
<TABLE>
<CAPTION>
PERCENT OF
STATE DIRECT EARNED PREMIUMS TOTAL
- ---------------------------------------------------------- ---------------------- ----------------
<S> <C> <C>
California................................................ $ 31,549,372 21.9%
Florida................................................... 18,177,954 12.6
New York.................................................. 8,103,169 5.6
Illinois.................................................. 7,191,090 5.0
New Jersey................................................ 7,044,649 4.9
Massachusetts............................................. 6,495,937 4.5
Pennsylvania.............................................. 5,513,663 3.8
Ohio...................................................... 4,971,008 3.4
Hawaii.................................................... 4,510,938 3.1
North Carolina............................................ 3,370,045 2.3
Oklahoma.................................................. 3,309,100 2.3
Minnesota................................................. 3,258,377 2.3
Wisconsin................................................. 2,979,051 2.1
Alabama................................................... 2,895,981 2.0
Other..................................................... 34,821,033 24.2
------------ ------
Total Direct Earned Premiums.............................. $144,191,367 100.0%
============ ======
</TABLE>
UNDERWRITING AND PRICING
The Company's underwriting function is segregated into three independent
groups: Commercial Lines, Specialty Lines, and Regional Underwriting. Commercial
and Specialty Lines responsibilities include: pricing all business, managing the
risk selection process, and monitoring loss ratios by product and insured. The
Regional Underwriting group primarily performs preliminary underwriting and
processing functions along with providing customer service.
The Commercial Lines group, which has underwriting responsibility for the
Company's commercial automobile and commercial package products, currently
consists of home office underwriters that are supported by underwriting
assistants, raters, and other policy administration personnel. The Commercial
Lines underwriters and support staff are organized into geographic underwriting
teams responsible for underwriting and servicing specific commercial automobile
and commercial package products. Each underwriting team is under the direction
of a Senior Underwriter who reports to the Vice President of Commercial Lines
Underwriting.
The Specialty Lines group, which has underwriting responsibility for the
Company's professional liability products, consists of home office underwriters
who report to the Vice President of Specialty Lines Underwriting, and are
supported by underwriting assistants. The Specialty Lines underwriters have
responsibility for underwriting specific professional liability products within
designated Company marketing regions.
During 1997, the Company established a pilot commercial lines underwriting
function in its Southeast regional marketing office to strengthen local market
intelligence, further develop relationships with agents and insureds and enhance
overall customer service. This pilot underwriting function operates under
well-defined underwriting and pricing guidelines developed by the home office
Commercial Lines Underwriting department and has quoting and binding authority
on all risks falling within these guidelines. Risks not failing within the
guidelines are referred to the home office for underwriting decisions.
As a result of the success of this pilot office, the Company plans to
establish commercial lines underwriting functions in its Western and Northeast
regional marketing offices during 1998 under the currently established
structure. In addition, the Specialty Lines division has also identified key
regional offices
S-42
<PAGE> 44
in which Specialty Lines underwriters will be placed. During the fourth quarter
of 1997, a pilot Specialty Lines Underwriting unit was established in the
Company's Western region. The Specialty Lines underwriters will also operate
under a matrix organization structure similar to that of Commercial Lines
underwriting where final underwriting decisions falling outside of established
guidelines will be referred to the home office. Production and service decisions
will reside with the regional marketing vice president. The Company anticipates
placing Specialty Lines underwriters into approximately four other of the
Company's seven regional marketing offices during 1998.
The Company uses a combination of Insurance Services Office, Inc. ("ISO")
coverage forms and rates and independently filed forms and rates. Coverage forms
and rates are independently developed in situations where the line of business
is not supported by ISO or where management believes the ISO forms and rates do
not adequately address the risk. Departures from ISO forms are also used to
differentiate the Company's products from its competitor's products and are
independently filed.
The Company attempts to follow conservative underwriting and pricing
practices. When necessary, the Company is willing to reunderwrite, sharply
curtail or discontinue a product deemed to present unacceptable risks. Written
underwriting guidelines are maintained, and updated regularly, for all classes
of business underwritten. Adherence to underwriting guidelines is maintained
through underwriting audits. Product price levels are measured utilizing a price
monitoring system which measures the aggregate price level of the book of
business. This system is intended to assist management and underwriters in
recognizing and correcting price deterioration before it results in underwriting
losses.
REINSURANCE
The Company's reinsurance program is principally placed with Swiss Re
America, an "A" (Excellent) rated company by A.M. Best Company, with which the
Company has maintained a reinsurance relationship since 1989.
During the first quarter of 1998, effective as of January 1, 1998, the
Company's casualty reinsurance agreement was modified to provide that the
Company bears (i) the first $250,000 layer of liability on each occurrence for
its assisted living, nursing home, insurance agents errors and omissions and
corporate directors and officers liability products, (ii) the first $1,000,000
layer of liability on each occurrence for its non-profit directors and officers
liability products and all of its commercial lines products excluding the
assisted living and nursing home products, and (iii) the first $500,000 layer of
liability on each occurrence for all other products, with the reinsurer bearing
the remaining contracted liability under all policies up to $1,000,000. Casualty
risks in excess of $1.0 million up to $10.0 million are reinsured under a
casualty treaty. Facultative reinsurance is placed for each casualty risk in
excess of $10.0 million.
The Company has an errors and omissions insurance policy which provides
$5.0 million of coverage for protection from exposures such as extra-contractual
obligations and judgments in excess of policy limits. The Company also has an
excess casualty reinsurance agreement with the Reinsurer providing an additional
$5.0 million of coverage with respect to these exposures.
The Company's property reinsurance agreement provides that the Company
bears the first $500,000 layer of loss on each risk with the Reinsurer bearing
the next $1.5 million layer of loss on each risk subject to a maximum of $3.5
million recoverable from a single occurrence. The Company has an automatic
facultative arrangement for each property risk in excess of $2.0 million up to
$20.0 million. The Company seeks to limit the risk of a reinsurer's default in a
number of ways. First, the Company principally contracts with large reinsurers
that are rated at least "A-" (Excellent) by A.M. Best Company. Second, the
Company seeks to collect the obligations of its reinsurers on a timely basis.
This collection effort is supported by a reinsurance recoverable system that is
regularly monitored. Finally, the Company typically does not write casualty
policies in excess of $10.0 million nor property policies in excess of $20.0
million.
The Company regularly assesses its reinsurance needs and seeks to improve
the terms of its reinsurance arrangements as market conditions permit. Such
improvements may involve increases in retentions, modifications in premium
rates, changes in reinsurers and other matters.
S-43
<PAGE> 45
MARKETING AND DISTRIBUTION
Proactive risk selection based on sound underwriting criteria and
relationship selling in clearly defined commercial markets continues to be the
foundation of the Company's marketing plan. Within this framework, the Company's
marketing effort is designed to assure a systematic and disciplined approach to
developing business which is anticipated to be profitable. The Company's most
important distribution channel is its production underwriting organization. The
production underwriting organization is currently comprised of 100 employees
located in 38 field offices in major markets across the country. The field
offices are focused daily on interacting with prospective and existing insureds.
In addition to this direct marketing, relationships with approximately 4,000
brokers have been formed either as a result of the broker having a relationship
with the insured, or through seeking the Company's expertise in one of its
specialty products.
During 1996, the Company introduced its preferred agent program wherein
business relationships were formed with brokers specializing in certain of the
Company's business niches. At year end 1997, the Company had 35 preferred agent
relationships, representing approximately $16.2 million in gross written
premium. The Company anticipates increasing the number of these relationships by
approximately 35% in 1998 thereby further increasing the distribution of the
Company's niche products. This mixed marketing concept not only provides the
flexibility to work with the broker and/or policyholder but also provides the
flexibility to seize emerging market opportunities.
The Company supplements its marketing efforts through trade shows, direct
mailings and national advertisements placed in trade magazines serving
industries in which the Company specializes.
In 1997, approximately 85% of the Company's expiring insurance premiums
were renewed. Management attributes this renewal rate in large part to
continuing personal contacts between the Company's production underwriters,
value-added coverage enhancements which differentiates the Company's products,
and servicing its policyholders.
PRODUCT DEVELOPMENT
The Company continually evaluates new product opportunities, consistent
with its strategic focus on selected market niches. Direct contacts between the
Company's field and home office personnel and its customers have produced a
number of new product ideas. All new product ideas are presented to the Product
Development Committee (the "Committee") for consideration. The Committee,
currently composed of the Company's two most senior executives, as well as
officers from the underwriting and claims departments, meets regularly to review
the feasibility of products from a variety of perspectives, including
underwriting risk, marketing and distribution, reinsurance, long-term viability
and consistency with the Company's culture and philosophy. For each new product,
an individualized test market plan is prepared, addressing such matters as the
appropriate distribution channel (e.g., a limited number of selected production
underwriters), an appropriate cap on premiums to be generated during the test
market phase and reinsurance requirements for the test market phase. Test market
products may involve lower retentions than customarily utilized. After a new
product is approved for test marketing, the Company monitors its success based
on specified criteria (e.g., underwriting results, sales success, product demand
and competitive pressures). If expectations are not realized, the Company either
moves to improve results by initiating adjustments or abandons the product.
CLAIMS MANAGEMENT AND ADMINISTRATION
In accordance with its emphasis on underwriting profitability, the Company
actively manages claims under its policies in an effort to investigate reported
incidents at the earliest juncture, service insureds and minimize fraud. Claim
files are regularly audited by claims supervisors and the Company's reinsurers
in an attempt to ensure that claims are being processed properly and that
reserves are being set at appropriate levels. Claims examiners are expected to
set conservative reserves, an important factor in the Company's reserve
development over the years. See "The Company -- Loss and Loss Adjustment
Expenses."
The Company maintains a Special Investigations Unit to investigate
suspicious claims and to serve as a clearinghouse for information concerning
fraudulent practices primarily within the rental car industry.
S-44
<PAGE> 46
Working closely with a variety of industry contacts, including attorneys,
investigators and rental car company fraud units, this unit has uncovered a
number of fraudulent claims.
LOSS AND LOSS ADJUSTMENT EXPENSES
The Company is liable for losses and loss adjustment expenses under its
insurance policies and reinsurance treaties. While the Company's professional
liability policies are written on claims-made forms and while claims on its
other policies are generally reported promptly after the occurrence of an
insured loss, in many cases several years may elapse between the occurrence of
an insured loss, the reporting of the loss to the Company and the Company's
payment of the loss. The Company reflects its liability for the ultimate payment
of all incurred losses and loss adjustment expenses by establishing loss and
loss adjustment expense reserves, which are balance sheet liabilities
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events that have occurred.
When a claim involving a probable loss is reported, the Company establishes
a case reserve for the estimated amount of the Company's ultimate loss and loss
adjustment expense. This estimate reflects an informed judgment, based on the
Company's reserving practices and the experience of the Company's claims staff.
Management also establishes reserves on an aggregate basis to provide for losses
incurred but not reported ("IBNR"), as well as future development on claims
reported to the Company.
As part of the reserving process, historical data are reviewed and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, changes in societal attitudes,
inflation and economic conditions. Reserve amounts are necessarily based on
management's estimates and judgments; as new data become available and are
reviewed, these estimates and judgments are revised, resulting in increases or
decreases to existing reserves. To verify the adequacy of its reserves, the
Company engages independent actuarial consultants to perform interim loss
reserve analyses and annual certifications.
The following table sets forth a reconciliation of beginning and ending
reserves for unpaid loss and loss adjustment expenses, net of amounts for
reinsured losses and loss adjustment expenses, for the years indicated. As a
result of changes in estimates of insured events of prior years, the Company
reduced losses and loss adjustment expenses incurred by $1,716,000, $965,000 and
$925,000 in 1997, 1996 and 1995, respectively. Such favorable development was
due to losses emerging at a lesser rate than had been originally anticipated
when the initial reserves for the applicable accident years were estimated.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid loss and loss adjustment expenses at beginning of
year(1)................................................... $ 85,723 $68,246 $53,595
-------- ------- -------
Provision for losses and loss adjustment expenses for
current year claims....................................... 56,725 41,083 34,152
Decrease in estimated ultimate losses and loss adjustment
expenses for prior year claims............................ (1,716) (965) (925)
-------- ------- -------
Total incurred losses and loss adjustment expenses.......... 55,009 40,118 33,227
-------- ------- -------
Loss and loss adjustment expense payments for claims
attributable to:
Current year.............................................. 9,512 7,427 6,186
Prior years............................................... 22,292 15,214 12,390
-------- ------- -------
Total payments.............................................. 31,804 22,641 18,576
-------- ------- -------
Unpaid loss and loss adjustment expenses at end of
year(1)................................................... $108,928 $85,723 $68,246
======== ======= =======
</TABLE>
- ---------------
(1) Unpaid loss and loss adjustment expenses differ from the amounts reported in
the consolidated financial statements of Philadelphia Consolidated because
of the inclusion therein of reinsurance receivables of $13,502, $10,919 and
$9,440 at December 31, 1997, 1996 and 1995, respectively.
S-45
<PAGE> 47
The following table presents the development of unpaid loss and loss
adjustment expenses, net of amounts for reinsured losses and loss adjustment
expenses, from 1987 through 1997. The top line of the table shows the estimated
reserve for unpaid loss and loss adjustment expenses at the balance sheet date
for each of the indicated years. These figures represent the estimated amount of
unpaid loss and loss adjustment expenses for claims arising in the current year
and all prior years that were unpaid at the balance sheet date, including IBNR
losses. The table also shows the re-estimated amount of the previously recorded
unpaid loss and loss adjustment expenses based on experience as of the end of
each succeeding year. The estimate changes as more information becomes known
about the frequency and severity of claims for individual years.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1987 1988 1989 1990 1991 1992
------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Unpaid Loss and Loss
Adjustment Expenses, As
Stated $4,940 $10,615 $12,198 $15,930 $22,248 $31,981
Cumulative Paid as of:
1 year later 1,375 2,955 3,354 4,286 6,698 9,865
2 years later 2,481 4,832 6,249 8,084 12,485 16,290
3 years later 3,025 6,584 8,807 10,838 16,288 21,253
4 years later 3,582 7,813 10,155 12,907 17,780 24,299
5 years later 3,771 8,341 11,217 13,211 19,406 25,793
6 years later 3,881 8,748 11,497 13,792 19,898
7 years later 3,922 8,704 11,760 14,074
8 years later 3,911 8,696 11,902
9 years later 3,916 8,746
10 years later 3,918
Unpaid Loss and Loss
Adjustment Expenses
re-estimated as of End
of Year:
1 year later 4,472 9,535 12,628 15,953 22,056 30,538
2 years later 4,056 9,825 12,644 15,712 21,327 30,428
3 years later 3,932 9,645 12,424 14,822 21,198 29,648
4 years later 3,924 9,437 11,947 14,811 21,118 29,306
5 years later 3,970 9,053 11,836 14,841 21,399 28,553
6 years later 4,010 8,859 12,060 14,593 21,106
7 years later 3,952 8,770 12,008 14,606
8 years later 3,926 8,783 12,039
9 years later 3,947 8,804
10 years later 3,959
Cumulative Redundancy
Dollars $ 981 $ 1,811 $ 159 $ 1,324 $ 1,142 $ 3,428
Percentage 19.9% 17.1% 1.3% 8.3% 5.1% 10.7%
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unpaid Loss and Loss
Adjustment Expenses, As
Stated $38,714 $53,595 $68,246 $85,723 $108,928
Cumulative Paid as of:
1 year later 10,792 12,391 15,214 22,292
2 years later 19,297 23,139 31,410
3 years later 24,991 33,511
4 years later 28,903
5 years later
6 years later
7 years later
8 years later
9 years later
10 years later
Unpaid Loss and Loss
Adjustment Expenses
re-estimated as of End
of Year:
1 year later 38,603 52,670 67,281 84,007
2 years later 38,016 52,062 66,061
3 years later 37,184 51,149
4 years later 36,272
5 years later
6 years later
7 years later
8 years later
9 years later
10 years later
Cumulative Redundancy
Dollars $ 2,442 $ 2,446 $ 2,185 $ 1,716
Percentage 6.3% 4.6% 3.2% 2.0%
</TABLE>
- ---------------
(1) Unpaid loss and loss adjustment expenses differ from the amounts reported in
the consolidated financial statements of Philadelphia Consolidated because
of the inclusion therein of reinsurance receivables of $13,502, $10,919,
$9,440, $5,580, $5,539, $1,770, $1,267, $1,672 and $1,591 at December 31,
1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and 1989, respectively.
(2) The Company maintains its historical loss records net of reinsurance and
therefore is unable to conform the presentation of this table to the
financial statements.
The cumulative redundancy represents the aggregate change in the reserve
estimated over all prior years, and does not present accident year loss
development. Therefore, each amount in the table includes the effects of changes
in reserves for all prior years.
The unpaid loss and loss adjustment expense of PIIC and PIC, as reported in
their Annual Statements prepared in accordance with statutory accounting
practices and filed with state insurance departments, differ from those
reflected in the Company's financial statements prepared in accordance with GAAP
with respect to recording the effects of reinsurance. Unpaid loss and loss
adjustment expenses under statutory accounting practices are reported net of the
effects of reinsurance whereas under GAAP these amounts are reported without
giving effect to reinsurance in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 113. Under GAAP, reinsurance receivables, with
a corresponding increase in unpaid loss and loss adjustment expense, have been
recorded. (See footnote (1) to the immediately preceding table for
S-46
<PAGE> 48
amounts). There is no effect on net income or shareholders' equity due to the
difference in reporting the effects of reinsurance between statutory accounting
practices and GAAP as discussed above.
OPERATING RATIOS
Statutory Combined Ratio. The statutory combined ratio, which is the sum
of (a) the ratio of loss and loss adjustment expenses incurred to net earned
premiums (loss ratio) and (b) the ratio of policy acquisition costs and other
underwriting expenses to net written premiums (expense ratio), is the
traditional measure of underwriting experience for insurance companies.
Generally, if the combined ratio is below 100%, an insurance company has an
underwriting profit and if it is above 100%, the insurer has an underwriting
loss.
The following table reflects the consolidated loss, expense and combined
ratios of the Insurance Subsidiaries together with the property and casualty
industry-wide combined ratios after policyholders' dividends.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Loss Ratio............................. 55.3% 55.7% 57.1% 59.5% 56.5%
Expense Ratio.......................... 29.1% 31.1% 29.6% 29.9% 34.5%
----- ----- ----- ----- -----
Combined Ratio......................... 84.4% 86.8% 86.7% 89.4% 91.0%
===== ===== ===== ===== =====
Industry Combined Ratio after
Policyholders' Dividends............. 101.1%(1) 105.8%(2) 106.3%(2) 108.3%(2) 106.8%(2)
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Source: Best's Week, December 29, 1997 Issue (Actual September 30, 1997).
(2) Source: Best's Aggregates & Averages, 1997 Edition.
Premium-to-Surplus Ratio. While there are no statutory provisions
governing premium-to-surplus ratios, regulatory authorities regard this ratio as
an important indicator as to an insurer's ability to withstand abnormal loss
experience. Guidelines established by the National Association of Insurance
Commissioners (the "NAIC") provide that an insurer's net premium-to-surplus
ratio is satisfactory if it is below 3 to 1.
The following table sets forth, for the periods indicated, net written
premiums to policyholders' surplus for the Insurance Subsidiaries (statutory
basis):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Written Premiums................ $110,790 $83,994 $62,072 $55,398 $40,645
Policyholders' Surplus.............. $105,985 $81,906 $67,500 $56,027 $51,197
Premium to Surplus Ratio............ 1.0 to 1.0 1.0 to 1.0 .9 to 1.0 1.0 to 1.0 .8 to 1.0
</TABLE>
INVESTMENTS
At December 31, 1997, the Company had total investments with a carrying
value of $217.7 million, substantially all of which were held by the Insurance
Subsidiaries. At December 31, 1997, 78.4% of the Company's total investments
were investment grade fixed maturity securities, including U.S. treasury
securities and obligations of U.S. government corporations and agencies,
obligations of states and political subdivisions and corporate debt securities
including collateralized mortgage and asset backed securities totaling $18.6
million. The collateralized mortgage and asset backed securities consist of
short tranche securities possessing favorable pre-payment risk profiles. The
remaining 21.6% of the Company's total investments consisted primarily of
publicly-traded common stock securities.
S-47
<PAGE> 49
The following table sets forth information concerning the composition of
the Company's total investments at December 31, 1997:
<TABLE>
<CAPTION>
ESTIMATED CARRYING PERCENT OF
AMORTIZED COST MARKET VALUE VALUE CARRYING VALUE
-------------- ------------ -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
Obligations of States and Political
Subdivisions...................... $105,117 $109,696 $109,696 50.4%
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies......... 15,391 15,655 15,655 7.2%
Corporate Debt Securities............ 44,544 45,327 45,327 20.8%
Equity Securities...................... 29,501 46,988 46,988 21.6%
-------- -------- -------- -----
Total Investments................. $194,553 $217,666 $217,666 100.0%
======== ======== ======== =====
</TABLE>
At December 31, 1997, 100% of the Company's fixed maturity securities
consisted of U.S. government securities or securities rated "1" or "2" by the
NAIC; 96.4% of the fixed maturity securities were rated "A" or better (with no
security rated lower than "BBB-") by Standard & Poor's Corporation.
The cost and estimated market value of fixed maturity securities at
December 31, 1997, by remaining original contractual maturity, are set forth
below. Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations, with or without
call or prepayment penalties:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED MARKET VALUE
-------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in one year or less................................... $ 4,075 $ 4,079
Due after one year through five years..................... 40,460 41,267
Due after five years through ten years.................... 92,935 96,509
Due after ten years....................................... 27,582 28,823
-------- --------
Total................................................ $165,052 $170,678
======== ========
</TABLE>
Investments of the Insurance Subsidiaries must comply with applicable laws
and regulations which prescribe the type, quality and diversification of
investments. In general, these laws and regulations permit investments, with
specified limits and subject to certain qualifications, in federal, state and
municipal obligations, corporate bonds, preferred and common equity securities,
real estate mortgages and real estate.
The Company's investment objective is to realize relatively high levels of
investment income while generating competitive after-tax total rates of return
within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Company's A.M. Best Company and Standard & Poor's ratings. The Company utilizes
professional investment managers for its fixed maturity and equity investment
portfolios. The portfolio consists of diversified issuers and issues and, as of
December 31, 1997, approximately 76% of the total invested assets (total
investments plus cash equivalents) consisted of investments in fixed maturity
securities.
The Company increased its existing portfolio of fixed maturity securities
by investing in investment grade corporate debt during 1997 due to more
favorable after-tax yields. At the end of 1997, investment grade corporate debt
represented 19.6% of the total invested assets, compared to 6.0% as of the end
of 1996. The Company has also continued to increase its total investments in
common stock of quality growth oriented mid-and large-cap companies seeking to
achieve diversification and capital appreciation in the portfolio. At December
31, 1997, common stocks comprised 20.9% of the invested assets, compared to
15.8% as of the end of 1996.
S-48
<PAGE> 50
REGULATION
General. Insurance companies are subject to supervision and regulation in
the states in which they transact business. Such supervision and regulation,
designed primarily for the protection of policyholders and not shareholders,
relates to most aspects of an insurance company's business and includes such
matters as authorized lines of business; underwriting standards; financial
condition standards; licensing of insurers; investment standards; premium
levels; policy provisions; the filing of annual and other financial reports
prepared on the basis of Statutory Accounting Practices ("SAP"); the filing and
form of actuarial reports; the establishment and maintenance of reserves for
unearned premiums; losses and loss adjustment expenses; transactions with
affiliates; dividends; changes in control; and a variety of other financial and
nonfinancial matters. Because the Insurance Subsidiaries are domiciled in
Pennsylvania, the Pennsylvania Department of Insurance (the "Department") has
primary authority over the Company.
Regulation of Insurance Holding Companies. Pennsylvania, like many other
states, has laws governing insurance holding companies (such as Philadelphia
Consolidated). Under Pennsylvania law, a person generally must obtain the
Department's approval to acquire, directly or indirectly, 10% or more of the
outstanding voting securities of Philadelphia Consolidated or either Insurance
Subsidiary. The Department's determination of whether to approve any such
acquisition is based on a variety of factors, including an evaluation of the
acquisitions financial stability, the competence of its management and whether
competition in Pennsylvania would be reduced.
The Pennsylvania statute requires every Pennsylvania-domiciled insurer
which is a member of an insurance holding company system to register with the
Department by filing and keeping current a registration statement on a form
prescribed by the NAIC.
The Pennsylvania statute also specifies that at least one-third of the
board of directors and each committee thereof, of either the domestic insurer or
its publicly owned holding company (if any), must be comprised of outsiders
(i.e., persons who are neither officers, employees nor controlling shareholders
of the insurer or any affiliate). In addition, the domestic insurer or its
publicly held holding company must establish one or more committees comprised
solely of outside directors, with responsibility for recommending the selection
of independent certified public accountants; reviewing the insurer's financial
condition, the scope and results of the independent audit and any internal
audit; nominating candidates for director; evaluating the performance of
principal officers; and recommending to the board the selection and compensation
of principal officers.
Dividend Restrictions. As an insurance holding company, Philadelphia
Consolidated will be largely dependent on dividends and other permitted payments
from the Insurance Subsidiaries to pay any cash dividends to its shareholders.
The ability of the Insurance Subsidiaries to pay dividends to the Company is
subject to Pennsylvania insurance laws, which currently require that dividends
be paid from profits and afford the Department 30 days to disapprove the payment
of "extraordinary dividends" from a domestic property and casualty insurer to
its shareholders (i.e., dividends over a twelve-month period that exceed the
greater of (a) 10% of policyholders' surplus shown on the latest Annual
Statement filed with the Department, or (b) the net income for the period
covered by such statement but in no event to exceed the amount of unassigned
funds (i.e., retained earnings plus or minus net unrealized gains or losses). In
addition, the law specifies factors to be considered by the Department to allow
it to determine that policyholders' surplus after the payment of dividends is
reasonable in relation to an insurance company's outstanding liabilities and
adequate to its financial needs. Such factors include, for example, the size of
the company, the extent to which its business is diversified among several lines
of insurance, the number and size of risks insured, the nature and extent of the
company's reinsurance, and the adequacy of the company's reserves. Accumulated
statutory profits of the Insurance Subsidiaries from which dividends may be paid
totaled $59.7 million at December 31, 1997. Of this amount, the Insurance
Subsidiaries are entitled to pay a total of approximately $14.3 million of
dividends in 1998 without obtaining prior approval from the Department.
The National Association of Insurance Commissioners. In addition to
state-imposed insurance laws and regulations, the Insurance Subsidiaries are
subject to the general SAP and reporting formats established by the NAIC. The
NAIC also promulgates model insurance laws and regulations relating to the
financial and
S-49
<PAGE> 51
operational regulation of insurance companies. These model laws and regulations
generally are not directly applicable to an insurance company unless and until
they are adopted by applicable state legislatures or departments of insurance.
However, NAIC model laws and regulations have become increasingly important in
recent years, due primarily to the NAIC's state regulatory accreditation
program. Under this program, states which have adopted certain required model
laws and regulations and meet various staffing and other requirements are
"accredited" by the NAIC. Such accreditation is the cornerstone of an eventual
nationwide regulatory network and there is a certain degree of political
pressure on individual states to become accredited by the NAIC. Because the
adoption of certain model laws and regulations is a prerequisite to
accreditation, the NAIC's initiatives have taken on a greater level of practical
importance in recent years. The NAIC accredited Pennsylvania under the NAIC
Financial Regulation Standards in March 1994.
All the states have adopted the NAIC's financial reporting form, which is
typically referred to as the NAIC "Annual Statement" and most states, including
Pennsylvania, generally defer to the NAIC with respect to SAP. In this regard,
the NAIC has a substantial degree of practical influence and is able to
accomplish certain quasi legislative initiatives through amendments to the NAIC
annual statement and applicable accounting practices and procedures. For
instance, in recent years the NAIC has required all insurance companies to have
an annual statutory financial audit and an annual actuarial certification as to
loss reserves by including such requirements within the annual statement
instructions.
Capital and Surplus Requirements. PIC's eligibility to write insurance on
a surplus lines basis in most jurisdictions is dependent on its compliance with
certain financial standards, including the maintenance of a requisite level of
capital and surplus and the establishment of certain statutory deposits. In
recent years, many jurisdictions have increased the minimum financial standards
applicable to surplus lines eligibility. For example, California and certain
other states have adopted regulations which require surplus lines companies
operating therein to maintain minimum capital of $15 million, calculated as set
forth in the regulations. PIC maintains capital to meet these requirements.
Risk-Based Capital. Risk-based capital is designed to measure the
acceptable amount of capital an insurer should have based on the inherent
specific risks of each insurer. Insurers failing to meet this benchmark capital
level may be subject to scrutiny by the insurer's domiciliary insurance
department and ultimately rehabilitation or liquidation. Based on the standards
currently adopted, the policyholders' surplus at December 31, 1997 is in excess
of the prescribed risk-based capital requirements.
Insurance Guaranty Funds. The Insurance Subsidiaries are subject to
guaranty fund laws which can result in assessments, up to prescribed limits, for
losses incurred by policyholders as a result of the impairment or insolvency of
unaffiliated insurance companies. Typically, an insurance company is subject to
the guaranty fund laws of the states in which it conducts insurance business;
however, companies which conduct business on a surplus lines basis in a
particular state are generally exempt from that state's guaranty fund laws.
During the five years ended December 31, 1997, the amount of such guaranty from
assessments paid by the Company was not material.
Shared Markets. As a condition of its license to do business in various
states, PIIC is required to participate in mandatory property-liability shared
market mechanisms or pooling arrangements which provide various insurance
coverages to individuals or other entities that otherwise are unable to purchase
coverage voluntarily provided by private insurers. In addition, some states
require automobile insurers to participate in reinsurance pools for claims that
exceed a certain amount. PIIC's participation in such shared markets or pooling
mechanisms is generally in amounts related to the amount of PIIC's direct
writings for the type of coverage written by the specific pooling mechanism in
the applicable state.
Possible New Legislation, Regulations or Interpretations. New regulations
and legislation have been (and are being) proposed from time to time to limit
damage awards; to bring the industry under regulation by the federal government;
to control premiums, policy terminations and other policy terms; and to impose
new taxes and assessments. It is not possible to determine whether any of these
proposals will be adopted in any jurisdictions and, if so, in what form or in
what jurisdictions. In addition, the Company could be affected by
interpretations of state insurance regulators with respect to licensing
requirements applicable to the product
S-50
<PAGE> 52
distribution method currently utilized by the rent-a-car companies that are
customers of the Company. The impact of these initiatives on the Company cannot
be determined.
COMPETITION
The commercial property and casualty insurance industry is highly
competitive. Many of the Company's existing and potential competitors are
larger, have considerably greater financial and other resources, have greater
experience in the insurance industry and offer a broader line of insurance
products than the Company. Not only does the Company compete with other
insurers, it also competes with new forms of insurance organizations such as
risk retention groups and self-insurance mechanisms.
Overall, due to the abundance of capital in the insurance industry, the
current business climate remains competitive from a solicitation and pricing
standpoint. In the context of the current environment, the Company will not
sacrifice pricing guidelines for premium volume and will "walk away" from
writing business that does not meet underwriting or pricing guidelines.
Management believes, though, that the Company's marketing strategy is a strength
in this market environment, in that it provides the flexibility to quickly
deploy the marketing efforts of the Company's direct production underwriters
from soft market segments to market segments with emerging opportunities.
Additionally, through the mixed marketing strategy, the Company's production
underwriters have established relationships with approximately 4,000 brokers,
thus increasing distribution and facilitating a regular flow of submissions.
EMPLOYEES
As of February 26, 1998, the Company had 276 full-time employees and 15
part-time employees. The Company actively encourages its employees to continue
their educational efforts and aids in defraying their educational costs
(including 100% of education costs related to the insurance industry).
Management believes that the Company's relations with its employees are
generally excellent.
S-51
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Operations. The Company reported record net income of $16.9 million for
1997, which is a 26.1% increase over its net income of $13.4 million for 1996.
This increase is principally due to a 16.2% increase in gross written premiums,
a 22.7% increase in net investment income and profitable underwriting which
resulted in a 85.9% (GAAP basis) combined ratio (the sum of the net loss and
loss adjustment expenses and acquisition costs and other underwriting expenses
divided by net earned premiums). 1997 represented the fourth consecutive year
since its 1993 initial public offering that the Company has reported growth in
gross written premiums and net income while experiencing a combined ratio under
90%, which is substantially lower than the commercial property and casualty
insurance industry as a whole. The Company believes that its continued
profitable growth is attributable to the adherence to the Company's core
philosophy of conservative underwriting guidelines and pricing discipline.
The growth in gross written premiums primarily resulted from: the Company's
recent new product offerings; strengthening of the proprietary field marketing
organization to 100 professionals at year end 1997; and increasing product
distribution through the preferred agent program.
The Insurance Subsidiaries are rated "A+" (Superior) by A.M. Best Company
and have been assigned an "A" claims paying ability rating by Standard & Poors.
Investments
The Company's investment objective is to realize relatively high levels of
investment income while generating competitive after-tax total rates of return
within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Company's A.M. Best Company and Standard & Poors ratings. The Company utilizes
professional investment managers for its fixed maturity and equity investments.
These investments consist of diversified issuers and issues, and as of December
31, 1997 approximately 76% of the total invested assets (total investments plus
cash equivalents) consisted of investments in fixed maturity securities.
The Company increased its existing portfolio of fixed maturity securities
by investing in investment grade corporate debt during 1997 due to more
favorable after-tax yields. At the end of 1997 investment grade corporate debt
represented 19.6% of total invested assets, compared to 6.0% as of the end of
1996. The Company has also continued to increase its investments in common stock
of quality growth oriented mid-and large-cap companies seeking to achieve
diversification and capital appreciation in its invested assets. At December 31,
1997, common stocks comprised 20.9% of invested assets, compared to 15.8% as of
the end of 1996.
During 1997, the Company purchased certain collateralized mortgage and
asset backed securities, totaling $18.6 million in market value at year end.
These securities are short tranche securities possessing favorable prepayment
risk profiles. The Company had no other derivative financial instruments in its
total investments as of December 31, 1997.
RESULTS OF OPERATIONS
(1997 VERSUS 1996)
Premiums. Gross written premiums grew $22.2 million (16.2%) to $159.1
million in 1997 from $136.9 million in 1996; gross earned premiums grew $28.3
million (23.2%) to $150.1 million in 1997 from $121.8 million in 1996; net
written premiums increased $27.8 million (33.1%) to $111.8 million in 1997 from
$84.0 million in 1996; and net earned premiums grew $28.5 million (39.5%) to
$100.6 million in 1997 from $72.1 million in 1996. The overall growth in
premiums and the varying growth rates for gross written
S-52
<PAGE> 54
premiums, gross earned premiums, net written premiums and net earned premiums
are attributable to a number of factors including:
- Overall premium growth is primarily attributable to: continued marketing
efforts relating to commercial auto, commercial package, and specialty
lines products; the continued development of the Company's Preferred
Agent Program, initiated in 1996, wherein business relationships are
formed with brokers specializing in certain of the Company's business
niches thereby increasing the distribution of the Company's niche
products; and the increase of the Company's proprietary field
organization to a total of 100 professionals, production underwriters and
customer service representatives.
- Net written and net earned premiums grew at higher rates than gross
written and gross earned premiums primarily due to the renegotiation of
the Company's reinsurance program effective January 1, 1997 whereby more
favorable reinsurance rates were realized while substantially the same
retentions and coverages were maintained.
Net Investment Income. Net investment income approximated $9.7 million in
1997 and $7.9 million in 1996. The increase of $1.8 million (22.8%) is due
primarily to the increase in total investments as a result of cash flows
provided from operating activities and the additional investment income as a
result of the relative percentage increase in corporate taxable securities
versus tax exempt municipal securities.
Net Loss and Loss Adjustment Expenses. Net loss and loss adjustment
expenses increased $14.9 million (37.2%) to $55.0 million in 1997 from $40.1
million in 1996 and the loss ratio decreased to 54.7% in 1997 from 55.7% in
1996. The increase in net loss and loss adjustment expenses was due primarily to
the 39.5% growth in net earned premiums. Additionally, since more earned premium
was retained from the lower cost of reinsurance (see "Premiums", above), there
was relatively higher net earned premium growth on products with low loss
experience, the 37.2% increase in net loss and loss adjustment expenses was
lower than the 39.5% net earned premium growth.
Acquisition Costs and Other Underwriting Expenses. Acquisition costs and
other underwriting expenses increased $9.1 million (41.0%), to $31.3 million in
1997 from $22.2 million in 1996. This increase was due primarily to the 39.5%
growth in net earned premiums.
Income Tax Expense. The Company's effective tax rates for 1997 and 1996
were 24.0% and 20.3%, respectively. The effective rates differed from the 35%
statutory rate principally due to investment income earned on tax-exempt
securities. The increase in the effective tax rate is principally due to a
greater investment in taxable securities relative to tax-exempt securities
during 1997.
RESULTS OF OPERATIONS
(1996 VERSUS 1995)
Premiums. Gross written premiums grew $32.7 million (31.4%) to $136.9
million in 1996 from $104.2 million in 1995; gross earned premiums grew $22.3
million (22.4%) to $121.8 million in 1996 from $99.5 million in 1995; net
written premiums increased $21.9 million (35.3%) to $84.0 million in 1996 from
$62.1 million in 1995; and net earned premiums grew $13.9 million (23.9%) to
$72.1 million in 1996 from $58.2 million in 1995. The overall growth in premiums
and the varying growth rates for gross written premiums, gross earned premiums,
net written premiums and net earned premiums are attributable to a number of
factors:
- Overall premium growth is primarily attributable to the following
factors:
- The prior year's growth in the field production underwriting
organization enabling expansion of the Company's marketing efforts to
non profit organizations, the health and fitness industry and selected
professional liability products.
- The introduction of the Company's Preferred Agent Plan, wherein
business relationships were formed with brokers specializing in
certain of the Company's business niches, thereby increasing the
distribution of the Company's niche products.
- Continued favorable market conditions for certain leasing products.
S-53
<PAGE> 55
- Overall premium growth has been offset in part by designed reductions in
premiums from certain rental products due primarily to inadequate pricing
levels which are currently being experienced as a result of market
competition. However, the Company anticipates an improvement in these
market conditions in the near future. Additionally, there have been
recent consolidations in the car rental industry the effect of which on
the rental car insurance market, if any, are not known at this time.
Net Investment Income. Net investment income approximated $7.9 million in
1996 and $6.5 million in 1995. The increase of $1.4 million (21.5%) is due
primarily to the increase in total investments as a result of cash flows
provided from operating activities.
Net Realized Investment Gain (Loss). Net realized investment gains were
$.3 million in 1996 compared to $.2 million in 1995.
Net Loss and Loss Adjustment Expenses. Net loss and loss adjustment
expenses increased $6.9 million (20.8%) to $40.1 million in 1996 from $33.2
million in 1995 and the loss ratio decreased to 55.7% in 1996 from 57.1% in
1995. The increase in net loss and loss adjustment expenses was due primarily to
the 23.9% growth in net earned premiums. Additionally, since there was
relatively higher net earned premium growth on products with low loss
experience, the percentage increase in net loss and loss adjustment expenses
(20.8%) was lower than the 23.9% net earned premium growth.
Acquisition Costs and Other Underwriting Expenses. Acquisition costs and
other underwriting expenses increased $5.1 million (29.8%), to $22.2 million in
1996 from $17.1 million in 1995. The increase in acquisition costs and other
underwriting expenses exceeds the 23.9% growth in net earned premiums, due
primarily to increased commission expense as a result of the Company beginning
to market its niche products through preferred brokers.
Other Operating Expenses. Other operating expenses decreased $1.2 million
(46.2%), to $1.4 million in 1996 compared to $2.6 million in 1995 principally
due to additional expenses related to the opening of new field offices in 1995.
Income Tax Expense. The Company's effective tax rates for 1996 and 1995
were 20.3% and 20.0%, respectively. The effective rates differed from the 34%
statutory rate principally due to investment income earned on tax-exempt
securities.
GROWTH OPPORTUNITIES
The attainment of profitable new business continues to be a primary focus
of the Company. For 1998, the Company anticipates substantially growing its
Preferred Agent Program, thereby further increasing the distribution of the
Company's niche products. In addition, the Company has grown its proprietary
field organization during 1997 to 100 professionals, including production
underwriters and customer service representatives, and plans to further expand
this organization in 1998, thereby further strengthening its resources to
prospect the Company's existing niches for profitable new business. The Company
also seeks acquisition opportunities to purchase programs or books of business
which complement its niche markets or parallel its conservative underwriting and
pricing discipline. The Company is also exploring financing opportunities in
this regard; however, there is no assurance that an acquisition or financing
will occur.
Overall, due to the abundance of capital in the insurance industry, the
current business climate remains very competitive from a solicitation and
pricing standpoint. In the context of the current environment, the Company will
not sacrifice underwriting standards or pricing guidelines solely for premium
volume and will "walk away," if necessary, from writing business that does not
meet established underwriting standards and pricing guidelines as has occurred
in the commercial auto niche over the past three years. Additionally, in
response to the competitive market, the Company re-underwrote its errors and
omissions product during 1997 by increasing deductible requirements and
modifying underwriting guidelines in certain markets to reduce the size and risk
profile of the product. Management believes, though, that the Company's mixed
marketing strategy is a strength in this market environment, in that, it
provides the flexibility to quickly deploy the
S-54
<PAGE> 56
marketing efforts of the Company's direct production underwriters from soft
market segments to market segments with emerging opportunities. Additionally,
through the mixed marketing strategy, the Company's production underwriters have
established relationships with approximately 4,000 brokers, thus facilitating a
regular flow of submissions.
LIQUIDITY AND CAPITAL RESOURCES
Philadelphia Insurance is a holding company whose principal assets
currently consist of substantially all of the capital stock of the Insurance
Subsidiaries and Maguire Insurance Agency, Inc. Philadelphia Insurance's primary
sources of funds are dividends from its subsidiaries and payments to it pursuant
to tax allocation agreements with the Insurance Subsidiaries. For the year ended
December 31, 1997, payments to Philadelphia Insurance pursuant to such tax
allocation agreements totaled $7.3 million. The payment of dividends to
Philadelphia Insurance from the Insurance Subsidiaries is subject to certain
limitations imposed by the insurance laws of the Commonwealth of Pennsylvania.
Statutory profits of the Insurance Subsidiaries from which dividends may be paid
totaled $59.7 million at December 31, 1997. Of this amount, the Insurance
Subsidiaries are entitled to pay a total of approximately $14.3 million of
dividends in 1998 without obtaining prior approval from the Insurance
Commissioner of the Commonwealth of Pennsylvania.
Under certain reinsurance agreements, the Company is required to maintain
investments in trust accounts to secure its reinsurance obligations (primarily
the payment of losses and loss adjustment expenses on business it does not write
directly). At December 31, 1997, the investment and cash balances in such trust
accounts totaled approximately $14.6 million. In addition, various insurance
departments of states in which the Company operates require the deposit of funds
to protect policyholders within those states. At December 31, 1997, the balance
on deposit for the benefit of such policyholders totaled approximately $10.9
million.
The Company has reviewed all computer systems in operation within the
Company and determined them to be Year 2000 compliant except for its mainframe
policy administration computer system. The Company will begin the process of
preparing this computer system and related applications for the Year 2000 in the
second quarter 1998. The process involves modifying certain hardware and
software. Management expects to have substantially all hardware and software
upgraded as necessary, for compliance by year-end 1998. Management believes that
its level of preparedness is appropriate. The Company estimates the cumulative
costs of the process, which includes costs of modifying hardware and software,
will not have a material effect on its business, operations or financial
condition. The costs of the project and expected completion dates are based on
management's best estimates.
The Company has produced net cash from operations of $38.0 million in 1997,
$37.6 million in 1996 and $25.2 million in 1995. Management believes that the
Company has adequate liquidity to pay all claims and meet all other cash needs.
The Insurance Subsidiaries, which operate under a pooling agreement,
require policyholders' surplus to support premium writings. Guidelines of the
National Association of Insurance Commissioners (the "NAIC") suggest that a
property and casualty insurer's ratio of annual statutory net premium written to
policyholders' surplus should not exceed 3 to 1. The ratio of combined annual
statutory net premium written by the Insurance Subsidiaries to their combined
policyholders' surplus was 1.0 to 1.0 for both 1997 and 1996. Management
believes that the policyholders' surplus, which was $106.0 million at December
31, 1997, will be sufficient to support current and anticipated premium
writings. Risk-based capital is designed to measure the acceptable amount of
capital and surplus an insurer should have based on the inherent specific risks
of each insurer. Insurers failing to meet this benchmark level may be subject to
scrutiny by the insurer's domiciliary insurance department and ultimately
rehabilitation or liquidation. Based on the standards currently contained in the
applicable Pennsylvania Insurance Company statutes, the Company's capital and
surplus is in excess of the prescribed risk-based capital requirements.
S-55
<PAGE> 57
INFLATION
Property and casualty insurance premiums are established before the amount
of losses and loss adjustment expenses, or the extent to which inflation may
affect such amounts, is known. The Company attempts to anticipate the potential
impact of inflation in establishing its premiums and reserves. Substantial
future increases in inflation could result in future increases in interest rates
which in turn are likely to result in a decline in the market value of the
Company's investment portfolio and resulting unrealized losses and/or reductions
in shareholders' equity.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share",
specifying the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly held common stock. Under SFAS No.
128, basic and diluted per share amounts shall be presented for net income on
the face of the statement of operations. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. The Company adopted the provisions of SFAS No.
128 as of December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for years beginning after
December 15, 1997. This statement establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income is
defined to include all changes in equity during a period except those resulting
from investments by owners and distributions to owners. The Company will adopt
SFAS No. 130 and begin reporting comprehensive income in the first quarter of
1998.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which is effective for fiscal years beginning after December 15, 1997. This
statement establishes standards for the disclosure of segment results. It
requires that segments be determined using the "management approach", which
means the way management organizes the segments within the enterprise for making
operating decisions and assessing performance. The Company will adopt SFAS No.
131 in the fourth quarter of 1998, and is still evaluating its impact on the
Company's segment disclosures.
S-56
<PAGE> 58
MANAGEMENT
The names and ages of the Company's Directors, executive officers and other
key personnel, their principal occupations, lengths of service and certain other
biographical information are set forth below:
JAMES J. MAGUIRE, age 64, has served as Chief Executive Officer and
Chairman of the Board of Directors of the Company, since its formation in 1981,
and its subsidiaries, since their formation. Mr. Maguire also serves as
President of the Company. He has worked in the insurance industry for 40 years
with experience in insurance accounting, underwriting, sales and marketing,
claims management and administration.
SEAN S. SWEENEY, CPCU, RPLU, age 40, joined the Company in 1979 and has
served on the Board of Directors of the Company since 1996. He has served as
Senior Vice president, Director of Marketing for the Company since 1987. Mr.
Sweeney previously was employed by the Company as a Regional Vice President,
Regional Sales Manager and sales representative. His current responsibilities
include management of all marketing and sales for the Company. Mr. Sweeney
received an MBA degree in marketing from St. Joseph's University in 1994. Mr.
Sweeney is the nephew of Mr. James J. Maguire.
JAMES J. MAGUIRE, JR., RPLU, age 37, joined the Company as Vice President
of Underwriting in June 1996 and was elected to serve as a member of the Board
of Directors of the Company in May of 1997. Mr. Maguire, Jr. was previously
employed as Assistant Vice President of Underwriting with American International
Group, Inc., an insurance and financial services company. He received a BS
degree in Finance from St. Joseph's University in 1984 and an MBA degree from
Notre Dame University in 1986. Mr. Maguire, Jr. is the son of Mr. James J.
Maguire.
WILLIAM J. HENRICH, JR., age 69, has served on the Board of Directors since
1996. Mr. Henrich is a senior partner with the law firm of Dilworth, Paxson,
Kalish & Kaufman.
PAUL R. HERTEL, JR., age 70, has served on the Board of Directors of the
Company since 1987. Mr. Hertel has been an insurance broker with Paul Hertel &
Company, Inc. for over 40 years and serves as Chairman of the Executive
Committee of that company.
ROGER L. LARSON, age 76, has served on the Board of Directors of the
Company since 1986. Mr. Larson served in various merchandising capacities for
Sears Roebuck & Co., including Regional Manager, prior to his retirement in
1980.
THOMAS J. MCHUGH, age 66, has served on the Board of Directors of the
Company since 1986. Mr. McHugh has been President, Chairman of the Board of
Directors and Chief Executive Officer of McHugh Associates, Inc., a registered
investment advisor, since 1986 and has served as a director of The Rouse
Company, a real estate development company, since 1980.
MICHAEL J. MORRIS, age 63, has served on the Board of Directors of the
Company since 1993. Mr. Morris served as Chairman and Chief Executive Officer of
Transport International Pool Corporation, a multinational corporation that
principally provides transport services, from 1975 to his retirement in 1992.
J. EUSTACE WOLFINGTON, age 65, has served on the Board of Directors of the
Company since 1986. Since 1981, Mr. Wolfington has been the President of H.A.C.
Group of Companies, an international automobile leasing consulting firm.
CRAIG P. KELLER, age 47, joined the Company as Vice President and Chief
Financial Officer in December 1992 and was appointed Secretary in July 1993 and
Treasurer in April 1997. Mr. Keller was previously employed by Reliance
Insurance Group, Inc., a subsidiary of Reliance Group Holdings, where he served
in various financial capacities from 1985 through 1992, including Assistant Vice
President from June 1991 to December 1992. Mr. Keller, formerly with Coopers &
Lybrand L.L.P., is a Certified Public Accountant and has a BS degree and MBA
from Drexel University.
WILLIAM J. BENECKE, age 34, has been Vice President of Claims since 1994.
He previously served in the capacity of Claims Manager from 1992 to 1994. From
1990 through 1992, he served the Company as a Senior Claims Examiner and Senior
Litigation Examiner. Mr. Benecke was previously employed by Ohio
S-57
<PAGE> 59
Casualty Insurance Company as a claims representative from 1986 to 1990. He
graduated from Rutgers University with a BA degree in 1985 and is a licensed
property appraiser and a CPCU candidate.
CHARLES E. BROGAN, JR., age 33, joined the Company as corporate sales
representative in 1988. In 1989, he was promoted to Outside Sales; in 1993, he
was promoted to Regional Manger; and in 1996, he was named Regional Vice
President of the MidAtlantic Region. Mr. Brogan formerly was employed with
Liberty Mutual Insurance Company. He graduated with a BS degree in Criminal
Justice and Pre-Law from Scranton University in 1986 and is a CPCU candidate.
JACK T. CARBALLO, CPCU, RPLU, age 43, has been Vice President since 1985.
In addition, he served as Claims Manager from 1984 to 1985 and as a Claims
Examiner from 1983 to 1984. Prior to joining the Company, Mr. Carballo was an
insurance adjuster with an independent adjusting firm. He graduated with a BS
degree from LaSalle University in 1976 and is a licensed Pennsylvania Automobile
Appraiser. He holds the Associate in Risk Management, Associate in Claims and
Associate in Reinsurance designations from the Insurance Institute of America.
PHILIP D. ELDRIDGE, CPCU, age 43, has been a Regional Vice President of the
Company since 1988. Mr. Eldridge was employed by the Company from 1983 to 1987
as a Regional Manager and Vice President. Prior to joining the Company, Mr.
Eldridge was an insurance agent with Farm Bureau Insurance. He received a BS
degree from University of Tennessee at Chattanooga in 1976.
CHRISTOPHER J. MAGUIRE, age 33, joined the Company as an underwriting
trainee in 1987. He was promoted to Assistant Vice President for Commercial
Lines Products in 1996 and to Vice President in November 1997. He is a CPCU
candidate. Mr. Maguire received a BA degree in English from Villanova University
in 1987. Mr. Maguire is the son of James J. Maguire.
PATRICK J. McKEON, age 38, joined the Company in 1987 and served in various
marketing and underwriting positions until being promoted to Vice President of
Marketing in 1992. In 1996, he was instrumental in initiating the Preferred
Agent Plan which is part of the Company's mixed marketing strategy today. Mr.
McKeon is a BS degree candidate at St. Joseph's University and is the son-in-law
of Mr. James J. Maguire.
ROBERT D. O'LEARY, JR., CPCU, age 42, has been a Regional Vice President of
the Company since 1986. From 1982, when he joined the Company, until 1986, he
was the New England Regional Manager. Mr. O'Leary graduated from Trinity College
in 1977 with a BA degree in Economics.
CHARLES E. PEDONE, age 39, has been a Regional Vice President of the
Company since 1988. He joined the Company in 1985 as a sales representative, and
was promoted to Regional Sales Manager in 1986. Mr. Pedone received a BA degree
in Communications from East Stroudsberg State College in 1983.
ROBERT M. POTTLE, CPCU, RPLU, age 33, has been a Regional Vice President of
the Company since 1996. He joined the Company in June 1986 and was promoted to
Regional Manger in 1990. Mr. Pottle received a BA degree in Business Management
from North Central College in Naperville, IL in 1986.
DAVID A. RAMPSON, age 40, joined the Company in December 1997 as Vice
President of Information Technology. Prior to joining the Company, he served as
Vice President, Systems and Programming for PNC Bank. He received a BS degree in
Accounting from Temple University in 1979.
LAWRENCE G. SOLO, age 37, has been a Regional Vice President of the Company
since 1996. He joined the Company in 1990 as a sales representative and was
promoted to Regional Manager and Vice President in the Company's Southwest
Region in 1993. Prior to joining the Company, he was a territorial manager for
American General Insurance Company. Mr. Solo received a BBA degree from Baylor
University in 1982.
STEPHEN E. WESTHEAD, age 34, joined the Company as a Corporate Sales
Representative in 1988. He was promoted to Outside Sales in the Company's Kansas
City, MO office in 1992, and in 1996 was promoted to Vice President and Regional
Manager of the Company's Central Region. Mr. Westhead received a BS degree from
Cabrini College in 1987 and is a CPCU candidate.
S-58
<PAGE> 60
DESCRIPTION OF THE FELINE PRIDES
The following descriptions of certain terms of the FELINE PRIDES offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Securities set forth in
the accompanying Prospectus, to which reference is hereby made. The summaries of
certain provisions of documents described below are not necessarily complete,
and in each instance reference is hereby made to the copies of such documents
(including the definitions therein of certain terms) which are on file with the
Commission. Wherever particular sections of, or terms defined in, such documents
are referred to herein, such sections or defined terms are incorporated by
reference herein. Capitalized terms not defined herein have the meanings
assigned to such terms in the accompanying Prospectus.
Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between Philadelphia Consolidated and the Purchase Contract Agent. The FELINE
PRIDES offered hereby initially will consist of (A) up to 8,000,000 units
referred to as Income PRIDES and (B) at least 1,000,000 units referred to as
Growth PRIDES. Each Income PRIDES will initially consist of a unit comprised of
(a) a Purchase Contract under which (i) the holder (including, initially, an
Underwriter) will purchase from Philadelphia Consolidated on the Purchase
Contract Settlement Date, for an amount of cash equal to the Stated Amount, a
number of newly issued shares of Common Stock equal to the Settlement Rate
described below under "Description of the Purchase Contracts -- General," and
(ii) Philadelphia Consolidated will pay Contract Adjustment Payments, if any, to
the holder at the rate of % of the Stated Amount per amount, and (b)(i)
beneficial ownership of a related % Trust Originated Preferred Security,
having a stated liquidation amount per Trust Preferred Security equal to the
Stated Amount, representing an undivided beneficial ownership interest in the
assets of the Trust, which will consist solely of the Debentures, (ii) in the
case of a distribution of the Debentures upon the dissolution of the Trust as a
result of an Investment Company Event, as described below, or otherwise,
Debentures having a principal amount equal to the Stated Amount or (iii) upon
the occurrence of a Tax Event Redemption prior to the Purchase Contract
Settlement Date, the appropriate Applicable Ownership Interest in the Treasury
Portfolio. "Applicable Ownership Interest" means, with respect to an Income
PRIDES and the U.S. Treasury Securities in the Treasury Portfolio, (A) a 1/100,
or 1%, undivided beneficial ownership interest in a $1,000 principal or interest
amount of a principal or interest strip in a U.S. Treasury Security included in
such Treasury Portfolio which matures on or prior to , 2001 and
(B) for each scheduled interest payment date on the Debentures that occurs after
the Tax Event Redemption Date, a % undivided beneficial ownership interest
in a $1,000 face amount of such U.S. Treasury Security which is a principal or
interest strip maturing on such date.
Each Growth PRIDES will initially consist of a unit comprised of (a) a
Purchase Contract under which (i) the holder will purchase from Philadelphia
Consolidated on the Purchase Contract Settlement Date, for an amount in cash
equal to the Stated Amount, a number of newly issued shares of Common Stock of
Philadelphia Consolidated, equal to the Settlement Rate, and (ii) Philadelphia
Consolidated will pay the holder Contract Adjustment Payments, if any, at the
rate of % of the Stated Amount, and (b) a 1/100 undivided beneficial
ownership interest in a % Treasury Security.
The purchase price of each Income PRIDES and Growth PRIDES will be
allocated between the related Purchase Contract and the related Trust Preferred
Security, in the case of Income PRIDES, and interest in a Treasury Security, in
the case of Growth PRIDES, as applicable, in proportion to their respective fair
market values. Such position generally will be binding on each beneficial owner
of each Income PRIDES (but not on the IRS (as defined herein)). See "Certain
Federal Income Tax Consequences -- FELINE PRIDES -- Allocation of Purchase
Price." As long as a FELINE PRIDES is in the form of an Income PRIDES or Growth
PRIDES, the related Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio or the Treasury Securities, as
applicable, will be pledged to the Collateral Agent, to secure the holder's
obligation to purchase Common Stock under the related Purchase Contracts.
S-59
<PAGE> 61
CREATING GROWTH PRIDES
Each holder of an Income PRIDES (unless a Tax Event Redemption has
occurred) will have the right, at any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, to substitute for
the related Trust Preferred Securities held by the Collateral Agent Treasury
Securities in an aggregate principal amount equal to the aggregate stated
liquidation amount of such Trust Preferred Securities. Because Treasury
Securities are issued in integral multiples of $1,000, holders of Income PRIDES
may make such substitution only in integral multiples of 100 Income PRIDES;
provided, however, if a Tax Event Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio has become a component of
the Income PRIDES, holders of such Income PRIDES may make such substitutions
only in integral multiples of 4,000,000 Income PRIDES (but obtaining the release
of the Treasury Portfolio rather than the Trust Preferred Securities), at any
time on or prior to the second Business Day immediately preceding the Purchase
Contract Settlement Date. FELINE PRIDES with respect to which Treasury
Securities have been substituted for the related Trust Preferred Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, as collateral to secure such holder's obligation under the related
Purchase Contracts will be referred to as Growth PRIDES. To create 100 Growth
PRIDES (unless a Tax Event Redemption has occurred), the Income PRIDES holder
will (a) deposit with the Collateral Agent a Treasury Security having a
principal amount at maturity of $1,000 and (b) transfer 100 Income PRIDES to the
Purchase Contract Agent accompanied by a notice stating that the Income PRIDES
holder has deposited a Treasury Security with the Collateral Agent and
requesting that the Purchase Contract Agent instruct the Collateral Agent to
release to such holder the 100 Trust Preferred Securities relating to such 100
Income PRIDES. In the event that Contract Adjustment Payments, if any, are at a
higher rate for Growth PRIDES than for Income PRIDES, holders of Income PRIDES
wishing to create Growth PRIDES will also be required to deliver cash in an
amount equal to the excess of the Contract Adjustment Payments, if any, that
would have accrued since the last Payment Date through the date of substitution
on the Growth PRIDES being created by such holders, over the Contract Adjustment
Payments, if any, that have accrued over the same period on the related Income
PRIDES. Upon such deposit and receipt of an instruction from the Purchase
Contract Agent, the Collateral Agent will effect the release of the related 100
Trust Preferred Securities from the pledge under the Pledge Agreement free and
clear of Philadelphia Consolidated's security interest therein to the Purchase
Contract Agent, which will (i) cancel the 100 Income PRIDES, (ii) transfer the
100 related Trust Preferred Securities to such holder and (iii) deliver 100
Growth PRIDES to the holder. The Treasury Security will be substituted for the
Trust Preferred Securities and will be pledged with the Collateral Agent to
secure the holder's obligation to purchase Common Stock under the related
Purchase Contracts. The related Trust Preferred Securities released to the
holder thereafter will trade separately from the resulting Growth PRIDES.
Contract Adjustment Payments, if any, will be payable by Philadelphia
Consolidated on such Growth PRIDES on each Payment Date from the later of
, 1998 and the last Payment Date on which Contract Adjustment
Payments, if any, were paid. In addition, OID will accrue on the related
Treasury Securities.
CREATING INCOME PRIDES
Each holder of a Growth PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, to substitute for
the related Treasury Securities held by the Collateral Agent Trust Preferred
Securities in an aggregate principal amount equal to the aggregate stated
liquidation amount of such Trust Preferred Securities, thereby creating Income
PRIDES. Because Treasury Securities are issued in integral multiples of $1,000,
holders of Growth PRIDES may make such substitutions only in integral multiples
of 100 Growth PRIDES; provided, however, if a Tax Event Redemption has occurred
and the Treasury Portfolio has become a component of the Income PRIDES, holders
of the Growth PRIDES may make such substitution only in integral multiples of
4,000,000 Growth PRIDES, at any time, on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date. To create 100
Income PRIDES (unless a Tax Event Redemption has occurred) the Growth PRIDES
holder will (a) deposit with the Collateral Agent 100 Trust Preferred Securities
and (b) transfer 100 Growth PRIDES certificates to the Purchase Contract Agent
accompanied by a notice stating that the Growth PRIDES holder has deposited 100
Trust Preferred Securities
S-60
<PAGE> 62
with the Collateral Agent and requesting that the Purchase Contract Agent
instruct the Collateral Agent to release to such Growth PRIDES holder the
Treasury Security relating to such Growth PRIDES. Upon such deposit and receipt
of an instruction from the Purchase Contract Agent, the Collateral Agent will
effect the release of the related Treasury Security from the pledge under the
Pledge Agreement free and clear of Philadelphia Consolidated's security interest
therein to the Purchase Contract Agent, which will (i) cancel the 100 Growth
PRIDES, (ii) transfer the related Treasury Security to such holder of Growth
PRIDES and (iii) deliver 100 Income PRIDES to such holder of Growth PRIDES. The
substituted Trust Preferred Securities will be pledged with the Collateral Agent
to secure such Income PRIDES holder's obligation to purchase Common Stock under
the related Purchase Contacts. Cumulative cash distributions, payable quarterly
at a rate of % of the Stated Amount per annum (subject to Philadelphia
Consolidated's deferral rights), on such Income PRIDES will be payable on such
Income PRIDES by Philadelphia Consolidated on each Payment Date from the later
of , 1998 and the last Payment Date on which such cumulative
cash distributions, if any, were paid.
Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or Income PRIDES or recreating Income PRIDES or Growth PRIDES (as
discussed below), shall be responsible for any fees or expenses payable in
connection with such substitution. See "Certain Provisions of the Purchase
Contract Agreement and the Pledge Agreement -- Miscellaneous."
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive aggregate cash
distributions at a rate of % of the Stated Amount per annum from and after
, 1998, payable quarterly in arrears. The quarterly payments on
the Income PRIDES will consist of (i) cumulative cash distributions on the
related Trust Preferred Securities or the Treasury Portfolio, as applicable,
payable at the rate of % of the Stated Amount per annum and (ii) Contract
Adjustment Payments, if any, payable by Philadelphia Consolidated at the rate of
% of the Stated Amount per annum, subject (in the case of distributions on
the Trust Preferred Securities and the Contract Adjustment Payments, if any) to
Philadelphia Consolidated's right of deferral as described herein.
Each holder of Growth PRIDES will be entitled to receive quarterly Contract
Adjustment Payments, if any, payable by Philadelphia Consolidated at the rate of
% of the Stated Amount per annum, subject to Philadelphia Consolidated's
rights of deferral. In addition, OID will accrue on the related Treasury
Securities.
The ability of the Trust to make the quarterly distributions on the Trust
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from Philadelphia Consolidated on the Debentures. Philadelphia
Consolidated has the right at any time, and from time to time, limited to a
period not extending beyond the maturity of the Debentures, to defer the
interest payments on the Debentures. As a consequence of such deferral,
quarterly distributions (unless a Tax Event Redemption has occurred) to holders
of Income PRIDES (or any Trust Preferred Securities outstanding after the
Purchase Contract Settlement Date or after a substitution of collateral
resulting in the creation of Growth PRIDES) would be deferred (but despite such
deferral, would continue to accumulate quarterly and would accrue interest
thereon compounded quarterly at the rate of % per annum through and
including 15, 2001, and at the Reset Rate thereafter).
Philadelphia Consolidated also has the right to defer the payment of Contract
Adjustment Payments, if any, on the related Purchase Contracts until the
Purchase Contract Settlement Date; however, deferred Contract Adjustment
Payments will bear additional Contract Adjustment Payments at the rate of %
per annum (the higher of (i) the rate that would accrue on Income PRIDES for
such payments and (ii) the rate that would accrue on Growth PRIDES for such
payments) (such deferred installments of Contract Adjustment Payments, if any,
together with the additional Contract Adjustment Payments, shall be referred to
as the "Deferred Contract Adjustment Payments"). See "Description of the
Purchase Contracts -- Contract Adjustment Payments" and "Description of the
Trust Preferred Securities -- Distributions." If a Tax Event Redemption has
occurred and the Treasury Portfolio has become a component of the Income PRIDES,
quarterly distributions on the Treasury Portfolio, as a portion of the
cumulative quarterly distributions to the holders of Income PRIDES, will not be
deferred.
S-61
<PAGE> 63
Philadelphia Consolidated's obligations with respect to the Debentures will
be senior and unsecured and will rank on a parity in right of payment with all
other senior unsecured obligations of Philadelphia Consolidated. Philadelphia
Consolidated's obligations with respect to the Contract Adjustment Payments, if
any, will be subordinated and junior in right of payment to Philadelphia
Consolidated's Senior Indebtedness.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Trust Preferred Securities, in their capacities as such holders,
will not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of Trustees and will generally have no voting rights except
in the limited circumstances described under "Description of the Trust Preferred
Securities -- Voting Rights." Holders of Purchase Contracts relating to the
Income PRIDES or Growth PRIDES, in their capacities as such holders, will have
no voting or other rights in respect of the Common Stock.
LISTING OF THE SECURITIES
Application will be made to have the Income PRIDES and the Growth PRIDES
listed on the NNM, subject to official notice of issuance. If Trust Preferred
Securities are separately traded to a sufficient extent that the applicable
market listing requirements are met, the Company will endeavor to cause such
securities to be listed on the market on which the Income PRIDES and the Growth
PRIDES are then listed including, if applicable, the NNM. See "Underwriting."
NNM SYMBOL OF COMMON STOCK
The Common Stock is quoted on the NNM under the symbol "PHLY."
MISCELLANEOUS
Philadelphia Consolidated or its affiliates may from time to time purchase
any of the Securities offered hereby which are then outstanding by tender, in
the open market or by private agreement.
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract that is a part of a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the holder
of such Purchase Contract to purchase, and Philadelphia Consolidated to sell, on
the Purchase Contract Settlement Date, for an amount in cash equal to the Stated
Amount of such FELINE PRIDES, a number of newly issued shares of Common Stock
equal to the Settlement Rate. The Settlement Rate will be calculated as follows
(subject to adjustment under certain circumstances): (a) if the Applicable
Market Value is equal to or greater than $ (the Threshold
Appreciation Price, which is approximately % above the Reference Price),
the Settlement Rate will be equal to the Stated Amount divided by the Threshold
Appreciation Price, which is ; accordingly, if, between the date of
the final Prospectus Supplement and the period during which the Applicable
Market Value is measured, the market price for the Common Stock increases to an
amount that is higher than the Threshold Appreciation Price, the aggregate
market value of the shares of Common Stock issued upon settlement of each
Purchase Contract (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will be higher than the Stated Amount, and if
such market price is the same as the Threshold Appreciation Price, the aggregate
market value of such shares (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be equal to the Stated
Amount; (b) if the Applicable Market Value is less than the Threshold
Appreciation price but greater than the Reference Price, the Settlement Rate
will be equal to the Stated Amount divided by the Applicable Market Value;
accordingly, if the market price for the Common Stock increases between the date
of the final Prospectus Supplement and the period during which the Applicable
Market Value is measured, but such market price is less than the Threshold
Appreciation Price, the aggregate market value of the shares of Common Stock
issued upon settlement of each Purchase Contract (assuming that such market
value is the
S-62
<PAGE> 64
same as the Applicable Market Value of such Common Stock) will be equal to the
Stated Amount; and (c) if the Applicable Market Value is less than or equal to
the Reference Price, the Settlement Rate will be equal to the Stated Amount
divided by the Reference Price, which is ; accordingly, if the
market price for the Common Stock decreases between the date of the final
Prospectus Supplement and the period during which the Applicable Market Value is
measured, the aggregate market value of the shares of Common Stock issued upon
settlement of each Purchase Contract (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be less than the
Stated Amount and, if such market price stays the same, the aggregate market
value of such shares (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be equal to the Stated
Amount. "Closing Price" of the Common Stock on any date of determination means
the closing sale price (or, if no closing price is reported, the last reported
sale price) of the Common Stock on the NNM on such date or, if the Common Stock
is not listed for trading on the NNM on any such date, as reported in the
composite transactions for the principal United States securities exchange on
which the Common Stock is so listed, or if the Common Stock is not so listed on
a United States national or regional securities exchange, the last quoted bid
price for the Common Stock in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, or, if such bid price is not
available, the market value of the Common Stock on such date as determined by a
nationally recognized independent investment banking firm retained for this
purpose by Philadelphia Consolidated. A "Trading Day" means a day on which the
Common Stock (a) is not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at the close of
business and (b) has traded at least once on the national or regional securities
exchange or association or over-the-counter market that is the primary market
for the trading of the Common Stock.
No fractional shares of Common Stock will be issued by Philadelphia
Consolidated pursuant to the Purchase Contracts. In lieu of fractional shares
otherwise issuable (calculated on an aggregate basis) in respect of Purchase
Contracts being settled by a holder of Income PRIDES or Growth PRIDES, the
holder will be entitled to receive an amount of cash equal to such fraction of a
share times the Applicable Market Value.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts prior to the Purchase Contract Settlement Date
through the early delivery of cash to the Purchase Contract Agent in the manner
described under "-- Early Settlement," (ii) in the case of Income PRIDES, has
settled the related Purchase Contracts with separate cash on the Business Day
immediately preceding the Purchase Contract Settlement Date pursuant to prior
notice in the manner described under "-- Notice to Settle with Cash", (iii) has
had the Trust Preferred Securities related to such holder's Purchase Contracts
remarketed in the manner described herein in connection with settling such
Purchase Contracts, or (iv) an event described under "-- Termination" below has
occurred, then (a) in the case of Income PRIDES (unless a Tax Event Redemption
has occurred), Philadelphia Consolidated will exercise its rights as a secured
party to dispose of the Trust Preferred Securities in accordance with applicable
law and (B) in the case of Growth PRIDES or Income PRIDES (in the event that a
Tax Event Redemption has occurred), the principal amount of the related Treasury
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as applicable, when paid at maturity, will automatically be applied
to satisfy in full the holder's obligation to purchase Common Stock under the
related Purchase Contracts. Such Common Stock will then be issued and delivered
to such holder or such holder's designee, upon presentation and surrender of the
certificate evidencing such FELINE PRIDES (a "FELINE PRIDES Certificate") and
payment by the holder of any transfer or similar taxes payable in connection
with the issuance of the Common Stock to any person other than such holder. In
the event that a holder of either Income PRIDES or Growth PRIDES effects the
early settlement of the related Purchase Contracts through the delivery of cash
or, in the case of Income PRIDES, settles the related Purchase Contracts with
cash on the Business Day immediately preceding the Purchase Contract Settlement
Date, the related Trust Preferred Securities or Treasury Securities, as the case
may be, will be released to the holder as described herein. The funds received
by the Collateral Agent on the Business Day immediately preceding the Purchase
Contract Settlement Date, upon cash settlement of a Purchase Contract, will be
promptly invested in overnight permitted investments and paid to Philadelphia
Consolidated on the Purchase Contract Settlement Date. Any funds received by the
Collateral Agent in respect of the interest earned from
S-63
<PAGE> 65
the overnight investment in permitted investments will be distributed to the
Purchase Contract Agent for payment to the holders.
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms of
the related Purchase Contracts and the Pledge Agreement for so long as such
holder remains a holder of such FELINE PRIDES, and (b) duly appointed the
Purchase Contract Agent as such holder's attorney-in-fact to enter into and
perform the related Purchase Contracts on behalf of and in the name of such
holder. In addition, each beneficial owner of Income PRIDES or Growth PRIDES, by
acceptance of such interest, will be deemed to have agreed to treat (i) itself
as the owner of the related Trust Preferred Securities, the appropriate
Applicable Ownership Interest of the Treasury Portfolio or Treasury Securities,
as the case may be, and (ii) the Debentures as indebtedness of Philadelphia
Consolidated, in each case, for United States federal, state and local income
and franchise tax purposes.
REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement between the Remarketing Agent, the Purchase
Contract Agent, Philadelphia Consolidated and the Trust, the Trust Preferred
Securities of Income PRIDES holders who have failed to notify the Purchase
Contract Agent, on or prior to the fifth Business Day immediately preceding the
Purchase Contract Settlement Date in the manner described under "-- Notice to
Settle with Cash" of their intention to settle the related Purchase Contracts
with separate cash on the Business Day immediately preceding the Purchase
Contract Settlement Date, will be remarketed on the third Business Day
immediately preceding the Purchase Contract Settlement Date. The Remarketing
Agent will use its reasonable efforts to remarket such Trust Preferred
Securities on such date at a price of approximately 100.5% of the aggregate
stated liquidation amount of such Trust Preferred Securities, plus accrued and
unpaid distributions (including deferred distributions), if any, thereon. The
portion of the proceeds from such remarketing equal to the aggregate stated
liquidation amount of such Trust Preferred Securities will automatically be
applied to satisfy in full such Income PRIDES holders' obligations to purchase
Common Stock under the related Purchase Contracts. In addition, after deducting
as the Remarketing Fee an amount not exceeding 25 basis points (.25%) of the
aggregate stated liquidation amount of the remarketed securities, from any
amount of such proceeds in excess of the aggregate stated liquidation amount of
the remarketed Trust Preferred Securities plus any accrued and unpaid
distributions (including deferred distributions, if any), the Remarketing Agent
will remit the remaining portion of the proceeds, if any, for the benefit of
such holder. Income PRIDES holders whose Trust Preferred Securities are so
remarketed will not otherwise be responsible for the payment of any Remarketing
Fee in connection therewith. If, in spite of using its reasonable efforts, the
Remarketing Agent cannot remarket the related Trust Preferred Securities of such
holders of Income PRIDES at a price not less than 100% of the aggregate stated
liquidation amount of such Trust Preferred Securities plus accrued and unpaid
distributions (including deferred distributions) and thus resulting in a Failed
Remarketing, Philadelphia Consolidated will exercise its rights as a secured
party to dispose of the Trust Preferred Securities in accordance with the
applicable law and satisfy in full, from the proceeds of such disposition, such
holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided that, if Philadelphia Consolidated exercises such rights as
a secured creditor, any accrued and unpaid distributions (including any deferred
distributions) on such Trust Preferred Securities will be paid in cash by
Philadelphia Consolidated to the holders of record of such Trust Preferred
Securities. Philadelphia Consolidated will cause a notice of such Failed
Remarketing to be published on the second Business Day immediately preceding the
Purchase Contract Settlement Date by publication in a daily newspaper in the
English language of general circulation in The City of New York, which is
expected to be The Wall Street Journal. In addition, Philadelphia Consolidated
will request, not later than seven nor more than 15 calendar days prior to the
remarketing date, that the Depository notify its participants holding Trust
Preferred Securities, Income PRIDES and Growth PRIDES of such remarketing,
including, in the case of a Failed Remarketing, the procedures that must be
followed if a Trust Preferred Security holder wishes to exercise its right to
put its Trust Preferred Security to Philadelphia Consolidated as described
herein. Philadelphia Consolidated will endeavor to ensure that a registration
statement with regard to the full amount of the Trust Preferred Securities to be
remarketed shall
S-64
<PAGE> 66
be effective in such form as will enable the Remarketing Agent to rely on it in
connection with the remarketing process. It is currently anticipated that
Merrill Lynch, Pierce, Fenner & Smith Incorporated will be the Remarketing
Agent. The Remarketing Agreement will contain provisions under which the
Remarketing Agent may resign or be replaced.
EARLY SETTLEMENT
A holder of Income PRIDES may settle the related Purchase Contracts on or
prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date by presenting and surrendering the FELINE PRIDES Certificate
evidencing such Income PRIDES at the offices of the Purchase Contract Agent with
the form of "Election to Settle Early" on the reverse side of such certificate
completed and executed as indicated, accompanied by payment (payable to
Philadelphia Consolidated in immediately available funds) of an amount equal to
the Stated Amount times the number of Purchase Contracts being settled;
provided, however, if a Tax Event Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury portfolio has become a component of
the Income PRIDES, holders of such Income PRIDES may settle early only in
integral multiples of 4,000,000 Income PRIDES (and the related appropriate
Applicable Ownership Interest of the Treasury Portfolio) at any time on or prior
to the second Business Day immediately preceding the Purchase Contract
Settlement Date. A holder of Growth PRIDES may settle the related Purchase
Contracts on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date by presenting and surrendering the FELINE
PRIDES Certificate evidencing such Growth PRIDES at the offices of the Purchase
Contract Agent with the form of "Election to Settle Early" on the reverse side
of such certificate completed and executed as indicated, accompanied by payment
in immediately available funds of an amount equal to the Stated Amount times the
number of Purchase Contracts being settled. So long as the FELINE PRIDES are
evidenced by one or more global security certificates deposited with the
Depositary (as defined herein), procedures for early settlement will also be
governed by standing arrangements between the Depositary and the Purchase
Contract Agent.
Upon Early Settlement of the Purchase Contracts related to any Income
PRIDES or Growth PRIDES, (a) the holder will receive a number of newly issued
shares of Common Stock per Income PRIDES or Growth PRIDES equal to the
Settlement Rate for a purchase price of $10 (regardless of the market price of
the Common Stock on the date of such Early Settlement), subject to adjustment
under the circumstances described in "-- Anti-Dilution Adjustments" below, (b)
the Trust Preferred Securities, the appropriate Applicable Ownership Interest of
the Treasury Portfolio or Treasury Securities, as the case may be, related to
such Income PRIDES or Growth PRIDES will thereupon be transferred to the holder
free and clear of Philadelphia Consolidated's security interest therein, (c) the
holder's right to receive Deferred Contract Adjustment Payments, if any, on the
Purchase Contracts being settled will be forfeited, (d) the holder's right to
receive future Contract Adjustment Payments, if any, will terminate and (e) no
adjustment will be made to or for the holder on account of Deferred Contract
Adjustment Payments, if any, or any amounts accrued in respect of Contract
Adjustment Payments, if any.
If the Purchase Contract Agent receives a FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New
York City time, on a Business Day, that day will be considered the settlement
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m., New
York City time, on a Business Day or at any time on a day that is not a Business
Day (other than from Income PRIDES holders after the occurrence of a Tax Event
Redemption), the next Business Day will be considered the settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the related
Common Stock to any person other than the holder of such Income PRIDES or Growth
PRIDES, Philadelphia Consolidated will cause the shares of Common Stock being
purchased to be issued, and the related Trust Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or Treasury
Securities, as the case may be, securing such Purchase Contracts to be released
from the pledge
S-65
<PAGE> 67
under the Pledge Agreement (described in "-- Pledged Securities and Pledge
Agreement") and transferred, within three Business Days following the settlement
date, to the purchasing holder or such holder's designee.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES or Growth PRIDES wishing to settle the related
Purchase Contract with separate cash on the Business Day immediately preceding
the Purchase Contract Settlement Date must notify the Purchase Contract Agent by
presenting and surrendering the FELINE PRIDES Certificate evidencing such Income
PRIDES or Growth PRIDES at the offices of the Purchase Contract Agent with the
form of "Notice to Settle by Separate Cash" on the reverse side of the
certificate completed and executed as indicated on or prior to 5:00 p.m., New
York City time, on the second Business Day immediately preceding the Purchase
Contract Settlement Date in the case of a Growth PRIDES holder or an Income
PRIDES holder (if a Tax Event Redemption has occurred) and on the fifth Business
Day immediately preceding the Purchase Contract Settlement Date in the case of
an Income PRIDES holder (if a Tax Event Redemption has not occurred). If a
holder that has given notice of such holder's intention to settle the related
Purchase Contract with separate cash fails to deliver such cash on the Business
Day immediately preceding the Purchase Contract Settlement Date, then
Philadelphia Consolidated will exercise its right as a secured party to dispose
of, in accordance with the applicable law, the related Trust Preferred
Securities or Treasury Securities, as the case may be, to satisfy in full, from
the disposition of such Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, such holder's obligation to
purchase Common Stock under the related Purchase Contracts.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments, if any, will be fixed at a rate per annum of
% of the Stated Amount per Purchase Contract in the case of Income PRIDES,
and at a rate per annum of % of the Stated Amount per Purchase Contract in
the case of Growth Prides. Contract Adjustment Payments, if any, that are not
paid when due (after giving effect to any permitted deferral thereof) will bear
interest thereon at the rate per annum of % thereof (the higher of (i) the
rate that would accrue on Income PRIDES for such payments and (ii) the rate that
would accrue on Growth PRIDES for such payments), compounded quarterly, until
paid. Contract Adjustment Payments, if any, payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Contract
Adjustment Payments, if any, will accrue from , 1998 and will be
payable quarterly in arrears on February 16, May 16, August 16 and November 16
of each year, commencing , 1998. Contract Adjustment Payments will
be specified as a component of the distributions on the Income PRIDES or Growth
PRIDES only if and to the extent that the rate of distribution on the Trust
Preferred Securities or the yield on the Treasury Securities, as determined on
the date on which the Income PRIDES or Growth PRIDES are priced for sale, is
less than the aggregate distribution rate or yield required on such date for the
offer and sale of the Income PRIDES or Growth PRIDES at the price to public
specified on the cover page of this Prospectus Supplement. Accordingly, the
final Prospectus Supplement will indicate whether and to what extent Contract
Adjustment Payments will be required to be made by the Company.
Contract Adjustment Payments, if any, will be payable to the holders of
Purchase Contracts as they appear on the books and records of the Purchase
Contract Agent on the relevant record dates, which, as long as the Income PRIDES
or Growth PRIDES remain in book-entry only form, will be one Business Day prior
to the relevant payment dates. Such distributions will be paid through the
Purchase Contract Agent who will hold amounts received in respect of the
Contract Adjustment Payments, if any, for the benefit of the holders of the
Purchase Contracts relating to such Income PRIDES or Growth PRIDES. Subject to
any applicable laws and regulations, each such payment will be made as described
under "-- Book-Entry System." In the event that the Income PRIDES or Growth
PRIDES do not continue to remain in book-entry only form, Philadelphia
Consolidated shall have the right to select relevant record dates, which shall
be more than one Business Day but less than 60 Business Days prior to the
relevant payment dates. In the event that any date on which Contract Adjustment
Payments, if any, are to be made on the Purchase Contracts related to the Income
PRIDES or Growth PRIDES is not a Business Day, then payment of the Contract
Adjustment Payments, if
S-66
<PAGE> 68
any, 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 is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such payment date. A
"Business Day" shall mean any day other than Saturday, Sunday or any other day
on which banking institutions in New York City (in the State of New York) are
permitted or required by any applicable law to close.
Philadelphia Consolidated's obligations with respect to Contract Adjustment
Payments, if any, will be subordinated and junior in right of payment to
Philadelphia Consolidated's obligations under any Senior Indebtedness.
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
Philadelphia Consolidated may, at its option and upon prior written notice
to the holders of the FELINE PRIDES and the Purchase Contract Agent, defer the
payment of Contract Adjustment Payments, if any, on the Purchase Contracts until
no later than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments, if any, will bear additional Contract Adjustment Payments
at the rate of % per annum (the higher of (i) the rate that would accrue on
Income PRIDES for such payments and (ii) the rate that would accrue on Growth
PRIDES for such payments) (compounding on each succeeding Payment Date) until
paid. If the Purchase Contracts are terminated (upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to Philadelphia
Consolidated), the right to receive Contract Adjustment Payments, if any, and
Deferred Contract Adjustment Payments, if any, will also terminate.
In the event that Philadelphia Consolidated elects to defer the payment of
Contract Adjustment Payments on the Purchase Contracts until the Purchase
Contract Settlement Date, each holder of FELINE PRIDES will receive on the
Purchase Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, if any, in lieu of a cash payment, a number of shares of Common Stock
equal to (x) the aggregate amount of Deferred Contract Adjustment Payments
payable to such holder divided by (y) the Applicable Market Value.
In the event Philadelphia Consolidated exercises its option to defer the
payment of Contract Adjustment Payments, if any, until the Deferred Contract
Adjustment Payments have been paid, Philadelphia Consolidated shall not declare
or pay dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
or make guarantee payments with respect to the foregoing (other than (i)
purchases or acquisitions of capital stock of Philadelphia Consolidated in
connection with the satisfaction by Philadelphia Consolidated of its obligations
under any employee or agent benefit plans or the satisfaction by Philadelphia
Consolidated of its obligations pursuant to any contract or security outstanding
on the date of such event requiring Philadelphia Consolidated to purchase
capital stock of Philadelphia Consolidated, (ii) as a result of a
reclassification of Philadelphia Consolidated's capital stock or the exchange or
conversion of one class or series of Philadelphia Consolidated's capital stock
for another class or series of Philadelphia Consolidated capital stock, (iii)
the purchase of fractional interests in shares of Philadelphia Consolidated's
capital stock pursuant to the conversion or exchange provisions of Philadelphia
Consolidated capital stock or the security being converted or exchanged, (iv)
dividends or distributions in capital stock of Philadelphia Consolidated (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan).
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment (without duplication) upon the occurrence of certain events,
including: (a) the payment of dividends (and other distributions) of Common
Stock on Common Stock; (b) the issuance to all holders of Common Stock of
rights, warrants or options entitling them, for a period of up to 45 days, to
subscribe for or purchase Common Stock at less than the Current Market Price (as
defined herein) thereof; (c) subdivisions, splits and combinations of Common
S-67
<PAGE> 69
Stock; (d) distributions to all holders of Common Stock of evidences of
indebtedness of Philadelphia Consolidated, shares of capital stock, securities,
cash or property (excluding any dividend or distribution covered by clause (a)
or (b) above and any dividend or distribution paid exclusively in cash); (e)
distributions consisting exclusively of cash to all holders of Common Stock in
an aggregate amount that, together with (i) other all-cash distributions made
within the preceding 12 months and (ii) any cash and the fair market value, as
of the expiration of the tender or exchange offer referred to below, of
consideration payable in respect of any tender or exchange offer by Philadelphia
Consolidated or a subsidiary thereof for the Common Stock concluded within the
preceding 12 months, exceeds 15% of Philadelphia Consolidated's aggregate market
capitalization (such aggregate market capitalization being the product of the
Current Market Price of the Common Stock multiplied by the number of shares of
Common Stock then outstanding) on the date of such distribution; and (f) the
successful completion of a tender or exchange offer made by Philadelphia
Consolidated or any subsidiary thereof for the Common Stock which involves an
aggregate consideration that, together with (i) any cash and the fair market
value of other consideration payable in respect of any tender or exchange offer
by Philadelphia Consolidated or a subsidiary thereof for the Common Stock
concluded within the preceding 12 months and (ii) the aggregate amount of any
all-cash distributions to all holders of Philadelphia Consolidated's Common
Stock made within the preceding 12 months, exceeds 15% of Philadelphia
Consolidated's aggregate market capitalization on the expiration of such tender
or exchange offer. The "Current Market Price" per share of Common Stock on any
day means the average of the daily Closing Prices for the five consecutive
Trading Days selected by Philadelphia Consolidated commencing not more than 30
Trading Days before, and ending not later than, the earlier of the day in
question and the day before the "ex date" with respect to the issuance or
distribution requiring such computation. For purposes of this paragraph, the
term "ex date," when used with respect to any issuance or distribution, shall
mean the first date on which the Common Stock trades regular way on such
exchange or in such market without the right to receive such issuance or
distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
the related Income PRIDES or Growth PRIDES, as the case may be, become a
contract to purchase only the kind and amount of securities, cash and other
property receivable upon consummation of the transaction by a holder of the
number of shares of Common Stock which would have been received by the holder of
the related Income PRIDES or Growth PRIDES immediately prior to the date of
consummation of such transaction if such holder had then settled such Purchase
Contract.
If at any time Philadelphia Consolidated makes a distribution of property
to its shareholders which would be taxable to such shareholders as a dividend
for United States federal income tax purposes (i.e., distributions of evidences
of indebtedness or assets of Philadelphia Consolidated, but generally not stock
dividends or rights to subscribe to capital stock) and, pursuant to the
Settlement Rate adjustment provisions of the Purchase Contract Agreement, the
Settlement Rate is increased, such increase may give rise to a taxable dividend
to holders of FELINE PRIDES. See "Certain Federal Income Tax
Consequences -- Purchase Contracts -- Adjustment to Settlement Rate."
In addition, Philadelphia Consolidated may make such increases in the
Settlement Rate as the Board of Directors of Philadelphia Consolidated deems
advisable to avoid or diminish any income tax to holders of its capital stock
resulting from any dividend or distribution of capital stock (or rights to
acquire capital stock) or from any event treated as such for income tax purposes
or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
Philadelphia Consolidated will be required, within ten Business Days
following the adjustment of the Settlement Rate, to provide written notice to
the Purchase Contract Agent of the occurrence of such event
S-68
<PAGE> 70
and a statement in reasonable detail setting forth the method by which the
adjustment to the Settlement Rate was determined and setting forth the revised
Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of Philadelphia
Consolidated and of the holders of the FELINE PRIDES thereunder (including the
right thereunder to receive accrued Contract Adjustment Payments, if any, or
Deferred Contract Adjustment Payments and the right and obligation to purchase
Common Stock), will automatically terminate upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to Philadelphia
Consolidated. Upon such termination, the Collateral Agent will release the
related Trust Preferred Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Treasury Securities, as the case may be,
held by it to the Purchase Contract Agent for distribution to the holders,
subject in the case of the Treasury Portfolio to the Purchase Contract Agent's
disposition of the subject securities for cash and the payment of such cash to
the holders to the extent that the holders would otherwise have been entitled to
receive less than $1,000 of any such security. Upon such termination, however,
such release and distribution may be subject to a delay. In the event that
Philadelphia Consolidated becomes the subject of a case under the Bankruptcy
Code, such delay may occur as a result of the automatic stay under the
Bankruptcy Code and continue until such automatic stay has been lifted.
Philadelphia Consolidated expects any such delay to be limited.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Pledged Securities will be pledged to the Collateral Agent, for the
benefit of Philadelphia Consolidated, pursuant to the Pledge Agreement to secure
the obligations of holders of FELINE PRIDES to purchase Common Stock under the
related Purchase Contracts. The rights of holders of FELINE PRIDES to the
related Pledged Securities will be subject to Philadelphia Consolidated's
security interest therein created by the Pledge Agreement. No holder of Income
PRIDES or Growth PRIDES will be permitted to withdraw the Pledged Securities
related to such Income PRIDES or Growth PRIDES from the pledge arrangement
except (i) to substitute Treasury Securities for the related Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, (ii) to substitute Trust Preferred Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, for the related Treasury Securities (for both (i) and (ii), as
provided for under "Description of the FELINE PRIDES -- Substitution of Pledged
Securities" and "-- Recreating Income PRIDES or Growth PRIDES") or (iii) upon
the termination or Early Settlement of the related Purchase Contracts. Subject
to such security interest and the terms of the Purchase Contract Agreement and
the Pledge Agreement, each holder of Income PRIDES (unless a Tax Event
Redemption has occurred) will be entitled through the Purchase Contract Agent
and the Collateral Agent to all of the proportional rights and preferences of
the related Trust Preferred Securities (including distribution, voting,
redemption, repayment and liquidation rights), and each holder of Growth PRIDES
or Income PRIDES (if a Tax Event Redemption has occurred) will retain beneficial
ownership of the related Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable, pledged in respect
of the related Purchase Contracts. Philadelphia Consolidated will have no
interest in the Pledged Securities other than its security interest.
Except as described in "Description of the Purchase Contracts -- General,"
the Collateral Agent will, upon receipt of distributions on the Pledged
Securities, distribute such payments to the Purchase Contract Agent, which will
in turn distribute those payments, together with Contract Adjustment Payments,
if any, received from Philadelphia Consolidated, to the persons in whose names
the related Income PRIDES or Growth PRIDES are registered at the close of
business on the Record Date immediately preceding the date of such distribution.
BOOK-ENTRY SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the FELINE PRIDES. The FELINE PRIDES will be issued only as
fully-registered securities registered in the name of
S-69
<PAGE> 71
Cede & Co. (the Depositary's nominee). One or more fully-registered global
security certificates ("Global Security Certificates"), representing the total
aggregate number of FELINE PRIDES, will be issued and will be deposited with the
Depositary and will bear a legend regarding the restrictions on exchanges and
registration of transfer thereof referred to below.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial ownership interests in the FELINE
PRIDES so long as such FELINE PRIDES are represented by Global Security
Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). The Depositary is owned by a number of
its Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the Depositary system is also available to others, such as securities brokers
and dealers, banks and trust companies that clear transactions through or
maintain a direct or indirect custodial relationship with a Direct Participant
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Commission.
No FELINE PRIDES represented by Global Security Certificates may be
exchanged in whole or in part for FELINE PRIDES registered, and no transfer of
Global Security Certificates in whole or in part may be registered, in the name
of any person other than the Depositary or any nominee of the Depositary unless
the Depositary has notified Philadelphia Consolidated that it is unwilling or
unable to continue as depositary for such Global Security Certificates or has
ceased to be qualified to act as such as required by the Purchase Contract
Agreement or there shall have occurred and be continuing a default by
Philadelphia Consolidated in respect of its obligations under one or more
Purchase Contracts. All FELINE PRIDES represented by one or more Global Security
Certificates or any portion thereof will be registered in such names as the
Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial ownership interests in
Global Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefor and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE PRIDES represented
thereby for any purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the Global Security
Certificates and all transfers and deliveries of Trust Preferred Securities,
Treasury Portfolio, Treasury Securities and Common Stock with respect thereto
will be made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial ownership interests in the Global Security
Certificates will be limited to Participants or persons that may hold beneficial
ownership interests through institutions that have accounts with the Depositary
or its nominee. Ownership of beneficial ownership interests in Global Security
Certificates will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary or
its nominee (with respect to Participants' interests) or any such Participant
(with respect to interests of persons held by such Participants on their
behalf). Procedures for settlement of Purchase Contracts on the Purchase
Contract Settlement Date or upon Early Settlement will be governed by
arrangements among the Depositary, Participants and persons that may hold
beneficial ownership interests
S-70
<PAGE> 72
through Participants designed to permit such settlement without the physical
movement of certificates. Payments, transfers, deliveries, exchanges and other
matters relating to beneficial ownership interests in Global Security
Certificates may be subject to various policies and procedures adopted by the
Depositary from time to time. None of Philadelphia Consolidated, the Purchase
Contract Agent or any agent of Philadelphia Consolidated or the Purchase
Contract Agent will have any responsibility or liability for any aspect of the
Depositary's or any Participant's records relating to, or for payments made on
account of, beneficial ownership interests in Global Security Certificates, or
for maintaining, supervising or reviewing any of the Depositary's records or any
Participant's records relating to such beneficial ownership interests.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that Philadelphia Consolidated
and the Trust believe to be reliable, but neither Philadelphia Consolidated nor
the Trust takes responsibility for the accuracy thereof.
S-71
<PAGE> 73
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in the Borough
of Manhattan, The City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry form, payment of distributions on the FELINE
PRIDES may be made, at the option of Philadelphia Consolidated, by check mailed
to the address of the person entitled thereto as shown on the Security Register.
Shares of Common Stock will be delivered on the Purchase Contract
Settlement Date (or earlier upon Early Settlement), or, if the Purchase
Contracts have terminated, the related Pledged Securities will be delivered
potentially after a delay as a result of the imposition of the automatic stay
under the Bankruptcy Code (see "Description of the Purchase
Contracts -- Termination"), in each case upon presentation and surrender of the
FELINE PRIDES Certificate at the office of the Purchase Contract Agent.
Philadelphia Consolidated expects any such delay to be limited.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the related Purchase
Contract and in payment of any Deferred Contract Adjustment Payments will be
registered in the name of the Purchase Contract Agent and, together with any
distributions thereon, shall be held by the Purchase Contract Agent as agent for
the benefit of such holder, until such FELINE PRIDES Certificate is presented
and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and Philadelphia Consolidated.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the
Purchase Contract Agent for distribution to the holders entitled thereto and a
holder fails to present and surrender the FELINE PRIDES Certificate evidencing
such holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
related Pledged Securities delivered to the Purchase Contract Agent and payments
thereon shall be held by the Purchase Contract Agent as agent for the benefit of
such holder, until such FELINE PRIDES Certificate is presented or the holder
provides the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting Philadelphia Consolidated and the Purchase Contract Agent
or Collateral Agent, as the case may be, with the consent of the holders of not
less than a majority of the Purchase Contracts at the time outstanding, to
modify the terms of the Purchase Contracts, the Purchase Contract Agreement and
the Pledge Agreement, except that no such modification may, without the consent
of the holder of each outstanding Purchase Contract affected thereby, (a) change
any Payment Date, (b) change the amount or type of Pledged Securities related to
such Purchase Contract, impair the right of the holder of any Pledged Securities
to receive distributions on such Pledged Securities (except for the rights of
holders of Income PRIDES to substitute Treasury Securities for the related Trust
Preferred Securities or Treasury Portfolio, as the case may be, or the rights of
holders of Growth PRIDES to substitute Trust Preferred Securities or Treasury
Portfolio, as the case may be, for the related Treasury Securities) or otherwise
adversely affect the holder's rights in or to such Pledged Securities,
S-72
<PAGE> 74
(c) change the place or currency of payment or reduce any Contract Adjustment
Payments, if any, or any Deferred Contract Adjustment Payments, (d) impair the
right to institute suit for the enforcement of such Purchase Contract, (e)
reduce the amount of Common Stock purchasable under such Purchase Contract,
increase the price to purchase Common Stock on settlement of such Purchase
Contract, change the Purchase Contract Settlement Date or otherwise adversely
affect the holder's rights under such Purchase Contract or (f) reduce the
above-stated percentage of outstanding Purchase Contracts the consent of whose
holders is required for the modification or amendment of the provisions of the
Purchase Contracts, the Purchase Contract Agreement or the Pledge Agreement;
provided, that if any amendment or proposal referred to above would adversely
affect only the Income PRIDES or the Growth PRIDES, then only the affected class
of holder will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the consent of the
holders of not less than a majority of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, as applicable, be deemed expressly to have withheld any consent
to the assumption (i.e., affirmance) of the related Purchase Contracts by
Philadelphia Consolidated or its trustee in the event that Philadelphia
Consolidated becomes the subject of a case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Philadelphia Consolidated will covenant in the Purchase Contract Agreement
that it will not merge or consolidate with any other entity or sell, assign,
transfer, lease or convey all or substantially all of its properties and assets
to any person, firm or corporation unless Philadelphia Consolidated is the
continuing corporation or the successor corporation is a corporation organized
under the laws of the United States of America or a state thereof and such
corporation expressly assumes the obligations of Philadelphia Consolidated under
the Purchase Contracts, the Debentures, the Purchase Contract Agreement and the
Pledge Agreement, and Philadelphia Consolidated or such successor corporation is
not, immediately after such merger, consolidation, sale, assignment, transfer,
lease or conveyance, in default of its payment obligations or material default
in the performance of any of its other obligations thereunder.
TITLE
Philadelphia Consolidated, the Purchase Contract Agent and the Collateral
Agent may treat the registered owner of any FELINE PRIDES as the absolute owner
thereof for the purpose of making payment and settling the related Purchase
Contracts and for all other purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by Philadelphia Consolidated at the
expense of the holder upon surrender of such certificate to the Purchase
Contract Agent. FELINE PRIDES Certificates that become destroyed, lost or stolen
will be replaced by Philadelphia Consolidated at the expense of the holder upon
delivery to Philadelphia Consolidated and the Purchase Contract Agent of
evidence of the destruction, loss or theft thereof satisfactory to Philadelphia
Consolidated and the Purchase Contract Agent. In the case of a destroyed, lost
or stolen FELINE PRIDES Certificate, an indemnity satisfactory to the Purchase
Contract Agent and Philadelphia Consolidated may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
Notwithstanding the foregoing, Philadelphia Consolidated will not be
obligated to issue any Income PRIDES or Growth PRIDES on or after the Purchase
Contract Settlement Date (or after Early Settlement) or after the Purchase
Contracts have terminated. The Purchase Contract Agreement will provide that, in
lieu of the delivery of a replacement FELINE PRIDES Certificate following the
Purchase Contract Settlement Date, the Purchase Contract Agent, upon delivery of
the evidence and indemnity described above, will deliver
S-73
<PAGE> 75
the Common Stock issuable pursuant to the Purchase Contracts included in the
Income PRIDES or Growth PRIDES evidenced by such certificate, or, if the
Purchase Contracts have terminated prior to the Purchase Contract Settlement
Date, transfer the principal amount of the Pledged Securities included in the
Income PRIDES or Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES
and Growth PRIDES from time to time. The Purchase Contract Agreement will not
obligate the Purchase Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
The First National Bank of Chicago may in the future establish commercial
banking relationships with Philadelphia Consolidated.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral Agent
will act solely as the agent of Philadelphia Consolidated and will not assume
any obligation or relationship of agency or trust for or with any of the holders
of the Income PRIDES and Growth PRIDES except for the obligations owed by a
pledgee of property to the owner thereof under the Pledge Agreement and
applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
The Chase Manhattan Bank may in the future establish commercial banking
relationships with Philadelphia Consolidated.
MISCELLANEOUS
The Purchase Contract Agreement will provide that Philadelphia Consolidated
will pay all fees and expenses related to (i) the offering of the FELINE PRIDES,
(ii) the retention of the Collateral Agent and (iii) the enforcement by the
Purchase Contract Agent of the rights of the holders of the FELINE PRIDES;
provided, however, that holders who elect to substitute the related Pledged
Securities, thereby creating Growth PRIDES or Income PRIDES or recreating Income
PRIDES or Growth PRIDES, shall be responsible for any fees or expenses payable
in connection with such substitution, as well as any commissions, fees or other
expenses incurred in acquiring the Pledged Securities to be substituted, and
Philadelphia Consolidated shall not be responsible for any such fees or
expenses.
S-74
<PAGE> 76
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities, a certain portion of which form a component
of the Income PRIDES, and a certain portion of which will trade separately, will
be issued pursuant to the terms of the Declaration. See "Description of the
FELINE PRIDES -- Substitution of Pledged Securities." The Declaration will be
qualified as an indenture under the Trust Indenture Act. The Institutional
Trustee, The First National Bank of Chicago, an independent trustee, will act as
indenture trustee for the Trust Preferred Securities under the Declaration for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Trust Preferred Securities will include those stated in the Declaration
and those made part of the Declaration by the Trust Indenture Act. The following
summary of certain provisions of the Trust Preferred Securities and the
Declaration is not necessarily complete, and reference is hereby made to the
copy of the Declaration (including the definitions therein of certain terms)
which is filed as an exhibit to the Registration Statement relating to this
Prospectus Supplement, the Trust Act and the Trust Indenture Act. Whenever
particular defined terms are referred to in this Prospectus Supplement, such
defined terms are incorporated herein by reference. The following descriptions
of certain terms of the Trust Preferred Securities offered hereby supplements
and, to the extent inconsistent with, replaces the description of the general
terms and provisions of the Trust Preferred Securities set forth in the
accompanying Prospectus, to which reference is hereby made.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial ownership
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by Philadelphia Consolidated. The Common
Securities rank on a parity, and payments will be made thereon on a pro rata
basis, with the Trust Preferred Securities, except that upon the occurrence and
during the continuance of an Indenture Event of Default, the rights of the
holders of the Common Securities to receive payment of periodic distributions
and payments upon liquidation, redemption and otherwise will be subordinated to
the rights of the holders of the Trust Preferred Securities. The Declaration
does not permit the issuance by the Trust of any securities other than the Trust
Securities or the incurrence of any indebtedness by the Trust. Pursuant to the
Declaration, the Institutional Trustee will own the Debentures purchased by the
Trust for the benefit of the holders of the Trust Securities. The payment of
distributions out of money held by the Trust, and payments upon redemption of
the Trust Preferred Securities or liquidation of the Trust, are guaranteed by
Philadelphia Consolidated to the extent described under "Description of the
Guarantee." The Guarantee, when taken together with Philadelphia Consolidated's
obligations under the Debentures and the Indenture and its obligations under the
Declaration, including the obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Preferred
Securities), provides a full and unconditional guarantee of amounts due on the
Trust Preferred Securities. The Guarantee will be held by The First National
Bank of Chicago, the Guarantee Trustee, for the benefit of the holders of the
Trust Preferred Securities. The Guarantee does not cover payment of
distributions when the Trust does not have sufficient available funds to pay
such distributions. In such event, the remedy of a holder of Trust Preferred
Securities is to vote to direct the Institutional Trustee to enforce the
Institutional Trustee's rights under the Debentures (except in the limited
circumstances in which the holder may take direct action). See "-- Declaration
Events of Default" and " -- Voting Rights."
DISTRIBUTIONS
Distributions on the Trust Preferred Securities will be fixed initially at
a rate per annum of % of the stated liquidation amount of $10 per Trust
Preferred Security. Distributions applicable on the Trust Preferred Securities
that remain outstanding on and after the Purchase Contract Settlement Date will
be reset on the third Business Day immediately preceding the Purchase Contract
Settlement Date. See "-- Market Rate Reset." Distributions in arrears for more
than one quarter will accumulate at the rate of % per annum through and
including , 2001 and at the Reset Rate thereafter, compounded
quarterly. The term "distribution" as used herein includes any such accumulated
distributions payable unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months.
S-75
<PAGE> 77
Distributions on the Trust Preferred Securities will be cumulative and will
accrue from , 1998 and will be payable quarterly in arrears on
February 16, May 16, August 16, and November 16 of each year, commencing
, 1998, when, as and if funds are available for payment.
Distributions will be made by the Institutional Trustee, except as otherwise
described below.
Philadelphia Consolidated has the right under the Indenture to defer
payments of interest on the Debentures by extending the interest payment period
from time to time on the Debentures, which right, if exercised, would defer
quarterly distributions on the Trust Preferred Securities (though such
distributions would continue to accrue with interest at the rate of % per
annum through and including 15, 2001, and at the Reset Rate
thereafter) during any such extended interest payment period. Such right to
extend the interest payment period for the Debentures is limited to a period, in
the aggregate, not extending beyond the maturity date of the Debentures. In the
event that Philadelphia Consolidated exercises this right, then (a) Philadelphia
Consolidated shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of capital stock of Philadelphia Consolidated in connection with the
satisfaction by Philadelphia Consolidated of its obligations under any employee
or agent benefit plans or the satisfaction by Philadelphia Consolidated of its
obligations pursuant to any contract or security outstanding on the date of such
event requiring Philadelphia Consolidated to purchase capital stock of
Philadelphia Consolidated, (ii) as a result of a reclassification of
Philadelphia Consolidated's capital stock or the exchange or conversion of one
class or series of Philadelphia Consolidated's capital stock for another class
or series of Philadelphia Consolidated's capital stock, (iii) the purchase of
fractional interests in shares of Philadelphia Consolidated's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (iv) dividends or distributions in
capital stock of Philadelphia Consolidated (or rights to acquire capital stock)
or repurchases or redemptions of capital stock solely from the issuance or
exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan), (b) Philadelphia Consolidated
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by Philadelphia
Consolidated that rank junior to such Debentures, and (c) Philadelphia
Consolidated shall not make any guarantee payments with respect to the foregoing
other than pursuant to the Guarantee or the Common Securities Guarantee. Prior
to the termination of any such Extension Period, Philadelphia Consolidated may
further extend the interest payment period; provided, that such Extension
Period, together with all such previous and further extensions thereof, may not
extend beyond the maturity date of the Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, Philadelphia
Consolidated may select a new Extension Period, subject to the above
requirements. See "Description of the Debentures -- Interest" and "-- Option to
Extend Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Trust Preferred Securities as they appear on the books and records of the
Trust on the record date next following the termination of such Extension
Period.
Distributions on the Trust Preferred Securities must be paid on the dates
payable to the extent that the Trust has funds available in the Property Account
for the payment of such distributions. The Trust's funds available for
distribution to the holders of the Trust Preferred Securities will be limited to
payments received from Philadelphia Consolidated on the Debentures. See
"Description of the Debentures." The payment of distributions out of moneys held
by the Trust is guaranteed by Philadelphia Consolidated to the extent set forth
under "Description of the Guarantee." Distributions on the Trust Preferred
Securities will be payable to the holders thereof, including the Collateral
Agent, as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Trust Preferred Securities remain in
book-entry only form, will be one Business Day prior to the relevant payment
dates. Such distributions will be paid through the Institutional Trustee who
will hold amounts received in respect of the Debentures in the Property Account
for the benefit of the holders of the Trust Preferred Securities. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment will be made as described under "-- Book-Entry Only Issuance -- The
Depository Trust Company" below. With respect to Trust Preferred Securities not
in book-entry form, the Regular Trustees shall have the right to select relevant
record dates, which shall be more than one Business Day but less than 60
Business Days prior to the relevant payment dates. In the event that any date on
which distributions are to be made on the Trust Preferred Securities is not a
Business Day, then
S-76
<PAGE> 78
payment of the distributions 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 is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such record date.
MARKET RATE RESET
The applicable quarterly distribution rate on the Trust Preferred
Securities and the interest rate on the related Debentures that remain
outstanding on and after the Purchase Contract Settlement Date will be reset on
the third Business Day immediately preceding the Purchase Contract Settlement
Date to the Reset Rate, which will be equal to the sum of the Reset Spread and
the rate on the Two-Year Benchmark Treasury in effect on the third Business Day
immediately preceding the Purchase Contract Settlement Date and will be
determined by the Reset Agent as the rate the Trust Preferred Securities should
bear in order for a Trust Preferred Security to have an approximate market value
on the third Business Day immediately preceding the Purchase Contract Settlement
Date of 100.5% of the Stated Amount; provided that Philadelphia Consolidated may
limit such Reset Rate to be no higher than the rate on the Two-Year Benchmark
Treasury on such Business Day plus 200 basis points (2%). Such market value may
be less than 100.5% if the Reset Spread is limited to a maximum of 2%. The
"Two-Year Benchmark Treasury" shall mean direct obligations of the United States
(which may be obligations traded on a when-issued basis only) having a maturity
comparable to the remaining term to maturity of the Trust Preferred Securities,
as agreed upon by Philadelphia Consolidated and the Reset Agent. The rate for
the Two-Year Benchmark Treasury will be the bid side rate displayed at 10:00
A.M., New York City time, on the third Business Day immediately preceding the
Purchase Contract Settlement Date in the Telerate system (or if the Telerate
system is (a) no longer available on the third Business Day immediately
preceding the Purchase Contract Settlement Date or (b) in the opinion of the
Reset Agent (after consultation with Philadelphia Consolidated) no longer an
appropriate system from which to obtain such rate, such other nationally
recognized quotation system as, in the opinion of the Reset Agent (after
consultation with Philadelphia Consolidated) is appropriate). If such rate is
not so displayed, the rate for the Two-Year Benchmark Treasury shall be, as
calculated by the Reset Agent, the yield to maturity for the Two-Year Benchmark
Treasury, expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis, and computed by taking the
arithmetic mean of the secondary market bid rates, as of 10:30 A.M., New York
City time, on the third Business Day immediately preceding the Purchase Contract
Settlement Date of three leading United States government securities dealers
selected by the Reset Agent (after consultation with Philadelphia Consolidated)
(which may include the Reset Agent or an affiliate thereof). Philadelphia
Consolidated may limit the Reset Rate to be no higher than the rate on the
Two-Year Benchmark Treasury on the third Business Day immediately preceding the
Purchase Contract Settlement Date plus 200 basis points (2%). It is currently
anticipated that Merrill Lynch, Pierce, Fenner & Smith Incorporated will be the
investment banking firm acting as the Reset Agent.
On the tenth Business Day immediately preceding the Purchase Contract
Settlement Date, the Two-Year Benchmark Treasury to be used to determine the
Reset Rate on the Purchase Contract Settlement Date will be selected and the
Reset Spread to be added to the rate on the Two-Year Benchmark Treasury in
effect on the third Business Day immediately preceding the Purchase Contract
Settlement Date will be established by the Reset Agent, and the Reset Spread and
the Two-Year Benchmark Treasury will be announced by Philadelphia Consolidated
(the "Reset Announcement Date"). Philadelphia Consolidated will cause a notice
of the Reset Spread and such Two-Year Benchmark Treasury to be published on the
Business Day following the Reset Announcement Date by publication in a daily
newspaper in the English language of general circulation in The City of New
York, which is expected to be The Wall Street Journal. Philadelphia Consolidated
will request, not later than seven nor more than 15 calendar days prior to the
Reset Announcement Date, that the Depositary notify its participants holding
Trust Preferred Securities, Income PRIDES or Growth PRIDES of such Reset
Announcement Date and of the procedures that must be followed if any owner of
FELINE PRIDES wishes to settle the related Purchase Contract with cash on the
Business Day immediately preceding the Purchase Contract Settlement Date.
S-77
<PAGE> 79
OPTIONAL REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement, on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier than
the Payment Business Day immediately preceding the Purchase Contract Settlement
Date, holders of separate Trust Preferred Securities which are not components of
Income PRIDES may elect to have their Trust Preferred Securities remarketed in
the same manner as the Trust Preferred Securities that are components of Income
PRIDES by delivering their Trust Preferred Securities along with a notice of
such election to the Custodial Agent. The Custodial Agent will hold such Trust
Preferred Securities in an account separate from the collateral account in which
the Pledged Securities will be held. Holders of Trust Preferred Securities
electing to have their Trust Preferred Securities remarketed will also have the
right to withdraw such election on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date. The portion of the
proceeds from such remarketing equal to the aggregate stated liquidation amount
of such Trust Preferred Securities will automatically be remitted by the
Remarketing Agent to the Custodial Agent for the benefit of such Trust Preferred
Securities holders. In addition, after deducting as the Remarketing Fee an
amount not exceeding 25 basis points (.25%) of the aggregate stated liquidation
amount of the remarketed securities, from any amount of such proceeds in excess
of the aggregate stated liquidation amount of the remarketed Trust Preferred
Securities plus any accrued and unpaid distributions (including deferred
distributions, if any), the Remarketing Agent will remit to the Custodial Agent
the remaining portion of the proceeds, if any, for the benefit of such holder.
If, despite using its reasonable efforts, the Remarketing results in a Failed
Remarketing, the Remarketing Agent will promptly return such Trust Preferred
Securities to the Custodial Agent to release to such holders.
OPTIONAL REDEMPTION
The Debentures are redeemable at the option of Philadelphia Consolidated,
in whole but not in part, on not less than 30 days nor more than 60 days notice,
upon the occurrence and continuation of a Tax Event under the circumstances
described under "Description of the Debentures -- Tax Event Redemption." If
Philadelphia Consolidated redeems the Debentures upon the occurrence and
continuation of a Tax Event, the proceeds from such repayment shall
simultaneously be applied on a pro rata basis to redeem Trust Preferred
Securities having an aggregate stated liquidation amount equal to the aggregate
principal amount of the Debentures so redeemed at a Redemption Price, per Trust
Preferred Security, equal to the Redemption Amount plus accrued and unpaid
interest thereon to the date of such redemption. Such proceeds will be payable
in cash to the holders of such Trust Preferred Securities. If the Tax Event
Redemption occurs prior to the Purchase Contract Settlement Date, the Redemption
Price payable to the Collateral Agent, in liquidation of the Income PRIDES
holders' interests in the Trust, will be simultaneously applied by the
Collateral Agent to purchase on behalf of the holders' of the Income PRIDES the
Treasury Portfolio. The Treasury Portfolio will be pledged with the Collateral
Agent to secure the obligation of Income PRIDES holders to purchase Common Stock
under the related Purchase Contracts.
PUT OPTION UPON FAILED REMARKETING
If a Failed Remarketing has occurred, holders of Trust Securities (or,
following the distribution of the Debentures upon a dissolution of the Trust as
described herein, holders of such Debentures) holding such Trust Securities (or
Debentures, as the case may be) following the Purchase Contract Settlement Date
will have the right, in the case of Trust Securities, to require the Trust to
distribute their pro rata share of the Debentures to the Exchange Agent, who
will put such Debentures to Philadelphia Consolidated on behalf of such holders
(or in the case of Debentures held directly, the holders of such Debentures will
have the right to put such Debentures directly to Philadelphia Consolidated) on
, 2001, upon at least three Business Days prior notice, at a
price per Debenture equal to $10, plus accrued and unpaid interest (including
deferred interest), if any, thereon.
S-78
<PAGE> 80
REDEMPTION PROCEDURES
If the Trust gives a notice of redemption (which notice will be
irrevocable) in respect of all of the Trust Preferred Securities, then, by 12:00
noon, New York City time, on the redemption date, provided that Philadelphia
Consolidated has paid to the Institutional Trustee sufficient amount of cash in
connection with the related redemption or maturity of the Debentures, the Trust
will irrevocably deposit with the Depositary, the Purchase Contract Agent or the
Collateral Agent, as applicable, funds sufficient to pay the applicable
Redemption Price and will give the Depositary, the Purchase Contract Agent or
the Collateral Agent, as applicable, irrevocable instructions and authority to
pay the Redemption Price to the holders of the Trust Preferred Securities so
called for redemption. 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, distributions will cease to accrue and all rights of
holders of such Trust Preferred Securities so called for redemption will cease,
except the right of the holders of such Trust Preferred Securities to receive
the Redemption Price but without interest on such Redemption Price. In the event
that any date fixed for redemption of Trust Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day that is a Business Day (without any interest or
other payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day.
DISTRIBUTION OF THE DEBENTURES
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel to the Trust or the Regular
Trustees experienced in practice under the 1940 Act (as defined below) to the
effect that, as a result of the occurrence of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), which Change in 1940 Act Law becomes effective on or after
the date of this Prospectus Supplement, there is more than an insubstantial risk
that the Trust is or will be considered an "investment company" which is
required to be registered under the Investment Company Act of 1940, as amended
(the "1940 Act").
If, at any time, an Investment Company Event shall occur and be continuing,
the Trust shall be dissolved, with the result that Debentures with an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Trust Securities,
would be distributed to the holders of the Trust Securities in liquidation of
such holders' interests in the Trust on a pro rata basis within 90 days
following the occurrence of such Investment Company Event; provided, however,
that such dissolution and distribution shall be conditioned on Philadelphia
Consolidated being unable to avoid such Investment Company Event within such
90-day period by taking some ministerial action or pursuing some other similar
reasonable measure that will have no adverse effect on the Trust, Philadelphia
Consolidated or the holders of the Trust Securities and will involve no material
cost. If an Investment Company Event occurs, Debentures distributed to the
Collateral Agent in liquidation of such holder's interest in the Trust would be
pledged (in lieu of the Trust Preferred Securities) to secure Income PRIDES
holders' obligations to purchase Common Stock under the Purchase Contracts.
Philadelphia Consolidated will have the right at any time to dissolve the
Trust and, after satisfaction of liabilities of creditors of the Trust as
provided by applicable law, cause the Debentures to be distributed to the
holders of the Trust Securities. As of the date of any distribution of
Debentures upon dissolution of the Trust, (i) the Trust Preferred Securities
will no longer be deemed to be outstanding, (ii) the Depositary or its nominee,
as the record holder of the Trust Preferred Securities, will receive a
registered global certificate or certificates representing the Debentures to be
delivered upon such distribution, and (iii) any certificates representing Trust
Preferred Securities not held by the Depositary or its nominee will be deemed to
represent Debentures having an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, such Trust Preferred Securities until such certificates
are presented to Philadelphia Consolidated or its agent for transfer or
reissuance. Debentures distributed to the Collateral Agent in
S-79
<PAGE> 81
liquidation of the interest of the holders of the Trust Preferred Securities in
the Trust would be substituted for the Trust Preferred Securities and pledged to
secure Income PRIDES holders' obligations to purchase Common Stock under the
Purchase Contracts.
There can be no assurance as to the market prices for either the Trust
Preferred Securities or the Debentures that may be distributed in exchange for
the Trust Preferred Securities if a dissolution of the Trust were to occur.
Accordingly, the Trust Preferred Securities or such Debentures that an investor
may receive if a dissolution of the Trust were to occur may trade at a discount
to the price that the investor paid to purchase the Trust Preferred Securities
forming a part of the Income PRIDES offered hereby.
LIQUIDATING DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), the then holders of the Trust
Preferred Securities will be entitled to receive out of the assets of the Trust,
after satisfaction of liabilities to creditors, Debentures in an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Trust Preferred
Securities on a pro rata basis in exchange for such Trust Preferred Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the Trust
Preferred Securities, except that, if a Declaration Event of Default has
occurred and is continuing, the Trust Preferred Securities shall have a
preference over the Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on
, 2005, the expiration of the term of the Trust, (ii) upon the
bankruptcy of Philadelphia Consolidated or the holder of the Common Securities,
(iii) upon the filing of a certificate of dissolution or its equivalent with
respect to Philadelphia Consolidated or the revocation of the charter of
Philadelphia Consolidated and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) after the receipt by the
Institutional Trustee of written direction from Philadelphia Consolidated to
dissolve the Trust or the filing of a certificate of dissolution or its
equivalent with respect to the Trust, (v) upon the distribution of Debentures,
(vi) upon the occurrence and continuation of a Tax Event Redemption or (vii)
upon the entry of a decree of a judicial dissolution of the holder of the Common
Securities, Philadelphia Consolidated or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided that, pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Trust Preferred Securities
have been cured, waived or otherwise eliminated. Until such Declaration Events
of Default with respect to the Trust Preferred Securities have been so cured,
waived or otherwise eliminated, the Institutional Trustee will be deemed to be
acting solely on behalf of the holders of the Trust Preferred Securities and
only the holders of the Trust Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration
and, therefore, the Indenture. If a Declaration Event of Default with respect to
the Trust Preferred Securities is waived by holders of Trust Preferred
Securities, such waiver will also constitute the waiver of such Declaration
Event of Default with respect to the Common Securities without any further act,
vote or consent of the holders of the Common Securities. If the Institutional
Trustee fails to enforce its rights under the Debentures in respect of an
Indenture Event of Default after a holder of record of Trust Preferred
Securities has made a written request, such holder of record of Trust Preferred
Securities may, to the fullest extent permitted by applicable law, institute a
legal proceeding against Philadelphia Consolidated to enforce the Institutional
Trustee's rights under the Debentures without first proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of Philadelphia Consolidated to pay
interest or principal on the Debentures
S-80
<PAGE> 82
on the date such interest or principal is otherwise payable (after giving effect
to any right of deferral), then a holder of Trust Preferred Securities may
directly institute a Direct Action to such holder directly of the principal of
or interest on the Debentures having a principal amount equal to the aggregate
liquidation amount of the Trust Preferred Securities of such holder. In
connection with such Direct Action, Philadelphia Consolidated shall have the
right under the Indenture to set off any payment made to such holder of
Philadelphia Consolidated. The holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures. See "Effect of Obligations under the Debentures and the Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Debentures will have the right under the
Indenture to declare the principal of and interest on the Debentures to be
immediately due and payable. Philadelphia Consolidated and the Trust are each
required to file annually with the Institutional Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Guarantee -- Modification of the Guarantee;
Assignment," and as otherwise required by law and the Declaration, the holders
of the Trust Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate stated liquidation amount of
the Trust Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Institutional
Trustee, or direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies
available under the Indenture with respect to the Debentures, (ii) waive any
past Indenture Event of Default that is waivable under Section of the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Debentures where
such consent shall be required; provided, however, that, where a consent or
action under the Indenture would require the consent or act of holders of more
than a majority in principal amount of the Debentures (a "Super-Majority")
affected thereby, only the holders of at least such Super-Majority in aggregate
stated liquidation amount of the Trust Preferred Securities may direct the
Institutional Trustee to give such consent or take such action. The
Institutional Trustee shall notify all holders of the Trust Preferred Securities
of any notice of default received from the Debt Trustee (as defined herein) with
respect to the Debentures. Such notice shall state that such Indenture Event of
Default also constitutes a Declaration Event of Default. Except with respect to
directing the time, method and place of conducting a proceeding for a remedy,
the Institutional Trustee shall not take any of the actions described in clauses
(i), (ii) or (iii) above unless the Institutional Trustee has obtained an
opinion of tax counsel experienced in such matters to the effect that, as a
result of such action, the Trust will not fail to be classified as a grantor
trust for federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Debentures, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the
Institutional Trustee shall request the direction of the holders of the Trust
Preferred Securities and the Common Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in stated liquidation
amount of the Trust Preferred Securities and the Common Securities voting
together as a single class; provided, however, that, where a consent under the
Indenture would require the consent of a Super-Majority, the Institutional
Trustee may only give such consent at the direction of the holders of at least
the proportion in stated liquidation amount of the Trust Preferred Securities
and the Common Securities which the relevant Super-Majority represents of the
aggregate principal amount of the Debentures outstanding. The Institutional
Trustee shall not take any such action in accordance with the directions of the
holders of the Trust Preferred Securities and the Common Securities unless the
Institutional Trustee has obtained an opinion of tax counsel
S-81
<PAGE> 83
experienced in such matters to the effect that, as a result of such action, the
Trust will not fail to be classified as a grantor trust for United States
federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Trust Preferred
Securities. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to cancel Trust Preferred
Securities or distribute Debentures in accordance with the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the Trust
Preferred Securities that are owned at such time by Philadelphia Consolidated or
any entity directly or indirectly controlling or controlled by, or under direct
or indirect common control with, Philadelphia Consolidated, shall not be
entitled to vote or consent and shall, for purposes of such vote or consent, be
treated as if such Trust Preferred Securities were not outstanding.
The procedures by which holders of Trust Preferred Securities may exercise
their voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Philadelphia Consolidated Trustees, who may be appointed, removed or
replaced solely by Philadelphia Consolidated as the indirect or direct holder of
all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee); provided that, if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution of the
Trust other than pursuant to the terms of the Declaration, then the holders of
the Trust Securities voting together as a single class will be entitled to vote
on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of at least a majority in such stated
liquidation amount of the Trust Securities affected thereby; provided further
that, if any amendment or proposal referred to in clause (i) above would
adversely affect only the Trust Preferred Securities or the Common Securities,
then only the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of a majority in stated liquidation amount of such class of securities.
In addition, the Declaration may be amended without the consent of the holders
of the Trust Securities to, among other things, cause the Trust to continue to
be classified for United States federal income tax purposes as a grantor trust.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for purposes of United States
federal income taxation, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
S-82
<PAGE> 84
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below or as described in "Liquidating Distribution Upon Dissolution."
The Trust may, with the consent of the Regular Trustees and without the consent
of the holders of the Trust Securities, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided, that (i) if the Trust is not the surviving entity, such successor
entity either (x) expressly assumes all of the obligations of the Trust under
the Trust Securities or (y) substitutes for the Trust Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Trust Securities with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) Philadelphia Consolidated expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Institutional Trustee as the holder of the Debentures, (iii) if
the Trust Preferred Securities are listed, any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
with another organization on which the Trust Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Trust Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in the
new entity), (vi) such successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, Philadelphia Consolidated has received an opinion of a nationally
recognized independent counsel to the Trust experienced in such matters to the
effect that, (a) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in the
new entity), (b) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor such successor entity will be required to
register as an investment company under the 1940 Act and (c) following such
merger, consolidation, amalgamation or replacement, the Trust (or the successor
entity) will continue to be classified as a grantor trust for federal income tax
purposes, and (viii) Philadelphia Consolidated guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee and the Common Securities Guarantee (as defined
herein). Notwithstanding the foregoing the Trust shall not, except with the
consent of holders of 100% in stated liquidation amount of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger or replacement would
cause the Trust or the successor entity to be classified as other than a grantor
trust for federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Trust Preferred Securities will be issued as one or more
fully-registered global Trust Preferred Securities certificates representing the
total aggregate number of Trust Preferred Securities. The Depositary will act as
securities depositary for any Trust Preferred Securities that are held
separately from the Income PRIDES. In such event, the Trust Preferred Securities
will be issued only as fully-registered securities registered in the name of
Cede & Co. (the Depositary's nominee). However, under certain circumstances, the
Regular Trustees with the consent of Philadelphia Consolidated may decide not to
use the system of book-entry transfers through the DTC with respect to the Trust
Preferred Securities. In that event, certificates of the Trust Preferred
Securities will be printed and delivered to the holders.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial ownership interests in the global
Trust Preferred Securities as represented by a global certificate.
Purchases of Trust Preferred Securities within the Depositary's system must
be made by or through Direct Participants, which will receive a credit for the
Trust Preferred Securities on the Depositary's records.
S-83
<PAGE> 85
The ownership interest of each actual purchaser of each Trust Preferred Security
(a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchases, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased Trust Preferred Securities.
Transfers of ownership interests in the Trust Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Trust Preferred Securities, except in the event
that use of the book-entry system for the Trust Preferred Securities is
discontinued.
To facilitate subsequent transfers, all the Trust Preferred Securities
deposited by Participants with the Depositary will be registered in the name of
the Depositary's nominee, Cede & Co. The deposit of Trust Preferred Securities
with the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Trust Preferred Securities. The Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Trust Preferred Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a global certificate
will be able to transfer that interest except in accordance with the
Depositary's applicable procedures, in addition to those provided for under the
Declaration.
The Depositary has advised Philadelphia Consolidated that it will take any
action permitted to be taken by a holder of Trust Preferred Securities
(including the presentation of Trust Preferred Securities for exchange as
described below) only at the direction of one or more Participants to whose
account the Depositary's interests in the global certificates are credited and
only in respect of such portion of the stated liquidation amount of Trust
Preferred Securities as to which such Participant or Participants has or have
given such directions. However, if there is a Declaration Event of Default under
the Trust Preferred Securities, the Depositary will exchange the global
certificates for certificated securities, which it will distribute to its
Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities. Under
its usual procedures, the Depositary would mail an omnibus proxy to the Trust as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Trust Preferred Securities are credited on the record date (identified in a
listing attached to the omnibus proxy). Philadelphia Consolidated and the Trust
believe that the arrangements among the Depositary, Direct and Indirect
Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a record holder of a beneficial ownership interest in the Trust.
Distribution payments on the Trust Preferred Securities issued in the form
of one or more global certificates will be made to the Depositary in immediately
available funds. The Depositary's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and such payments will
be the responsibility of such Participant and not of
S-84
<PAGE> 86
the Depositary, the Trust or Philadelphia Consolidated, subject to any statutory
or regulatory requirements to the contrary that may be in effect from time to
time. Payment of distributions to the Depositary is the responsibility of the
Trust, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Trust Preferred
Security certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary to exercise any rights under the Trust Preferred
Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among Participants,
the Depositary is under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. None of
Philadelphia Consolidated, the Trust or any Philadelphia Consolidated Trustee
will have any responsibility for the performance by the Depositary or its
Participants or Indirect Participants under the rules and procedures governing
the Depositary. The Depositary may discontinue providing its services as
securities depositary with respect to the Trust Preferred Securities at any time
by giving reasonable notice to the Trust. Under such circumstances, in the event
that a successor securities depositary is not obtained, Trust Preferred
Securities certificates are required to be printed and delivered to holders.
Additionally, the Regular Trustees (with the consent of Philadelphia
Consolidated) may decide to discontinue use of the system of book-entry
transfers through the Depositary (or any successor depositary) with respect to
the Trust Preferred Securities. In that event, certificates for the Trust
Preferred Securities will be printed and delivered to holders. In each of the
above circumstances, Philadelphia Consolidated will appoint a paying agent with
respect to the Trust Preferred Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Philadelphia
Consolidated and the Trust believe to be reliable, but neither Philadelphia
Consolidated nor the Trust takes responsibility for the accuracy hereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities represented by the
global certificates shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable distribution dates, or, in
the case of certificated securities, such payments shall be made by check mailed
to the address of the holder entitled thereto as such address shall appear on
the Register. The Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Philadelphia Consolidated Trustees. In the event
that The First National Bank of Chicago shall no longer be the Paying Agent, the
Regular Trustees shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company).
The First National Bank of Chicago will act as registrar, transfer agent
and paying agent for the Trust Preferred Securities. Registration of transfers
of Trust Preferred Securities will be effected without charge by or on behalf of
the Trust, but upon payment (and the giving of such indemnity as the Trust or
Philadelphia Consolidated may require) in respect of any tax or other government
charge which may be imposed in relation to it.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee prior to the occurrence of a default with respect
to the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Institutional Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Trust Preferred Securities, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Trust Preferred Securities will not be required to offer
such indemnity in the event such holders, by exercising their voting rights,
direct the Institutional
S-85
<PAGE> 87
Trustee to take any action it is empowered to take under the Declaration
following a Declaration Event of Default. The Institutional Trustee also serves
as trustee under the Guarantee.
The Institutional Trustee may in the future establish commercial banking
relationships with Philadelphia Consolidated.
GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for federal income tax purposes. Philadelphia Consolidated is authorized and
directed to conduct its affairs so that the Debentures will be treated as
indebtedness of Philadelphia Consolidated for federal income tax purposes. In
this connection, Philadelphia Consolidated and the Regular Trustees are
authorized to take any action not inconsistent with applicable law, the
Declaration of Trust, the certificate of trust of the Trust or the certificate
of incorporation of Philadelphia Consolidated, that each of Philadelphia
Consolidated and the Regular Trustees determines in its discretion to be
necessary or desirable to achieve such end, as long as such action does not
adversely affect the interests of the holders of the Trust Preferred Securities
or vary the terms thereof.
Holders of the Trust Preferred Securities have no preemptive or similar
rights.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by Philadelphia Consolidated for the benefit of
the holders from time to time of Trust Securities. The Guarantee will be
qualified as an indenture under the Trust Indenture Act. The First National Bank
of Chicago will act as the Guarantee Trustee for the purposes of compliance with
the provisions of the Trust Indenture Act. The terms of the Guarantee will be
those set forth in the Guarantee and those made part of the Guarantee by the
Trust Indenture Act. The following summary is not necessarily complete, and
reference is hereby made to the copy of the form of Guarantee (including the
definitions therein of certain terms) which is filed as an exhibit to the
Registration Statement relating to this Prospectus Supplement, and to the Trust
Indenture Act. Whenever particular defined terms of the Guarantee are referred
to in this Prospectus Supplement, such defined terms are incorporated herein by
reference. The Guarantee will be held by the Guarantee Trustee for the benefit
of the holders of the Trust Securities. The following descriptions of certain
terms of the Guarantee supplements and, to the extent inconsistent with,
replaces the description of the general terms and provisions of the Guarantee
set forth in the accompanying Prospectus, to which reference is hereby made.
GENERAL
Pursuant to the Guarantee, Philadelphia Consolidated will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full on a
subordinated unsecured basis, to the holders of the Trust Securities issued by
the Trust, the Guarantee Payments (as defined herein) (except to the extent paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The following payments or
distributions with respect to Trust Securities issued by the Trust to the extent
not paid by or on behalf of the Trust (the "Guarantee Payments"), will be
subject to the Guarantee thereon (without duplication): (i) any accrued and
unpaid distributions which are required to be paid on the Trust Securities, to
the extent the Trust shall have funds available therefor; (ii) the redemption
price, including all accumulated and unpaid distributions to the date of
redemption, of Trust Securities in respect of which the related Debentures have
been redeemed by Philadelphia Consolidated upon the occurrence of a Tax Event
S-86
<PAGE> 88
Redemption, to the extent the Trust shall have funds available therefor; and
(iii) upon a voluntary or involuntary dissolution of the Trust (other than in
connection with the distribution of Debentures to the holders of Trust
Securities), the lesser of (a) the aggregate of the stated liquidation amount
and all accrued and unpaid distributions on such Trust Securities to the date of
payment, to the extent the Trust has funds available therefor, and (b) the
amount of assets of the Trust remaining available for distribution to holders of
the Trust Securities in liquidation of the Trust. Philadelphia Consolidated's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by Philadelphia Consolidated to the holders of Trust Securities
or by causing the Trust to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee on a subordinated
unsecured basis with respect to the Trust Securities issued by the Trust, but
will not apply to any payment of distributions except to the extent the Trust
shall have funds available therefor. If Philadelphia Consolidated does not make
interest payments on the Debentures purchased by the Trust, the Trust will not
pay distributions on the Trust Securities and will not have funds available
therefor. See "Effect of Obligations under the Debentures and the Guarantee."
The Guarantee, when taken together with Philadelphia Consolidated's
obligations under the Debentures, the Indenture, and the Declaration, will have
the effect of providing a full and unconditional guarantee by Philadelphia
Consolidated of payments due on the Trust Securities.
The Guarantee is for the benefit of all of the holders of the Trust
Securities, provided, however, that upon an Indenture Event of Default, holders
of Trust Preferred Securities shall have priority over holders of Common
Securities with respect to distributions and payments on liquidation, redemption
or otherwise.
CERTAIN COVENANTS OF PHILADELPHIA CONSOLIDATED
In the Guarantee, Philadelphia Consolidated will covenant that, so long as
any Trust Securities issued by the Trust remain outstanding, if there shall have
occurred any event that would constitute an event of default under the Guarantee
or the Declaration and such event of default is continuing, then (a)
Philadelphia Consolidated shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of Philadelphia Consolidated in
connection with the satisfaction by Philadelphia Consolidated of its obligations
under any employee or agent benefit plans or the satisfaction by Philadelphia
Consolidated of its obligations pursuant to any contract or security outstanding
on the date of such event requiring Philadelphia Consolidated to purchase
capital stock of Philadelphia Consolidated, (ii) as a result of a
reclassification of Philadelphia Consolidated's capital stock or the exchange or
conversion of one class or series of Philadelphia Consolidated's capital stock
for another class or series of Philadelphia Consolidated's capital stock, (iii)
the purchase of fractional interests in shares of Philadelphia Consolidated's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (iv) dividends or
distributions in capital stock of Philadelphia Consolidated (or rights to
acquire capital stock) or repurchases or redemptions of capital stock solely
from the issuance or exchange of capital stock or (v) redemptions or repurchases
of any rights outstanding under a shareholder rights plan), (b) Philadelphia
Consolidated shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by
Philadelphia Consolidated which rank junior to the Debentures and (c)
Philadelphia Consolidated shall not make any guarantee payments with respect to
the foregoing (other than payments pursuant to the Guarantee).
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Trust Securities (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the holders of not less
than a majority in stated liquidation amount of the outstanding Trust Securities
issued by the Trust. All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
Philadelphia Consolidated and shall inure to the benefit of the holders of the
Trust Securities then outstanding.
S-87
<PAGE> 89
TERMINATION
The Guarantee will terminate (a) upon distribution of the Debentures held
by the Trust to the holders of the Trust Securities, (b) upon full payment of
the redemption price of all the Trust Securities in the event that all of the
Debentures are repurchased by Philadelphia Consolidated upon the occurrence of a
Tax Event Redemption or (c) upon full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Trust. The Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any holder of Trust Securities must return payment of any sums paid
under the Trust Securities or the Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
Philadelphia Consolidated to perform any of its payment or other obligations
thereunder.
The holders of a majority in stated liquidation amount of the Trust
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 the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce
such Guarantee, any holder of Trust Securities may institute a legal proceeding
directly against Philadelphia Consolidated to enforce such holder's rights under
the Guarantee, without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity. Philadelphia Consolidated
waives any right or remedy to require that any action be brought first against
the Trust or any other person or entity before proceeding directly against
Philadelphia Consolidated.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Philadelphia
Consolidated and will rank on a parity with all of Philadelphia Consolidated's
other subordinated unsecured obligations.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Trust Securities, unless offered reasonable indemnity
against the costs, expenses and liabilities which might be incurred thereby; but
the foregoing shall not relieve the Guarantee Trustee, upon the occurrence of an
event of default under the Guarantee, from exercising the rights and powers
vested in it by the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
S-88
<PAGE> 90
DESCRIPTION OF THE DEBENTURES
Set forth below is a description of the specific terms of the Debentures in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. The following description is not necessarily complete, and reference
is hereby made to the copy of the form of the Indenture to be entered into
between Philadelphia Consolidated and The First National Bank of Chicago, as
trustee (the "Debt Trustee"), as supplemented or amended from time to time (as
so supplemented and amended, the "Indenture") which is filed as an exhibit to
the Registration Statement relating to this Prospectus Supplement, and to the
Trust Indenture Act. Certain capitalized terms used herein are defined in the
Indenture.
Under certain circumstances involving the dissolution of the Trust,
Debentures may be distributed to the holders of the Trust Securities in
liquidation of the Trust. See "Description of the Trust Preferred Securities --
Distribution of the Debentures." The following descriptions of certain terms of
the Debentures supplement and, to the extent inconsistent with, replaces the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which reference is hereby made.
GENERAL
The Debentures will be issued as senior unsecured debt under the Indenture
and will rank on a parity in right of payment with all of Philadelphia
Consolidated's other senior unsecured debt obligations. The Debentures will be
limited in aggregate principal amount to $ million.
The Debentures will not be subject to a sinking fund provision. Unless a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement
Date, the entire principal amount of the Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon including
Compound Interest (as defined herein), if any, on , 2003.
Philadelphia Consolidated will have the right at any time to dissolve the
Trust and cause the Debentures to be distributed to the holders of the Trust
Securities. If Debentures are distributed to holders of Trust Securities in
liquidation of such holders' interests in the Trust, such Debentures will
initially be issued as a Global Security (as defined herein). As described
herein, under certain limited circumstances, Debentures may be issued in
certificated form in exchange for a Global Security. See "-- Book-Entry and
Settlement" below. In the event that Debentures are issued in certificated form,
such Debentures will be in denominations of $10 and integral multiples thereof
and may be transferred or exchanged at the offices described below. Payments on
Debentures issued as a Global Security will be made to the Depositary, a
successor depositary or, in the event that no depositary is used, to a Paying
Agent for the Debentures. In the event Debentures are issued in certificated
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 trust
office or agency of the Institutional Trustee in Chicago, Illinois; provided
that, at the option of Philadelphia Consolidated, payment of interest may be
made by check mailed to the address of the holder entitled thereto or by wire
transfer to an account appropriately designated by the holder entitled thereto.
Notwithstanding the foregoing, so long as the holder of any Debentures is the
Institutional Trustee, the payment of principal and interest on the Debentures
held by the Institutional Trustee will be made at such place and to such account
as may be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Debentures protection in the event of a highly leveraged transaction or other
similar transaction involving Philadelphia Consolidated that may adversely
affect such holders.
INTEREST
Each Debenture shall bear interest initially at the rate of % per
annum from the original date of issuance, payable quarterly in arrears on
February 16, May 16, August 16 and November 16 of each year (each an "Interest
Payment Date"), commencing , 1998, to the person in whose name such
Debenture is registered, subject to certain exceptions, at the close of business
on the Business Day next preceding such Interest Payment Date. The applicable
interest rate on the Debentures and the distribution
S-89
<PAGE> 91
rate on the related Trust Preferred Securities outstanding on and after the
Purchase Contract Settlement Date will be reset on the third Business Day
immediately preceding the Purchase Contract Settlement Date to the Reset Rate,
which will be equal to the sum of the Reset Spread and the rate on the Two-Year
Benchmark Treasury in effect on the third Business Day immediately preceding the
Purchase Contract Settlement Date, and will be determined by the Reset Agent as
the rate the Trust Preferred Securities should bear in order for a Trust
Preferred Security to have an approximate market value on the third Business Day
immediately preceding the Purchase Contract Settlement Date of 100.5% of the
Stated Amount; provided that Philadelphia Consolidated may limit such Reset Rate
to be no higher than the rate on the Two-Year Benchmark Treasury on the third
Business Day immediately preceding the Purchase Contract Settlement Date plus
200 basis points (2%). Such market value may be less than 100.5% if the Reset
Spread is limited to a maximum of 2%.
On the Reset Announcement Date, the Two-Year Benchmark Treasury will be
selected and the Reset Spread to be added to the rate on the Two-Year Benchmark
Treasury in effect on the third Business Day immediately preceding the Purchase
Contract Settlement Date will be established by the Reset Agent, and the Reset
Spread and the Two-Year Benchmark Treasury will be announced by Philadelphia
Consolidated. Philadelphia Consolidated will cause a notice of the Reset Spread
and such Two-Year Benchmark Treasury to be published on the Business Day
following the Reset Announcement Date by publication in a daily newspaper in the
English language of general circulation in The City of New York, which is
expected to be The Wall Street Journal. In the event the Debentures shall not
continue to remain in book-entry only form, Philadelphia Consolidated shall have
the right to select record dates, which shall be more than 15 Business Days but
less than 60 Business Days prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period for which interest
is computed will be computed on the basis of the actual number of days elapsed
in such 90-day period. 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 interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, then such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
TAX EVENT REDEMPTION
If a Tax Event shall occur and be continuing, Philadelphia Consolidated
may, at its option, redeem Debentures in whole (but not in part) at any time at
a Redemption Price equal to, for each Debenture, the Redemption Amount plus
accrued and unpaid interest thereon, including Compound Interest and expenses
and taxes of the Trust, if any, to the date of redemption (the "Tax Event
Redemption Date"). If, following the occurrence of a Tax Event, Philadelphia
Consolidated exercises its option to redeem the Debentures, then the proceeds of
such redemption will be applied to redeem Trust Securities having a liquidation
amount equal to the principal amount of Debentures to be paid in accordance with
their terms, at the Redemption Price. Such Redemption Price will be payable in
cash to the holders of such Trust Securities. If such Tax Event Redemption
occurs prior to the Purchase Contract Settlement Date, the Redemption Price
payable in liquidation of the Income PRIDES holders' interest in the Trust will
be distributed to the Collateral Agent, who in turn will apply an amount equal
to the Redemption Amount of such Redemption Price to purchase the Treasury
Portfolio on behalf of the holders of Income PRIDES and remit the remaining
portion, if any, of such Redemption Price to the Purchase Contract Agent for
payment to the holders of such Income PRIDES. Such Treasury Portfolio will be
substituted for the Trust Preferred Securities and will be pledged with the
Collateral Agent to secure such Income PRIDES holders' obligation to purchase
Philadelphia Consolidated's Common Stock under the Purchase Contracts; provided
that, if the Tax Event Redemption occurs after the Purchase Contract Settlement
Date, such Treasury Portfolio will not be purchased.
"Tax Event" means the receipt by the Trust of an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, change in, or announced proposed
change in, the laws (or any regulations thereunder) of the United States or any
political
S-90
<PAGE> 92
subdivision or taxing authority thereof or therein affecting taxation, (b) any
amendment to or change in an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority or (c) any interpretation or pronouncement that provides for a
position with respect to such laws or regulations that differs from the
generally accepted position on the date the Trust Securities are issued, which
amendment, change or proposed change is effective or which interpretation or
pronouncement is announced on or after the date of issuance of the Trust
Securities under the Declaration, there is more than an insubstantial risk that
(i) interest payable by Philadelphia Consolidated on the Debentures would not be
deductible, in whole or in part, by Philadelphia Consolidated for federal income
tax purposes, (ii) the income of the Trust would be subject to United States
federal income tax or (iii) the Trust would be subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Treasury Portfolio" means, with respect to the Applicable Principal Amount
of Debentures (a) if the Tax Event Redemption Date occurs prior to the Purchase
Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities
consisting of (i) interest or principal strips of U.S. Treasury Securities which
mature on or prior to 15, 2001 in an aggregate amount equal to the Applicable
Principal Amount and (ii) with respect to each scheduled interest payment date
on the Debentures that occurs after the Tax Event Redemption Date interest or
principal strips of U.S. Treasury Securities which mature on or prior to such
date in an aggregate amount equal to the aggregate interest payment that would
be due on the Applicable Principal Amount of the Debentures on such date, and
(b) if the Tax Event Redemption Date occurs after the Purchase Contract
Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities consisting
of (i) principal or interest strips of U.S. Treasury Securities which mature on
or prior to 15, 2003 in an aggregate amount equal to the Applicable Principal
Amount and (ii) with respect to each scheduled interest payment date on the
Debentures that occurs after the Tax Event Redemption Date interest or principal
strips of such U.S. Treasury Securities which mature on or prior to such date in
an aggregate amount equal to the aggregate interest payment that would be due on
the Applicable Principal Amount of the Debentures on such date.
"Applicable Principal Amount" means either (i) if the Tax Event Redemption
Date occurs prior to the Purchase Contract Settlement Date, the aggregate
principal amount of the Debentures corresponding to the aggregate stated
liquidation amount of the Trust Preferred Securities which are components of
Income PRIDES on the Tax Event Redemption Date or (ii) if the Tax Event
Redemption occurs on or after the Purchase Contract Settlement Date, the
aggregate principal amount of the Debentures corresponding to the aggregate
stated liquidation amount of the Trust Preferred Securities outstanding on such
Tax Event Redemption Date.
"Redemption Amount" means for each Debenture, the product of (i) the
principal amount of such Debenture and (ii) a fraction whose numerator is the
Treasury Portfolio Purchase Price and whose denominator is the Applicable
Principal Amount.
"Treasury Portfolio Purchase Price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City (a "Primary
Treasury Dealer") to the Quotation Agent on the third Business Day immediately
preceding the Tax Event Redemption Date for the purchase of the Treasury
Portfolio for settlement on the Tax Event Redemption Date.
"Quotation Agent" means (i) Merrill Lynch Government Securities, Inc. and
its respective successors, provided, however, that, if the foregoing shall cease
to be a Primary Treasury Dealer, Philadelphia Consolidated shall substitute
therefor another Primary Treasury Dealer, and (ii) any other Primary Treasury
Dealer selected by Philadelphia Consolidated.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of Debentures to be
prepaid at its registered address. Unless Philadelphia Consolidated defaults in
payment of the Redemption Price, on and after the redemption date interest shall
cease to accrue on such Debentures.
S-91
<PAGE> 93
PUT OPTION UPON A FAILED REMARKETING
If a Failed Remarketing has occurred, holders of Debentures (including the
Exchange Agent) will have the right to put their Debentures to Philadelphia
Consolidated on , 2001, upon at least three Business Days' prior
notice, at a price per Debenture equal to the principal amount of such
Debenture, plus accrued and unpaid interest, if any, thereon.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Philadelphia Consolidated shall have the right at any time, and from time
to time, during the term of the Debentures, to defer payments of interest by
extending the interest payment period for a period not extending beyond the
maturity date of the Debentures, at the end of which Extension Period,
Philadelphia Consolidated shall pay all interest then accrued and unpaid
(including any expenses and taxes of the Trust, as herein defined) together with
interest thereon compounded quarterly at the rate of % per annum through
and including 15, 2001, and at the Reset Rate thereafter, to the extent
permitted by applicable law ("Compound Interest"); provided that, during any
such Extension Period, (a) Philadelphia Consolidated shall not declare or pay
dividends or make any distribution with respect to, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of its capital stock (other
than (i) purchases or acquisitions of capital stock of Philadelphia Consolidated
in connection with the satisfaction by Philadelphia Consolidated of its
obligations under any employee or agent benefit plans or the satisfaction by
Philadelphia Consolidated of its obligations pursuant to any contract or
security outstanding on the date of such event requiring Philadelphia
Consolidated to purchase capital stock of Philadelphia Consolidated, (ii) as a
result of a reclassification of Philadelphia Consolidated's capital stock or the
exchange or conversion of one class or series of Philadelphia Consolidated's
capital stock for another class or series of Philadelphia Consolidated capital
stock, (iii) the purchase of fractional interests in shares of Philadelphia
Consolidated's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (iv)
dividends or distributions in capital stock of Philadelphia Consolidated (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan), (b)
Philadelphia Consolidated shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities issued by
Philadelphia Consolidated that rank junior to the Debentures, and (c)
Philadelphia Consolidated shall not make any guarantee payments with respect to
the foregoing (other than payments pursuant to the Guarantee or the Common
Securities Guarantee). Prior to the termination of any such Extension Period,
Philadelphia Consolidated may further defer payments of interest by extending
the interest payment period; provided, however, that such Extension Period,
including all such previous and further extensions, may not extend beyond the
maturity of the Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, Philadelphia Consolidated may commence a new
Extension Period, subject to the terms set forth in this section. No interest
during an Extension Period, except at the end thereof, shall be due and payable,
but Philadelphia Consolidated, at its option, may prepay on any Interest Payment
Date all of the interest accrued during the then elapsed portion of an Extension
Period. Philadelphia Consolidated has no present intention of exercising its
right to defer payments of interest by extending the interest payment period on
the Debentures. If the Institutional Trustee shall be the sole holder of the
Debentures, Philadelphia Consolidated shall give the Regular Trustees and the
Institutional Trustee notice of its selection of such Extension Period one
Business Day prior to the earlier of (i) the date distributions on the Trust
Preferred Securities are payable or (ii) the date the Regular Trustees are
required to give notice, if applicable, to the NNM (or other applicable
self-regulatory organization) or to holders of the Trust Preferred Securities of
the record or payment date of such distribution. The Regular Trustees shall give
notice of Philadelphia Consolidated's selection of such Extension Period to the
holders of the Trust Preferred Securities. If the Institutional Trustee shall
not be the sole holder of the Debentures, Philadelphia Consolidated shall give
the holders of the Debentures notice of its selection of such Extension Period
ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii)
the date upon which Philadelphia Consolidated is required to give notice, if
applicable, to the NNM (or other applicable self-regulatory organization) or to
holders of the Debentures of the record or payment date of such related interest
payment.
S-92
<PAGE> 94
EXPENSES AND TAXES OF THE TRUST
In the Indenture, Philadelphia Consolidated, as borrower, has agreed to pay
all debts and other obligations (other than with respect to the Trust
Securities) and all costs and expenses of the Trust (including the costs and
expenses relating to the organization of the Trust, the fees and expenses of the
Trustees and the costs and expenses relating to the operation of the Trust) and
to pay any and all taxes and all costs and expenses with respect thereto (other
than United States withholding taxes) to which the Trust might become subject.
Philadelphia Consolidated also has agreed in the Indenture to execute such
additional agreements as may be necessary or desirable to give full effect to
the foregoing.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Debentures, will have the right to
declare the principal of and the interest on the Debentures (including any
Compound Interest and expenses and taxes of the Trust, if any) and any other
amounts payable under the Indenture to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Debentures.
The following are Events of Default under the Indenture with respect to the
Debentures: (1) failure to pay interest on the Debentures when due, continued
for 30 days; provided, however, that, if Philadelphia Consolidated is permitted
by the terms of the Debentures to defer the payment in question, then the date
on which such payment is due and payable shall be the date on which Philadelphia
Consolidated is required to make payment following such deferral, if such
deferral has been elected pursuant to the terms of the Debentures; (2) failure
to pay the principal of (or premium, if any, on) the Debentures when due and
payable at the stated maturity date, upon redemption or otherwise; provided,
however, if Philadelphia Consolidated is permitted by the terms of the
Debentures to defer the payment in question, the date on which such payment is
due and payable shall be the date on which Philadelphia Consolidated is required
to make payment following such deferral, if such deferral has been elected
pursuant to the terms of the Debentures; (3) failure to observe or perform in
any material respect certain other covenants contained in the Indenture,
continued for a period of 90 days after written notice has been given to
Philadelphia Consolidated by the Debt Trustee or holders of at least 25% in
aggregate principal amount of the outstanding Debentures; and (4) certain events
of bankruptcy, insolvency or reorganization relating to Philadelphia
Consolidated.
The Indenture provides that the Debt Trustee shall, within 30 days after
the occurrence of any Default or Event of Default with respect to the
Debentures, give the holders of the Debentures notice of all uncured Defaults or
Events of Default known to it (the term "Default" includes any event which after
notice or passage of time or both would be an Event of Default); provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any, on) or interest on the Debentures, the Debt Trustee
shall be protected in withholding such notice so long as the board of directors,
the executive committee or directors or responsible officers of the Debt Trustee
in good faith determine that the withholding of such notice is in the interest
of the holders of the Debentures.
If an Event of Default with respect to the Debentures occurs and is
continuing, the Debt Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Debentures, by notice in writing to
Philadelphia Consolidated (and to the Debt Trustee if given by the holders of at
least 25% in aggregate principal amount of the Debentures), may declare the
unpaid principal of and accrued interest to the date of acceleration on all the
outstanding Debentures to be due and payable immediately and, upon any such
declaration, the Debentures shall become immediately due and payable.
In addition, in the case of the Debentures held by the Trust, if an Event
of Default has occurred and is continuing and such event is attributable to the
failure of Philadelphia Consolidated to pay interest or principal, then a holder
of Trust Preferred Securities may directly institute a proceeding against
Philadelphia Consolidated for payment.
Any such declaration with respect to the Debentures may be annulled and
past Events of Default and Defaults (except, unless theretofore cured, an Event
of Default or a Default in payment of principal of or
S-93
<PAGE> 95
interest on the Debentures) may be waived by the holders of a majority of the
principal amount of the outstanding Debentures, upon the conditions provided in
the Indenture.
The Indenture provides that Philadelphia Consolidated shall file annually
statements with the Debt Trustee regarding compliance by Philadelphia
Consolidated with certain of the respective covenants thereof and shall specify
any Event of Default or Defaults with respect to the Debentures, in performing
such covenants, of which the signers may have knowledge.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Trust Preferred Securities in certain circumstances have
the right to direct the Institutional Trustee to exercise its rights as the
holder of the Debentures. See "Description of the Trust Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of Philadelphia
Consolidated to pay interest or principal on the Debentures on the date such
interest or principal is otherwise payable, Philadelphia Consolidated
acknowledges that a holder of Trust Preferred Securities may directly institute
a proceeding for enforcement of payment to such holder directly of the principal
of and interest on the Debentures having a principal amount equal to the
aggregate stated liquidation amount of the Trust Preferred Securities of such
holder after the respective due date specified in the Debentures. In connection
with such action, Philadelphia Consolidated shall have the right under the
Indenture to set-off any payment made to such holder by Philadelphia
Consolidated. The holders of Trust Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Trust Preferred Securities in connection with
the involuntary or voluntary dissolution of the Trust, the Debentures will be
issued in the form of one or more global certificates (each a "Global Security")
registered in the name of the Depositary or its nominee. Except under the
limited circumstances described below, Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Debentures in certificated form. The Global Securities described above may not
be transferred except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
laws may impair the ability to transfer beneficial ownership interests in such a
Global Security.
Except as provided herein, owners of beneficial ownership interests in such
a Global Security will not be entitled to receive physical delivery of
Debentures in certificated form and will not be considered the holders (as
defined in the Indenture) thereof for any purpose under the Indenture, and no
Global Security representing Debentures shall be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of the Depositary or its nominee or to a successor Depositary or its
nominee. Accordingly, each Beneficial Owner must rely on the procedures of the
Depositary or if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any rights
of a holder under the Indenture.
THE DEPOSITARY
If Debentures are distributed to holders of Trust Preferred Securities in
liquidation of such holders' interests in the Trust, the Depositary will act as
securities depositary for the Debentures. For a description of the Depositary
and the specific terms of the depositary arrangements, see "Description of the
Trust Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." As of the date of this Prospectus Supplement, the description therein
of the Depositary's book-entry system and the Depositary's practices as they
relate to purchases, transfers, notices and payments with respect to the Trust
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by the Depositary.
Philadelphia Consolidated may appoint a successor to the Depositary or any
successor depositary
S-94
<PAGE> 96
in the event the Depositary or such successor depositary is unable or unwilling
to continue as a depositary for the Global Securities.
None of Philadelphia Consolidated, the Trust, the Institutional Trustee,
any paying agent and any other agent of Philadelphia Consolidated or the Debt
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Debentures or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Debentures registered in the
names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies Philadelphia Consolidated that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) Philadelphia Consolidated, in its
sole discretion, determines that such Global Security shall be so exchangeable
or (iv) there shall have occurred an Indenture Event of Default with respect to
such Debentures. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Debentures registered in such names
as the Depositary shall direct. It is expected that such instructions will be
based upon directions received by the Depositary from its Participants with
respect to ownership of beneficial ownership interests in such Global Security.
GOVERNING LAW
The Indenture and the Debentures will be governed by, and construed in
accordance with, the internal laws of the State of New York.
MISCELLANEOUS
Philadelphia Consolidated will pay all fees and expenses related to (i) the
offering of the Trust Securities and the Debentures, (ii) the organization,
maintenance and dissolution of the Trust, (iii) the retention of the
Philadelphia Consolidated Trustees and (iv) the enforcement by the Institutional
Trustee of the rights of the holders of the Trust Preferred Securities.
EFFECT OF OBLIGATIONS UNDER THE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial ownership interests in the
assets of the Trust, and to invest the proceeds from such issuance and sale in
the Debentures and engage in only those other activities necessary or incidental
thereto.
As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover distributions and payments
due on the Trust Securities because of the following factors: (i) the aggregate
principal amount of Debentures will be equal to the sum of the aggregate stated
liquidation amount of the Trust Securities; (ii) the interest rate and the
interest and other payment dates on the Debentures will match the distribution
rate and distribution and other payment dates for the Trust Securities; (iii)
Philadelphia Consolidated shall pay, and the Trust shall not be obligated to
pay, directly or indirectly, all costs, expenses, debts, and obligations of the
Trust (other than with respect to the Trust Securities); and (iv) the
Declaration further provides that the Philadelphia Consolidated Trustees shall
not take or cause or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by Philadelphia Consolidated as and to
the extent set forth under "Description of the Guarantee." If Philadelphia
Consolidated does not make interest payments on the Debentures purchased by the
Trust, the Trust will not have sufficient funds to pay distributions on the
Trust Preferred Securities. The Guarantee does not apply to
S-95
<PAGE> 97
any payment of distributions unless and until the Trust has sufficient funds for
the payment of such distributions.
If Philadelphia Consolidated fails to make interest or other payments on
the Debentures when due (taking account of any Extension Period), the
Declaration provides a mechanism whereby the holders of the Trust Preferred
Securities, using the procedures described in "Description of the Trust
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company" and "-- Voting Rights," may direct the Institutional Trustee to enforce
its rights under the Indenture. If the Institutional Trustee fails to enforce
its rights under the Indenture in respect of an Indenture Event of Default, such
holder of record of Trust Preferred Securities may, to the fullest extent
permitted by applicable law, institute a legal proceeding against Philadelphia
Consolidated to enforce the Institutional Trustee's rights under the Indenture
without first instituting any legal proceeding against the Institutional Trustee
or any other person or entity. Notwithstanding the foregoing, if a Declaration
Event of Default has occurred and is continuing and such event is attributable
to the failure of Philadelphia Consolidated to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable, then a
holder of Trust Preferred Securities may directly institute a proceeding against
Philadelphia Consolidated for payment. Philadelphia Consolidated, under the
Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee
on behalf of the holders of the Trust Preferred Securities. If Philadelphia
Consolidated fails to make payments under the Guarantee, the Guarantee provides
a mechanism whereby the holders of the Trust Preferred Securities may direct the
Guarantee Trustee to enforce its rights thereunder. Notwithstanding the
foregoing, if Philadelphia Consolidated has failed to make a payment under the
Guarantee, any holder of Trust Preferred Securities may institute a legal
proceeding directly against Philadelphia Consolidated to enforce its rights
under the Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee, or any other person or entity.
The Guarantee, when taken together with Philadelphia Consolidated's
obligations under the Debentures and the Indenture and its obligations under the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities), has
the effect of providing a full and unconditional guarantee of amounts due on the
Trust Preferred Securities. See "Description of the Guarantee."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of FELINE
PRIDES, Trust Preferred Securities and Common Stock acquired under a Purchase
Contract. Unless otherwise stated, this summary applies only to "U.S. Holders"
who purchase Income PRIDES, Growth PRIDES or Trust Preferred Securities upon
original issuance for an amount equal to the initial offering price thereof. The
term "U.S. Holder" means the beneficial owner of an Income PRIDES, Growth PRIDES
or Trust Preferred Security who is (i) a person who is a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in or
under the laws of the United States or any state thereof or the District of
Columbia, (iii) an estate the income of which is subject to United States
federal income taxation, regardless of its source, or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust. The tax treatment
of a U.S. Holder may vary depending on such U.S. Holder's particular situation.
This summary does not deal with special classes of U.S. Holders such as banks,
thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors,
certain U.S. expatriates, or U.S. Holders that will hold FELINE PRIDES, Trust
Preferred Securities or Common Stock acquired under a Purchase Contract as a
position in a "straddle," as part of a "synthetic security" or "hedge," as part
of a "conversion transaction" or other integrated investment, or as other than a
capital asset. This summary does not address the tax consequences to U.S.
Holders that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a U.S. Holder of
FELINE PRIDES, Trust Preferred Securities or Common Stock acquired pursuant to a
Purchase Contract. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of
S-96
<PAGE> 98
any state, local or foreign government that may be applicable. PROSPECTIVE
INVESTORS THAT ARE NOT UNITED STATES PERSONS (WITHIN THE MEANING OF SECTION
7701(a)(30) OF THE CODE) ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN FELINE PRIDES
OR TRUST PREFERRED SECURITIES, INCLUDING THE POTENTIAL APPLICATION OF UNITED
STATES WITHHOLDING TAXES.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations (including proposed Treasury regulations)
issued thereunder, Internal Revenue Service ("IRS") rulings and pronouncements
and judicial decisions now in effect, all of which are subject to change,
possibly on a retroactive basis. Any such changes may be applied retroactively
in a manner that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a U.S. Holder.
No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United
States federal income tax purposes. As a result, no assurance can be given that
the IRS will agree with the tax consequences described herein. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE FELINE
PRIDES OR TRUST PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
FELINE PRIDES
Allocation of Purchase Price. A U.S. Holder's acquisition of FELINE PRIDES
will be treated as an acquisition of a unit consisting of two components -- in
the case of an Income PRIDES, the Trust Preferred Security and the Purchase
Contract constituting such Income PRIDES and, in the case of a Growth PRIDES,
the interest in the Treasury Security and the Purchase Contract comprising such
Growth PRIDES. The purchase price of each FELINE PRIDES will be allocated
between the two components in proportion to their respective fair market values
at the time of purchase. Such allocation will establish the U.S. Holder's
initial tax basis in the Trust Preferred Security or interest in the Treasury
Security and the Purchase Contract. Philadelphia Consolidated will report the
fair market value of each Trust Preferred Security and each interest in a
Treasury Security as $ and $ , respectively, and the fair
market value of each Purchase Contract as $ . This position will be
binding upon each U.S. Holder (but not on the IRS) unless such U.S. Holder
explicitly discloses a contrary position on a statement attached to such U.S.
Holder's timely filed United States federal income tax return for the taxable
year in which a FELINE PRIDES is acquired. Thus, absent such disclosure, a U.S.
Holder should allocate the purchase price for a FELINE PRIDES in accordance with
the foregoing. The remainder of this discussion assumes that this allocation of
purchase price will be respected for United States federal income tax purposes.
A different allocation could affect the timing or character of income to a U.S.
Holder.
Ownership of Trust Preferred Securities or Treasury Securities. A U.S.
Holder will be treated as owning the Trust Preferred Securities or Treasury
Securities constituting a part of the Income PRIDES or Growth PRIDES,
respectively. Philadelphia Consolidated and, by acquiring FELINE PRIDES, each
U.S. Holder agree to treat such U.S. Holder as the owner, for United States
federal, state and local income and franchise tax purposes, of the Trust
Preferred Securities or Treasury Securities constituting a part of the FELINE
PRIDES beneficially owned by such U.S. Holder. Based upon such agreement,
Philadelphia Consolidated intends to take the position, and the remainder of
this summary assumes, that U.S. Holders of FELINE PRIDES will be treated as the
owners of the Trust Preferred Securities or Treasury Securities constituting a
part of such FELINE PRIDES for United States federal, state and local income and
franchise tax purposes. The United States federal income tax consequences of
owning the Trust Preferred Securities or Treasury Securities are discussed below
(see "-- Trust Preferred Securities," "-- Treasury Securities" and "-- Tax Event
Redemption of Trust Preferred Securities.").
S-97
<PAGE> 99
Sale or Disposition of FELINE PRIDES. Upon a sale, exchange or other
taxable disposition (collectively, a "disposition") of FELINE PRIDES, a U.S.
Holder will be treated as having sold, exchanged or disposed of the Purchase
Contract and the Trust Preferred Securities, Treasury Portfolio or, in the case
of Growth PRIDES, the Treasury Securities, that constitute such FELINE PRIDES
and generally will have gain or loss equal to the difference between the portion
of the proceeds to such U.S. Holder allocable to the Purchase Contract and the
Trust Preferred Securities, Treasury Portfolio or Treasury Securities, as the
case may be, and such U.S. Holder's respective adjusted tax bases in the
Purchase Contract and the Trust Preferred Securities, Treasury Portfolio or
Treasury Securities. Such gain or loss generally will be capital gain or loss,
except to the extent that such U.S. Holder is treated as having received an
amount with respect to accrued but unpaid interest on the Trust Preferred
Securities or Treasury Portfolio, which amount will be treated as ordinary
interest income, or to the extent such U.S. Holder is treated as having received
an amount with respect to accrued Contract Adjustment Payments, if any, or
Deferred Contract Adjustment Payments, which amount may be treated as ordinary
income, in each case to the extent not previously included in income. Such
capital gain or loss generally will be long-term capital gain or loss if the
U.S. Holder held such FELINE PRIDES for more than one year immediately prior to
such disposition. Long-term capital gains of individuals are eligible for
reduced rates of taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to limitations. If the
disposition of FELINE PRIDES occurs when the Purchase Contract has negative
value, the U.S. Holder should be considered to have received additional
consideration for the Trust Preferred Securities, Treasury Portfolio or Treasury
Securities in an amount equal to such negative value and to have paid such
amount to be released from the U.S. Holder's obligation under the Purchase
Contract. U.S. Holders should consult their tax advisors regarding a disposition
of the FELINE PRIDES at a time when the Purchase Contract has negative value.
In determining gain or loss, payments to a U.S. Holder of Contract
Adjustment Payments, if any, or Deferred Contract Adjustment Payments that have
not previously been included in the income of such U.S. Holder should either
reduce such U.S. Holder's tax basis in the Purchase Contract or result in an
increase in the amount realized on the disposition of the Purchase Contract. Any
Contract Adjustment Payments, if any, or Deferred Contract Adjustment Payments
included in a U.S. Holder's income but not paid should increase such U.S.
Holder's tax basis in the Purchase Contract. Payments in cash that have been
made by a U.S. Holder to create Growth PRIDES but not offset against payments of
Contract Adjustment Payments, if any, or Deferred Contract Adjustment Payments
may increase such U.S. Holder's tax basis in the Purchase Contract or result in
a decrease in the amount realized on the disposition of the Purchase Contract
(see "-- Income from Contract Adjustment Payments and Deferred Contract
Adjustment Payments; Delivery of Cash" above).
TRUST PREFERRED SECURITIES
Classification of the Trust. In connection with the issuance of the FELINE
PRIDES, Wolf, Block, Schorr and Solis-Cohen LLP ("Tax Counsel"), will deliver an
opinion that, under current law and assuming compliance with the terms of the
Declaration, and based on certain facts and assumptions contained in such
opinion, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each U.S. Holder of Trust Preferred Securities will be
treated as owning an undivided beneficial ownership interest in the Debentures.
Accordingly, each U.S. Holder of Trust Preferred Securities will be required to
include in its gross income its pro rata share of the interest income or OID
that is paid or accrued on the Debentures. See "-- Interest Income and Original
Issue Discount."
Classification of the Debentures. Philadelphia Consolidated, the Trust
and, by acquiring Income PRIDES or Trust Preferred Securities, each U.S. Holder
agree to treat the Debentures as indebtedness of Philadelphia Consolidated for
all United States tax purposes. In connection with the issuance of the
Debentures, Tax Counsel will deliver an opinion that, under current law, and
based on certain representations, facts and assumptions set forth in such
opinion, the Debentures will be classified as indebtedness for United States
federal income tax purposes.
S-98
<PAGE> 100
Interest Income and Original Issue Discount. Under applicable Treasury
Regulations and subject to the discussion below regarding Philadelphia
Consolidated's right to defer payments of interest on the Debentures, the
Debentures would be treated as having been issued with OID equal to the excess
of 100.5% of the Stated Amount over the amount of the initial purchase price for
the FELINE PRIDES allocated to the Trust Preferred Security if such excess is
not de minimis (less than three-fourths of one-percent of 100.5% of the Stated
Amount). If the Debentures were treated as issued with OID, a U.S. Holder would
be required to include such OID in income on a daily economic accrual basis
(using the constant yield-to-maturity method of accrual set forth in Section
1272 of the Code) over the period between the issue date of the Debentures, and
the day immediately preceding the Purchase Contract Settlement Date regardless
of such U.S. Holder's method of tax accounting. Consequently, each U.S. Holder
(including those using the cash basis of tax accounting) would be required to
include OID in its gross income even though Philadelphia Consolidated will not
actually make current cash payments with respect to such OID. In addition,
stated interest on the Debentures will be included in income by a U.S. Holder as
ordinary income when paid or accrued, in accordance with such U.S. Holder's
regular method of tax accounting.
If Philadelphia Consolidated were to exercise its right to defer payments
of interest on the Debentures, all of a U.S. Holder's taxable interest income
with respect to the Debentures would thereafter be accounted for on a daily
economic accrual basis regardless of such U.S. Holder's method of tax
accounting, and actual distributions of stated interest would not be reported as
taxable income. Consequently, each U.S. Holder (including those using the cash
basis of tax accounting) would be required to include OID in its gross income
even though Philadelphia Consolidated would not make actual cash payments during
an Extension Period.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. If the IRS were to assert successfully that the
stated interest on the Debentures was OID regardless of whether Philadelphia
Consolidated exercises its right to defer payments of interest on such
Debentures, all U.S. Holders would be required to include such stated interest
in income on a daily economic accrual basis as described above.
U.S. Holders that are corporations will not be entitled to a dividends
received deduction with respect to any income recognized with respect to the
Trust Preferred Securities.
Distribution of Debentures to U.S. Holders of Trust Preferred
Securities. A distribution by the Trust of the Debentures as described under
the caption "Description of the Trust Preferred Securities -- Liquidating
Distribution Upon Dissolution" would be non-taxable to U.S. Holders. In such
event, a U.S. Holder would have an aggregate tax basis in the Debentures
received in the liquidation equal to the aggregate tax basis such U.S. Holder
had in its Trust Preferred Securities surrendered therefor, and the holding
period of such Debentures would include the period during which such U.S. Holder
had held the Trust Preferred Securities. In addition, a U.S. Holder would
continue to include interest (or OID) in respect of Debentures received from the
Trust in the manner described under "-- Interest Income and Original Issue
Discount."
Sales, Exchanges or Other Dispositions of Trust Preferred Securities. Gain
or loss will be recognized by a U.S. Holder on a disposition of a Trust
Preferred Security (including a redemption for cash or the remarketing thereof)
in an amount equal to the difference between the amount realized by the U.S.
Holder on the disposition of the Trust Preferred Securities (except to the
extent that such amount realized is characterized as a payment in respect of
accrued but unpaid interest on such U.S. Holder's allocable share of the
Debentures that such U.S. Holder has not included in gross income previously,
which amount will be taxable as ordinary interest income) and the U.S. Holder's
adjusted tax basis in the Trust Preferred Security. Selling expenses incurred by
a U.S. Holder, including the remarketing fee, will reduce the amount of gain or
increase the amount of loss recognized by such U.S. Holder upon a disposition of
a Trust Preferred Security. Gain or loss realized by a U.S. Holder on a
disposition of a Trust Preferred Security generally will be capital gain or loss
and generally will be long-term capital gain or loss if the U.S. Holder held
such Trust Preferred Security for more than one year immediately prior to such
disposition. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
S-99
<PAGE> 101
TREASURY SECURITIES
Original Issue Discount. A U.S. Holder of Growth PRIDES will be required
to treat its ownership interest in the Treasury Security comprising a Growth
PRIDES as an interest in a bond originally issued on the date such Growth PRIDES
is purchased and having OID equal to the excess of the Stated Amount of the
Growth PRIDES over the purchase price of the Growth PRIDES. A U.S. Holder will
be required to include such OID in income on a daily economic accrual basis over
the period between the issue date of the Growth PRIDES and the day immediately
preceding the Purchase Contract Settlement Date, regardless of such U.S.
Holder's method of tax accounting. Amounts of OID included in a U.S. Holder's
gross income will increase such U.S. Holder's tax basis in its ownership
interest in the Treasury Security.
Sales, Exchanges or Other Dispositions of Treasury Securities. In the
event that a U.S. Holder obtains the release of Treasury Securities by
delivering Trust Preferred Securities to the Collateral Agent, gain or loss will
be recognized by the U.S. Holder on a subsequent disposition of the Treasury
Securities in an amount equal to the difference between the amount realized by
the U.S. Holder on such disposition and the U.S. Holder's adjusted tax basis in
the Treasury Securities. Such gain or loss generally will be capital gain or
loss and generally will be long-term capital gain or loss if the U.S. Holder
held such Treasury Securities for more than one year immediately prior to such
disposition. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
PURCHASE CONTRACTS
Contract Adjustment Payments and Deferred Contract Adjustment Payments;
Delivery of Cash. There is no direct authority addressing the treatment, under
current law, of the Contract Adjustment Payments, if any, and Deferred Contract
Adjustment Payments, if any, or the delivery of cash in respect of excess
accrued Contract Adjustment Payments, if any, by a U.S. Holder of Income PRIDES
upon the creation of Growth PRIDES, and such treatment is unclear. Contract
Adjustment Payments, if any, and Deferred Contract Adjustment Payments, if any,
may constitute taxable income to a U.S. Holder of FELINE PRIDES when received or
accrued, in accordance with the U.S. Holder's method of tax accounting. To the
extent Philadelphia Consolidated is required to file information returns with
respect to Contract Adjustment Payments, if any, or Deferred Contract Adjustment
Payments, it intends to report such payments as taxable income to each U.S.
Holder. U.S. Holders should consult their own tax advisors concerning the
treatment of Contract Adjustment Payments, if any, and Deferred Contract
Adjustment Payments and the delivery of cash upon the creation of Growth PRIDES,
including the possibility that any Contract Adjustment Payment, if any, or
Deferred Contract Adjustment Payment may be treated as a loan, purchase price
adjustment, rebate or payment analogous to an option premium, rather than being
includible in income on a current basis, and that the delivery of cash upon the
creation of Growth PRIDES may be treated as an offset to Contract Adjustment
Payments, if any, or Deferred Contract Adjustment Payments or as a purchase
price adjustment. The treatment of Contract Adjustment Payments, if any,
Deferred Contract Adjustment Payments and the delivery of cash upon the creation
of Growth PRIDES could affect a U.S. Holder's tax basis in a Purchase Contract
or Common Stock received under a Purchase Contract or the amount realized by a
U.S. Holder upon the sale or disposition of a FELINE PRIDES or the termination
of a Purchase Contract. See "-- Acquisition of Common Stock under a Purchase
Contract," "-- Sale or Disposition of FELINE PRIDES" and "-- Termination of
Purchase Contract."
Acquisition of Common Stock Under a Purchase Contract. A U.S. Holder of
FELINE PRIDES generally will not recognize gain or loss on the purchase of
Common Stock under a Purchase Contract, except with respect to any cash paid in
lieu of a fractional share of Common Stock. Subject to the following discussion,
a U.S. Holder's aggregate initial tax basis in the Common Stock received under a
Purchase Contract generally should equal the purchase price paid for such Common
Stock plus such U.S. Holder's tax basis in the Purchase Contract (if any), less
the portion of such purchase price and tax basis allocable to the fractional
share. Payments of Contract Adjustment Payments, if any, or Deferred Contract
Adjustment Payments that have been received in cash by a U.S. Holder but not
included in income by such U.S. Holder should reduce such U.S. Holder's tax
basis in the Purchase Contract or the Common Stock to be received
S-100
<PAGE> 102
thereunder; payments in cash that have been made by a U.S. Holder to create
Growth PRIDES but not offset against payments of Contract Adjustment Payments,
if any, or Deferred Contract Adjustment Payments may increase such U.S. Holder's
tax basis in the Purchase Contract or the Common Stock to be received thereunder
(see "-- Income from Contract Adjustment Payments and Deferred Contract
Adjustment Payments" above). The holding period for Common Stock received under
a Purchase Contract will commence on the day after the acquisition of such
Common Stock.
Ownership of Common Stock Acquired Under the Purchase Contract. Any
dividend on Common Stock paid by Philadelphia Consolidated out of its current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will be includible in income by a U.S. Holder when received. Any
such dividend will be eligible for the dividends received deduction if received
by an otherwise qualifying corporate U.S. Holder that meets the holding period
and other requirements for the dividends received deduction.
Upon a disposition of Common Stock, a U.S. Holder generally will recognize
capital gain or loss equal to the difference between the amount realized and
such U.S. Holder's adjusted tax basis in the Common Stock. Such gain or loss
generally will be capital gain or loss and generally will be long-term capital
gain or loss if the U.S. Holder held such Common Stock for more than one year
immediately prior to such disposition. Long-term capital gains of individuals
are eligible for reduced rates of taxation depending upon the holding period of
such capital assets. The deductibility of capital losses is subject to
limitations.
Early Settlement of Purchase Contract. A U.S. Holder of FELINE PRIDES will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of Trust Preferred Securities, Treasury Securities or Treasury Portfolio
upon Early Settlement of a Purchase Contract and will have the same tax basis in
such Trust Preferred Securities, Treasury Securities or Treasury Portfolio as
before such Early Settlement.
Termination of Purchase Contract. If a Purchase Contract terminates, a
U.S. Holder of FELINE PRIDES will recognize gain or loss equal to the difference
between the amount realized (if any) upon such termination and such U.S.
Holder's adjusted tax basis (if any) in the Purchase Contract at the time of
such termination. Payments of Contract Adjustment Payments, if any, or Deferred
Contract Adjustment Payments, if any, received by a U.S. Holder but not included
in income by such U.S. Holder should either reduce such U.S. Holder's tax basis
in the Purchase Contract or result in an amount realized on the termination of
the Purchase Contract. Any Contract Adjustment Payments, if any, or Deferred
Contract Adjustment Payments included in a U.S. Holder's income but not paid
should increase such U.S. Holder's tax basis in the Purchase Contract; payments
in cash that have been made by a U.S. Holder to create Growth PRIDES but not
offset against payments of Contract Adjustment Payments, if any, or Deferred
Contract Adjustment Payments may increase such U.S. Holder's tax basis in the
Purchase Contract or result in a deduction on the termination of the Purchase
Contract (see "-- Income from Contract Adjustment Payments and Deferred Contract
Adjustment Payments" above). Such gain or loss generally will be capital gain or
loss and generally will be long-term capital gain or loss if the U.S. Holder
held such Purchase Contract for more than one year immediately prior to such
disposition. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. A U.S. Holder will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of the Trust Preferred Securities, Treasury Securities or Treasury
Portfolio upon termination of the Purchase Contract and will have the same tax
basis in such Trust Preferred Securities, Treasury Securities or Treasury
Portfolio as before such distribution.
Adjustment to Settlement Rate. U.S. Holders of FELINE PRIDES might be
treated as receiving a constructive distribution from Philadelphia Consolidated
if (i) the Settlement Rate is adjusted and as a result of such adjustment the
proportionate interest of U.S. Holders of FELINE PRIDES in the assets or
earnings and profits of Philadelphia Consolidated is increased and (ii) the
adjustment is not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment in the Settlement Rate would not be considered made
pursuant to such a formula if the adjustment were made to compensate a U.S.
Holder for certain taxable distributions with respect to the Common Stock. Thus,
under certain circumstances, an increase in the
S-101
<PAGE> 103
Settlement Rate might give rise to a taxable dividend to U.S. Holders of FELINE
PRIDES even though such U.S. Holders would not receive any cash related thereto.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Trust Preferred Securities generally will
not recognize gain or loss upon the delivery of such Treasury Securities or the
release of the Trust Preferred Securities to such U.S. Holder. Such U.S. Holder
will continue to take into account items of income or deduction otherwise
includible or deductible, respectively, by such U.S. Holder with respect to such
Treasury Securities and Trust Preferred Securities, and such U.S. Holder's tax
basis in the Treasury Securities, the Trust Preferred Securities and the
Purchase Contract will not be affected by such delivery and release.
SUBSTITUTION OF TRUST PREFERRED SECURITIES TO CREATE OR RECREATE INCOME PRIDES
A U.S. Holder of a Growth PRIDES that delivers Trust Preferred Securities
to the Collateral Agent in substitution for Treasury Securities generally will
not recognize gain or loss upon the delivery of such Trust Preferred Securities
or the release of the Treasury Securities to the U.S. Holder. Such U.S. Holder
will continue to take into account items of income or deduction otherwise
includible or deductible, respectively, by such U.S. Holder with respect to such
Treasury Securities and Trust Preferred Securities, and such U.S. Holder's tax
basis in the Treasury Securities, the Trust Preferred Securities and the
Purchase Contract will not be affected by such delivery and release.
TAX EVENT REDEMPTION OF TRUST PREFERRED SECURITIES
A Tax Event Redemption will be a taxable event for U.S. Holders of Trust
Preferred Securities. Gain or loss will be recognized by a U.S. Holder in an
amount equal to the difference between the Redemption Price (whether paid
directly to such U.S. Holder or applied by the Collateral Agent to the purchase
of the Treasury Portfolio on behalf of holders of Income PRIDES), except to the
extent of amounts paid in respect of accrued but unpaid interest not previously
included in income, which will be taxable as ordinary interest income, and the
U.S. Holder's adjusted tax basis in the Trust Preferred Securities. Gain or loss
realized by a U.S. Holder upon a Tax Event Redemption will be capital gain or
loss and will be long-term capital gain or loss if the U.S. Holder held such
Trust Preferred Securities for more than one year immediately prior to such
disposition. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
Ownership of Treasury Portfolio. Philadelphia Consolidated, the Trust and,
by acquiring Income PRIDES, each U.S. Holder agree to treat such U.S. Holder as
the owner, for United States federal, state and local income and franchise tax
purposes, of the Applicable Ownership Interest of the Treasury Portfolio
constituting a part of the Income PRIDES beneficially owned by such U.S. Holder
in the event of a Tax Redemption prior to the Purchase Contract Settlement Date.
Based on such agreement, each U.S. Holder will include in income any amount
earned on such pro rata portion of the Treasury Portfolio for all United States
federal, state and local income and franchise tax purposes. The remainder of
this summary assumes that U.S. Holders of Income PRIDES will be treated as the
owners of the Applicable Ownership Interest of the Treasury Portfolio
constituting a part of such Income PRIDES for United States federal, state and
local income and franchise tax purposes.
Interest Income and Original Issue Discount. The Treasury Portfolio will
consist of stripped U.S. Treasury Securities. Following a Tax Event Redemption
prior to the Purchase Contract Settlement Date, a U.S. Holder of Income PRIDES
will be required to treat its pro rata portion of each U.S. Treasury Security in
the Treasury Portfolio as a bond that was originally issued on the date the
Collateral Agent acquired the relevant U.S. Treasury Securities and will include
OID in income over the life of the U.S. Treasury Securities in an amount equal
to the U.S. Holder's pro rata portion of the excess of the amounts payable on
such U.S. Treasury Securities over the value of the U.S. Treasury Securities at
the time the Collateral Agent acquires them on behalf of holders of Income
PRIDES. The amount of such excess will constitute only a
S-102
<PAGE> 104
portion of the total amounts payable in respect of the Treasury Portfolio.
Consequently, a portion of each scheduled interest payment to U.S. Holders will
be treated as a tax-free return of the U.S. Holder's investment in the Treasury
Portfolio and will not be considered current income for United States federal
income tax purposes.
A U.S. Holder, whether on the cash or accrual method of tax accounting,
will be required to include OID (other than OID on short-term U.S. Treasury
Securities as defined below) in income for United States federal income tax
purposes as it accrues on a constant yield to maturity basis. See "-- Interest
Income and Original Issue Discount" above. In the case of any U.S. Treasury
Security with a maturity of one year or less from the date it is purchased (a
"short-term U.S. Treasury Security"), in general only accrual basis taxpayers
will be required to include OID in income as it is accrued. Unless such an
accrual basis U.S. Holder elects to accrue the OID on a short-term U.S. Treasury
Security according to the constant-yield-to-maturity method, such OID will be
accrued on a straight-line basis.
Tax Basis of the Treasury Portfolio. A U.S. Holder's initial tax basis in
such U.S. Holder's Applicable Ownership Interest of the Treasury Portfolio will
equal such U.S. Holder's pro rata portion of the amount paid by the Collateral
Agent for the Treasury Portfolio. A U.S. Holder's tax basis in the Treasury
Portfolio will be increased by the amount of OID included in income with respect
thereto and decreased by the amount of cash received in respect of the Treasury
Portfolio.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments under the FELINE PRIDES, Trust Preferred Securities or Common
Stock acquired under a Purchase Contract, the proceeds received with respect to
a fractional share of Common Stock upon the settlement of a Purchase Contract,
and the sale of FELINE PRIDES, Trust Preferred Securities or Common Stock
acquired under a Purchase Contract, may be subject to information reporting and
United States federal backup withholding tax at the rate of 31% if the U.S.
Holder thereof fails to supply an accurate taxpayer identification number or
otherwise fails to comply with applicable United States information reporting or
certification requirements. Any amounts so withheld will be allowed as a credit
against such U.S. Holder's United States federal income tax liability.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the Code and
entities whose assets are considered assets of such plans ("Plans") may purchase
the Securities subject to the investing fiduciary's determination that the
investment in the Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by Plans. Accordingly, among other
factors, the investing fiduciary should consider whether the investment would
satisfy the prudence and diversification requirements of ERISA and would be
consistent with the documents and instruments governing the Plans.
Under regulations issued by the U.S. Department of Labor (the "DOL"), a
Plan that owns the Securities may be deemed to own a portion of the assets held
in the Trust, including a portion of the Debentures held in the Trust. In
addition, Philadelphia Consolidated and its affiliates may be "parties in
interest" (within the meaning of ERISA) or "disqualified persons" (within the
meaning of Section 4975 of the Code) with respect to certain Plans (generally,
Plans maintained or sponsored by, or contributed to by, any such persons or
Plans with respect to which any such persons are fiduciaries or service
providers). The acquisition and ownership of the Securities and a deemed
acquisition and ownership of an interest in the Debentures by a Plan with
respect to which Philadelphia Consolidated or any of its affiliates is
considered a party in interest or a disqualified person may constitute or result
in a prohibited transaction under ERISA or Section 4975 of the Code, unless such
Securities are acquired and are held pursuant to and in accordance with an
applicable exemption. In this regard, the DOL has issued prohibited transaction
class exemptions ("PTCEs") that may apply to the acquisition and holding of the
Securities. These class exemptions are PTCE 84-14 (respecting transactions
determined by independent qualified professional asset managers), PTCE 90-1
(respecting insurance company separate accounts), PTCE 91-38 (respecting bank
collective trust funds), PTCE 95-60 (respecting
S-103
<PAGE> 105
insurance company general accounts) and PTCE 96-23 (respecting transactions
determined by in-house asset managers).
Any fiduciary proposing to acquire the Securities on behalf of a Plan
should consult with ERISA counsel for the Plan and should not acquire the
Securities unless it is determined that such acquisition and holding does not
and will not constitute a prohibited transaction and will satisfy the applicable
fiduciary requirements imposed under ERISA. Any such acquisition by a Plan shall
be deemed a representation by the Plan and the fiduciary effecting the
investment on behalf of the Plan that such acquisition and holding satisfies the
applicable fiduciary requirements of ERISA, and is either (i) not a prohibited
transaction under ERISA and the Code and is otherwise permissible under
applicable law or (ii) qualified to exemptive relief from the prohibited
transaction provisions of ERISA and the Code in accordance with one or more of
the foregoing PTCEs or another available prohibited transaction exemption.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among Philadelphia Consolidated, the Trust and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"),
Philadelphia Consolidated and the Trust have agreed to sell to the Underwriter,
and the Underwriter has agreed to purchase from Philadelphia Consolidated and
the Trust, up to 8,000,000 Income PRIDES and at least 1,000,000 Growth PRIDES
and 1,000,000 Trust Preferred Securities. In the Underwriting Agreement, the
Underwriter has agreed, subject to the terms and conditions set forth therein,
to purchase all of the Income PRIDES, Growth PRIDES and Trust Preferred
Securities offered hereby if any of the Income PRIDES, Growth PRIDES or Trust
Preferred Securities are purchased.
The Underwriter has advised Philadelphia Consolidated and the Trust that it
proposes initially to offer the Income PRIDES, Growth PRIDES and Trust Preferred
Securities to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and to certain dealers at such price less a
concession not in excess of $ per Income PRIDES, $ per Growth
PRIDES and $ per Trust Preferred Security. The Underwriter may allow,
and such dealers may reallow, a discount not in excess of $ per Income
PRIDES, $ per Growth PRIDES and $ per Trust Preferred Security
on sales to certain other dealers. After the initial public offering, the public
offering prices, concessions and discounts may be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriter and any selling group
members to bid for and purchase the Securities or shares of Common Stock. As an
exception to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Securities or the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities or the Common Stock.
If the Underwriter creates a short position in the Securities in connection
with the Offering, i.e., if it sells more Securities than are set forth on the
cover page of this Prospectus Supplement, the Underwriter may reduce that short
position by purchasing Securities in the open market. The Underwriter may also
elect to reduce any short position by exercising all or part of the
over-allotment options described below.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases Securities in the open
market to reduce the Underwriter's short position or to stabilize the price of
the Securities, it may reclaim the amount of the selling concession from any
selling group members who sold those Securities as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security and the Common
Stock of Philadelphia Consolidated to be higher than it might be in the absence
of such purchases. The imposition of a penalty bid might also have an effect on
the price of a security to the extent that it were to discourage resales of the
security.
Neither Philadelphia Consolidated, the Trust nor the Underwriter 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
S-104
<PAGE> 106
the Securities or the Common Stock. In addition, neither Philadelphia
Consolidated nor the Underwriter makes any representation that the Underwriter
will engage in such transaction or that such transactions, once commenced, will
not be discontinued without notice.
Philadelphia Consolidated and the Trust have granted to the Underwriter
options, exercisable for 30 days following the date of this Prospectus
Supplement, to purchase up to an additional Income PRIDES,
Growth PRIDES and Trust Preferred Securities from Philadelphia
Consolidated and the Trust at the Price to Public set forth on the cover page of
this Prospectus Supplement less the underwriting discount; provided, however,
that, the Underwriter must purchase at least as many Trust Preferred Securities
as Growth PRIDES. The Underwriter may exercise these options only to cover
over-allotments, if any, made on the sale of the Income PRIDES, Growth PRIDES
and Trust Preferred Securities offered hereby.
Philadelphia Consolidated and the Trust have agreed, for a period of
days after the date of this Prospectus Supplement, to not, without the prior
written consent of the Underwriter, directly or indirectly, sell, offer to sell,
grant any option for the sale of, or otherwise dispose of, or enter into any
agreement to sell, any Income PRIDES, Growth PRIDES, Purchase Contracts, Trust
Preferred Securities or Common Stock, as the case may be, or any securities of
Philadelphia Consolidated similar to the Income PRIDES, Growth PRIDES, Purchase
Contracts, Trust Preferred Securities or Common Stock or any security
convertible into or exchangeable or exercisable for Income PRIDES, Growth
PRIDES, Purchase Contracts, Trust Preferred Securities or Common Stock other
than shares of Common Stock or options for shares of Common Stock issued
pursuant to or sold in connection with any employee benefit, dividend
reinvestment and stock option and stock purchase plans of Philadelphia
Consolidated and its subsidiaries and other than the Growth PRIDES or Income
PRIDES to be created or recreated upon substitution of Pledged Securities, or
shares of Common Stock issuable upon early settlement of the Income PRIDES or
Growth PRIDES or upon exercise of stock options.
Prior to this offering, there has been no public market for the Income
PRIDES, Growth PRIDES and the Trust Preferred Securities. The public offering
price for the Income PRIDES, Growth PRIDES and the Trust Preferred Securities
was determined in negotiations between Philadelphia Consolidated, the Trust and
the Underwriters. In determining the terms of the Income PRIDES, Growth PRIDES
and the Trust Preferred Securities including the public offering price,
Philadelphia Consolidated, the Trust and the Underwriters considered the market
price of the Common Stock and also considered Philadelphia Consolidated's recent
results of operations, the future prospects of Philadelphia Consolidated and the
industry in general, market prices and terms of, and yields on, securities of
other companies considered to be comparable to Philadelphia Consolidated and
prevailing conditions in the securities markets. Application will be made to
have the Income PRIDES and the Growth PRIDES listed on the NNM. If Trust
Preferred Securities are separately traded to a sufficient extent that the
applicable market listing requirements are met, the Company will endeavor to
cause such securities to be listed on the market on which the Income PRIDES and
the Growth PRIDES are then listed including, if applicable, the NNM. See
"Underwriting." There can be no assurance that an active trading market will
develop for the Income PRIDES, the Growth PRIDES or the Trust Preferred
Securities or that the Income PRIDES, Growth PRIDES or Trust Preferred
Securities will trade in the public market subsequent to the offering at or
above the initial public offering price.
Philadelphia Consolidated and the Trust have agreed to indemnify the
Underwriter against, or to contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
This Prospectus Supplement, as amended or stickered, may be used by the
Remarketing Agent for remarketing the Trust Preferred Securities at such time as
is necessary.
In the ordinary course of their respective businesses, the Underwriter and
its affiliates have performed, and may in the future perform, investment banking
and/or commercial banking services for Philadelphia Consolidated.
S-105
<PAGE> 107
LEGAL OPINIONS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof and the Debentures, and certain matters of Delaware law with
respect to the validity of the Trust Preferred Securities offered hereby, will
be passed upon for Philadelphia Consolidated and Trust by Wolf, Block, Schorr
and Solis-Cohen LLP. The validity of the Purchase Contracts, the Common Stock
issuable upon settlement thereof, the Debentures and the Trust Preferred
Securities will be passed upon for the Underwriter by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
S-106
<PAGE> 108
INDEX OF PRINCIPAL TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
1940 Act.................................................... S-79
Applicable Market Value..................................... S-16
Applicable Ownership Interest............................... S-59
Applicable Principal Amount................................. S-91
Bankruptcy Code............................................. S-17
Beneficial Owner............................................ S-84
Business Day................................................ S-67
Change in 1940 Act Law...................................... S-79
Closing Price............................................... S-63
Code........................................................ S-97
Collateral Agent............................................ S-10
Commission.................................................. S-6
Common Securities........................................... S-2
Common Stock................................................ S-2
Compound Interest........................................... S-92
Contract Adjustment Payments................................ S-2
Current Market Price........................................ S-68
Custodial Agent............................................. S-18
Debentures.................................................. S-2
Debt Trustee................................................ S-89
Declaration................................................. S-9
Declaration Event of Default................................ S-80
Default..................................................... S-93
Deferred Contract Adjustment Payments....................... S-61
Delaware Trustee............................................ S-35
Depositary.................................................. S-69
Direct Action............................................... S-32
Direct Participants......................................... S-70
DOL......................................................... S-103
Early Settlement............................................ S-17
Exchange Act................................................ S-6
Exchange Agent.............................................. S-4
Extension Periods........................................... S-18
Failed Remarketing.......................................... S-4
FELINE PRIDES............................................... S-1
FELINE PRIDES Certificate................................... S-63
GAAP........................................................ S-6
Global Security............................................. S-94
Global Security Certificates................................ S-70
Growth PRIDES............................................... S-2
Guarantee................................................... S-3
Guarantee Payments.......................................... S-86
Income PRIDES............................................... S-2
Indenture................................................... S-88
Indenture Event of Default.................................. S-80
Indirect Participants....................................... S-70
Institutional Trustee....................................... S-35
</TABLE>
S-107
<PAGE> 109
<TABLE>
<S> <C>
Interest Payment Date..................................................................................... S-88
Investment Company Event.................................................................................. S-79
IRS....................................................................................................... S-97
NNM....................................................................................................... S-1
OID....................................................................................................... S-2
Participants.............................................................................................. S-70
Payment Date.............................................................................................. S-14
Philadelphia Consolidated Trustees........................................................................ S-9
Plans..................................................................................................... S-103
Pledge Agreement.......................................................................................... S-10
Pledged Securities........................................................................................ S-28
Primary Treasury Dealer................................................................................... S-91
Property Account.......................................................................................... S-35
PTCEs..................................................................................................... S-103
Purchase Contract......................................................................................... S-2
Purchase Contract Agent................................................................................... S-11
Purchase Contract Agreement............................................................................... S-11
Purchase Contract Settlement Date......................................................................... S-2
Quotation Agent........................................................................................... S-91
Redemption Amount......................................................................................... S-91
Redemption Price.......................................................................................... S-5
Reference Price........................................................................................... S-2
Regular Trustees.......................................................................................... S-35
Remarketing Agent......................................................................................... S-14
Remarketing Agreement..................................................................................... S-14
Remarketing Fee........................................................................................... S-3
Remarketing Underwriting Agreement........................................................................ S-14
Reset Agent............................................................................................... S-3
Reset Announcement Date................................................................................... S-77
Reset Rate................................................................................................ S-3
Reset Spread.............................................................................................. S-3
Securities................................................................................................ S-1
Securities Act............................................................................................ S-6
Senior Indebtedness....................................................................................... S-3
Settlement Rate........................................................................................... S-2
Sponsor................................................................................................... S-9
Stated Amount............................................................................................. S-2
Successor Securities...................................................................................... S-83
Super-Majority............................................................................................ S-81
Tax Counsel............................................................................................... S-98
Tax Event................................................................................................. S-90
Tax Event Redemption...................................................................................... S-5
Tax Event Redemption Date................................................................................. S-90
Threshold Appreciation Price.............................................................................. S-2
Trading Day............................................................................................... S-63
Treasury Portfolio........................................................................................ S-91
Treasury Portfolio Purchase Price......................................................................... S-91
Treasury Securities....................................................................................... S-2
Trust..................................................................................................... S-1
</TABLE>
S-108
<PAGE> 110
<TABLE>
<S> <C>
Trust Indenture Act....................................................................................... S-9
Trust Preferred Securities................................................................................ S-1
Trust Securities.......................................................................................... S-2
U.S. Holders.............................................................................................. S-96
Underwriter............................................................................................... S-104
Underwriting Agreement.................................................................................... S-104
</TABLE>
S-109
<PAGE> 111
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Accountants..................................... F-2
Consolidated Balance Sheets -- As of December 31, 1997 and 1996....... F-3
Consolidated Statements of Operations -- For the Years Ended December
31, 1997, 1996 and 1995............................................. F-4
Consolidated Statements of Changes in Shareholders' Equity -- For the
Years Ended December 31, 1997, 1996 and 1995........................ F-5
Consolidated Statements of Cash Flows -- For the Years Ended December
31, 1997, 1996 and 1995............................................. F-6
Notes to Consolidated Financial Statements............................ F-7 - F-18
</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C> <C>
I Summary of Investments -- Other Than Investments in Related
Parties As of December 31, 1997.................................. F-19
II Condensed Financial Information of Registrant As of December 31,
1997 and 1996 and For Each of the Three Years in the Period Ended
December 31, 1997................................................ F-20 - F-22
IV Reinsurance For the Years ended December 31, 1997, 1996 and
1995............................................................. F-23
VI Supplemental Information Concerning Property Casualty Insurance
Operations As of and For the Years Ended December 31, 1997, 1996
and 1995......................................................... F-24
</TABLE>
F-1
<PAGE> 112
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PHILADELPHIA CONSOLIDATED HOLDING
CORP.:
We have audited the accompanying consolidated balance sheets of
Philadelphia Consolidated Holding Corp. and Subsidiaries as of December 31, 1997
and 1996 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Philadelphia Consolidated Holding Corp. and Subsidiaries as of December 31, 1997
and 1996 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/S/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1998
F-2
<PAGE> 113
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities Available for Sale at Market (Amortized
Cost $165,052 and $137,757)............................ $170,678 $141,236
Equity Securities at Market (Cost $29,501 And $19,648).... 46,988 27,342
-------- --------
Total Investments................................. 217,666 168,578
Cash and Cash Equivalents................................... 11,933 11,483
Accrued Investment Income................................... 2,786 2,626
Premiums Receivable......................................... 15,269 8,112
Prepaid Reinsurance Premiums and Reinsurance Receivables.... 18,573 18,078
Deferred Acquisition Costs.................................. 10,970 9,033
Property and Equipment...................................... 5,797 5,226
Other Assets................................................ 5,132 2,802
-------- --------
Total Assets...................................... $288,126 $225,938
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy Liabilities and Accruals:
Unpaid Loss and Loss Adjustment Expenses.................. $122,430 $ 96,642
Unearned Premiums......................................... 42,116 33,154
-------- --------
Total Policy Liabilities and Accruals............. 164,546 129,796
Other Liabilities........................................... 7,948 8,312
Deferred Income Taxes....................................... 4,348 1,240
Income Taxes Payable........................................ -- 948
-------- --------
Total Liabilities................................. 176,842 140,296
-------- --------
Commitments and Contingencies
Shareholders' Equity (1):
Preferred Stock, $.01 Par Value, 10,000,000 Shares
Authorized, None Issued and Outstanding................
Common Stock, No Par Value, 50,000,000 Shares Authorized,
12,242,431 and 12,079,612 Shares Issued and
Outstanding............................................ 42,788 41,167
Notes Receivable from Shareholders........................ (1,422) (924)
Unrealized Investment Appreciation (Depreciation), Net of
Deferred Income Taxes.................................. 15,023 7,374
Retained Earnings......................................... 54,895 38,025
-------- --------
Total Shareholders' Equity........................ 111,284 85,642
-------- --------
Total Liabilities and Shareholders' Equity........ $288,126 $225,938
======== ========
</TABLE>
- ---------------
(1) 1996 share information restated to reflect a two for one split of the
Company's common stock distributed in November 1997, see Note 11.
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 114
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Gross Earned Premiums................................ $ 150,128 $ 121,820 $ 99,507
Ceded Earned Premiums................................ (49,573) (49,770) (41,319)
---------- ---------- ----------
Net Earned Premiums.................................. 100,555 72,050 58,188
Net Investment Income................................ 9,703 7,910 6,506
Net Realized Investment Gain (Loss).................. (16) 260 181
Other Income......................................... 228 282 309
---------- ---------- ----------
Total Revenue................................ 110,470 80,502 65,184
---------- ---------- ----------
Losses and Expenses:
Loss and Loss Adjustment Expenses.................... 61,839 44,720 40,661
Net Reinsurance Recoveries........................... (6,830) (4,602) (7,434)
---------- ---------- ----------
Net Loss and Loss Adjustment Expenses................ 55,009 40,118 33,227
Acquisition Costs and Other Underwriting Expenses.... 31,344 22,210 17,105
Other Operating Expenses............................. 1,909 1,386 2,564
---------- ---------- ----------
Total Losses and Expenses.................... 88,262 63,714 52,896
---------- ---------- ----------
Income Before Income Taxes............................. 22,208 16,788 12,288
---------- ---------- ----------
Income Tax Expense (Benefit):
Current.............................................. 6,521 3,596 2,760
Deferred............................................. (1,183) (182) (302)
---------- ---------- ----------
Total Income Tax Expense..................... 5,338 3,414 2,458
---------- ---------- ----------
Net Income................................... $ 16,870 $ 13,374 $ 9,830
========== ========== ==========
Per Average Share Data:
Basic Earnings Per Share(1).......................... $ 1.38 $ 1.13 $ 0.85
========== ========== ==========
Diluted Earnings Per Share(1)........................ $ 1.13 $ 0.94 $ 0.72
========== ========== ==========
Weighted Average Common Shares Outstanding(1).......... 12,193,659 11,879,506 11,627,702
Weighted Average Share Equivalents Outstanding(1)...... 2,736,039 2,373,742 2,049,004
---------- ---------- ----------
Weighted Average Shares and Share Equivalents
Outstanding(1)....................................... 14,929,698 14,253,248 13,676,706
========== ========== ==========
</TABLE>
- ---------------
(1) 1996 and 1995 share information restated to reflect a two for one split of
the Company's common stock distributed in November 1997, see Note 11.
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 115
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Common Shares(1):
Balance at Beginning of Year......................... 12,079,612 11,627,702 11,627,702
Issuance of Shares
Pursuant to Employee Stock Purchase Plan.......... 78,569 156,910 --
Pursuant to Employee Stock Option Plan............ 84,250 295,000 --
---------- ---------- ----------
Balance at End of Year....................... 12,242,431 12,079,612 11,627,702
========== ========== ==========
Common Stock:
Balance at Beginning of Year......................... $ 41,167 $39,057 $39,096
Issuance of Shares
Pursuant to Employee Stock Purchase Plan.......... 898 1,131 --
Exercise of Employee Stock Options, Net of Tax
Benefit........................................... 723 979 --
Other................................................ -- -- (39)
---------- ---------- ----------
Balance at End of Year....................... 42,788 41,167 39,057
---------- ---------- ----------
Notes Receivable from Shareholders:
Balance at Beginning of Year......................... (924) -- --
Notes Receivable Issued Pursuant to Employee Stock
Purchase Plan..................................... (873) (1,131) --
Collection of Notes Receivable....................... 375 207 --
---------- ---------- ----------
Balance at End of Year....................... (1,422) (924) --
---------- ---------- ----------
Unrealized Investment Appreciation (Depreciation), Net
of Deferred Income Taxes:
Balance at Beginning of Year......................... 7,374 4,608 (1,317)
Change in Unrealized Investment Appreciation
(Depreciation), Net of Deferred Income Taxes...... 7,649 2,766 5,925
---------- ---------- ----------
Balance at End of Year....................... 15,023 7,374 4,608
---------- ---------- ----------
Retained Earnings:
Balance at Beginning of Year......................... 38,025 24,651 14,821
Net Income........................................... 16,870 13,374 9,830
---------- ---------- ----------
Balance at End of Year....................... 54,895 38,025 24,651
---------- ---------- ----------
Total Shareholders' Equity................... $111,284 $85,642 $68,316
========== ========== ==========
</TABLE>
- ---------------
(1) 1996 and 1995 share information restated to reflect a two for one split of
the Company's common stock distributed in November 1997, see Note 11.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 116
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................ $ 16,870 $ 13,374 $ 9,830
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Net Realized Investment (Gain) Loss.................... 16 (260) (181)
Depreciation and Amortization Expense.................. 1,232 930 951
Deferred Income Tax Benefit............................ (1,183) (182) (302)
Change in Premiums Receivable.......................... (7,157) (214) 860
Change in Other Receivables............................ (655) (5,747) (5,748)
Change in Deferred Acquisition Costs................... (1,937) (3,876) (1,246)
Change in Other Assets................................. (2,511) (817) (363)
Change in Unpaid Loss and Loss Adjustment Expenses..... 25,788 18,956 18,511
Change in Unearned Premiums............................ 8,962 15,035 4,673
Change in Other Liabilities............................ (575) (184) (1,696)
Change in Income Taxes Payable......................... (834) 548 (53)
-------- -------- --------
Net Cash Provided by Operating Activities............ 38,016 37,563 25,236
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from Sales of Investments in Fixed Maturities
Available for Sale..................................... 5,564 2,594 12,543
Proceeds from Maturity of Investments in Fixed Maturities
Available for Sale..................................... 9,305 9,476 1,272
Proceeds from Sale of Investments in Fixed Maturities Held
to Maturity............................................ -- -- 915
Proceeds from Maturity of Investments in Fixed Maturities
Held to Maturity....................................... -- -- 932
Proceeds from Sales of Investments in Equity Securities... 5,896 2,168 5,655
Cost of Fixed Maturities Available for Sale Acquired...... (42,309) (32,783) (47,101)
Cost of Fixed Maturities Held to Maturity Acquired........ -- -- (301)
Cost of Equity Securities Acquired........................ (15,536) (12,412) (5,616)
Other -- Net.............................................. -- -- (3,000)
Purchase of Property and Equipment, net................... (1,609) (1,989) (1,319)
-------- -------- --------
Net Cash Used for Investing Activities............... (38,689) (32,946) (36,020)
-------- -------- --------
Cash Flows from Financing Activities:
Exercise of Employee Stock Options, net of Tax Benefit.... 723 979 --
Collection of Notes Receivable............................ 375 207 --
Proceeds from Shares Pursuant to Employee Stock Purchase
Plan................................................... 25 -- --
-------- -------- --------
Net Cash Provided by Financing Activities............ 1,123 1,186 --
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........ 450 5,803 (10,784)
Cash and Cash Equivalents at Beginning of Year.............. 11,483 5,680 16,464
-------- -------- --------
Cash and Cash Equivalents at End of Year.................... $ 11,933 $ 11,483 $ 5,680
======== ======== ========
Cash Paid During the Year for:
Income Taxes.............................................. $ 7,158 $ 3,024 $ 3,323
Non-Cash Transactions:
Issuance of Shares Pursuant to Employee Stock Purchase
Plan in exchange for Notes Receivable.................. $ 873 $ 1,131 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 117
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Philadelphia Consolidated Holding Corp. ("Philadelphia Insurance"), and its
subsidiaries (collectively the "Company") doing business as Philadelphia
Insurance Companies, include two Pennsylvania domiciled property and casualty
insurance companies, Philadelphia Indemnity Insurance Company and Philadelphia
Insurance Company ("Insurance Subsidiaries"), and an underwriting manager
Maguire Insurance Agency, Inc. The Company designs, markets, and underwrites
specialty commercial property and casualty insurance products for the rent a car
industry, automobile leasing industry, non-profit organizations, the health,
fitness and wellness industry, and selected classes of professional liability.
All marketing, underwriting, claims management, investment, and general
administration is provided by the underwriting manager.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
prepared in conformity with generally accepted accounting principles. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements requires making estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
prior years' amounts have been reclassified for comparative purposes.
(a) Investments
Investments classified as Available for Sale are carried at market value
with the change in unrealized appreciation (depreciation) credited or charged
directly to shareholders' equity, net of applicable deferred income taxes.
Income on fixed maturities is recognized on the accrual basis.
The decision to purchase or sell investments is based on management's
assessment of various factors such as foreseeable economic conditions, including
current interest rates and the interest rate risk, and the liquidity and capital
positions of the Company.
Investments in fixed maturities are adjusted for amortization of premiums
and accretion of discounts to maturity date, except for collaterized mortgage
and asset backed securities which are adjusted for amortization of premiums and
accretion of discounts over their estimated lives. Certain collaterized mortgage
and asset backed securities repayment patterns will change based on interest
rate movements and, accordingly, could impact future investment income if the
reinvestment of the repayment amounts are at lower interest rates than the
underlying securities. Collaterized mortgage and asset backed securities
amounted to $18,630,800 and $0 at December 31, 1997 and December 31, 1996,
respectively. The collaterized mortgage and asset back securities held as of
December 31, 1997 are short tranche securities possessing favorable prepayment
risk profiles.
Equity securities are carried at market value with the change in unrealized
appreciation (depreciation) credited or charged directly to shareholders'
equity, net of applicable deferred income taxes.
Realized investment gains and losses are calculated on the specific
identification basis and recorded as income when the securities are sold.
(b) Cash and Cash Equivalents
Cash equivalents, consisting of fixed maturity investments with maturities
of three months or less when purchased and money market funds, are stated at
cost which approximates market value.
F-7
<PAGE> 118
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Deferred Acquisition Costs
Policy acquisition costs, which include commissions, premium taxes, fees
and other costs of underwriting policies, are deferred and amortized over the
same period in which the related premiums are earned. Deferred acquisition costs
are limited to the estimated amounts recoverable after providing for losses and
expenses that are expected to be incurred, based upon historical and current
experience, as the premiums are earned. Amortization of policy acquisition costs
in the accompanying consolidated statements of operations was $25,034,000,
$17,739,000 and $13,662,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
(d) Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets.
Costs incurred in developing information systems technology are capitalized and
included in property and equipment. These costs are amortized over their useful
lives from the dates the systems technology became operational. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in earnings.
(e) Reserves for Unpaid Loss and Loss Adjustment Expenses
The liability for unpaid loss and loss adjustment expenses includes an
amount determined on the basis of claims adjusters' evaluations and an amount,
based on past experience, for losses incurred but not reported. Such liabilities
are necessarily based on estimates, and while management believes that the
amount is adequate, the ultimate liability may be in excess of, or less than,
the amount provided. The methods of making such estimates and establishing the
resulting liabilities are continually reviewed and updated and any adjustments
resulting therefrom are reflected in operations currently.
(f) Unearned Premiums
Premiums are generally earned on a pro rata basis over the terms of the
policies. Premiums applicable to the unexpired terms of the policies in-force
are reported as unearned premiums.
(g) Reinsurance Ceded
In the normal course of business, the Company seeks to reduce the loss that
may arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Amounts for reinsurance assets and liabilities are reported
gross.
(h) Income Taxes
The Company files a consolidated federal income tax return. Deferred income
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to the differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes for a change in tax rates is
recognized in income in the period that includes the enactment date (see Note
8).
(i) Earnings Per Share
Earnings per share and common stock equivalents outstanding have been
retroactively restated to reflect the increased number of common shares
resulting from a two for one stock split that was announced in October 1997 and
distributed to shareholders on November 5, 1997. A total of 6,119,716 additional
shares were issued as a result of the stock split. The par value of the
Company's stock remained unchanged.
F-8
<PAGE> 119
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share,"
specifying the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly held common stock. Under SFAS No.
128, basic and diluted per share amounts shall be presented for net income on
the face of the statement of operations. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. The Company adopted the provisions of SFAS No.
128 as of December 31, 1997 and restated all prior period earnings per share
data to conform with the provisions of this Statement.
2. STATUTORY INFORMATION
Accounting Principles. The Philadelphia Indemnity Insurance Company
("PIIC") and the Philadelphia Insurance Company ("PIC") are domiciled in the
Commonwealth of Pennsylvania. PIIC and PIC are required to report to certain
regulatory agencies on the basis of Statutory Accounting Practices ("SAP"). The
statutory financial statements are prepared in accordance with accounting
practices prescribed or permitted by the Insurance Department of the
Commonwealth of Pennsylvania. Prescribed statutory accounting practices include
a variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as Commonwealth laws, regulations and general administrative
rules. Permitted Statutory Accounting Practices encompass all accounting
practices not so prescribed.
Generally accepted accounting principles ("GAAP") differ in certain
respects from SAP prescribed or permitted by the Insurance Department of the
Commonwealth of Pennsylvania. The principal differences between SAP and GAAP are
as follows:
Under SAP, investments in debt securities are carried at amortized
cost, while under GAAP, investments in debt securities classified as
Available for Sale are carried at fair value;
Under SAP, policy acquisition costs, such as commissions, premium
taxes, fees, and other costs of underwriting policies are charged to
current operations as incurred, while under GAAP, such costs are deferred
and amortized on a pro rata basis over the period covered by the policy;
Under SAP, certain assets, designated as "Non-admitted Assets" (such
as prepaid expenses) are charged against surplus;
Under SAP, federal income taxes are only provided on taxable income
for which income taxes are currently payable, while under GAAP, deferred
income taxes are provided with respect to temporary differences;
Under SAP, certain reserves are established in amounts which differ
from amounts which would be provided in conformity with GAAP.
Financial Information: The statutory capital and surplus of PIIC as of
December 31, 1997 and 1996 was $75,894,000 and $60,175,000, respectively.
Statutory net income of PIIC for the years ended December 31, 1997, 1996 and
1995 was $8,839,000, $5,626,000, and $5,416,000, respectively.
The statutory capital and surplus of PIC as of December 31, 1997 and 1996
was $30,091,000 and $21,732,000, respectively. Statutory net income of PIC for
the years ended December 31, 1997, 1996 and 1995 was $5,494,000, $3,629,000, and
$3,587,000, respectively.
Dividend Restrictions: The Insurance Subsidiaries are subject to various
regulatory restrictions which limit the maximum amount of annual shareholder
dividends allowed to be paid. The maximum dividend which PIIC may pay to
Philadelphia Insurance during 1998 without prior approval is $8,839,000 and the
maximum dividend which PIC may pay to Philadelphia Insurance during 1998 without
prior approval is $5,494,000.
F-9
<PAGE> 120
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Risk-Based Capital: Risk-based capital is designed to measure the
acceptable amount of capital an insurer should have based on the inherent
specific risks of each insurer. Insurers failing to meet this benchmark capital
level may be subject to scrutiny by the insurer's domiciliary insurance
department and ultimately rehabilitation or liquidation. Based on the standards,
PIIC's and PIC's capital and surplus at December 31, 1997 is in excess of the
prescribed risk-based capital requirements.
3. INVESTMENTS
The Company invests primarily in investment grade fixed maturities, the
majority of which are rated "A" or better by Standard and Poor's. The cost,
gross unrealized gains and losses, estimated market value and carrying value of
investments as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET CARRYING
COST(1) GAINS LOSSES VALUE(2) VALUE
-------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed Maturities:
Available for Sale
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies.......... $ 15,391 $ 273 $ 9 $ 15,655 $ 15,655
Obligations of States and Political
Subdivisions.................................. 105,117 4,670 91 109,696 109,696
Corporate Debt Securities....................... 44,544 801 18 45,327 45,327
-------- ------- ---- -------- --------
Total Fixed Maturities Available for Sale....... 165,052 5,744 118 170,678 170,678
Equity Securities................................. 29,501 17,800 313 46,988 46,988
-------- ------- ---- -------- --------
Total Investments........................ $194,553 $23,544 $431 $217,666 $217,666
======== ======= ==== ======== ========
DECEMBER 31, 1996
Fixed Maturities:
Available for Sale
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies.......... $ 20,450 $ 159 $ 52 $ 20,557 $ 20,557
Obligations of States and Political
Subdivisions.................................. 105,682 3,369 164 108,887 108,887
Corporate Debt Securities....................... 11,625 236 69 11,792 11,792
-------- ------- ---- -------- --------
Total Fixed Maturities Available for Sale....... 137,757 3,764 285 141,236 141,236
Equity Securities................................. 19,648 7,930 236 27,342 27,342
-------- ------- ---- -------- --------
Total Investments........................ $157,405 $11,694 $521 $168,578 $168,578
======== ======= ==== ======== ========
</TABLE>
- ---------------
(1) Original cost of equity securities; original cost of fixed maturities
adjusted for amortization of premiums and accretion of discounts.
(2) Estimated market values have been based on quoted market prices.
The Company had no debt or equity investments in a single issuer totaling
in excess of 10% of shareholders' equity at December 31, 1997.
F-10
<PAGE> 121
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost and estimated market value of fixed maturity securities at
December 31, 1997, by remaining contractual maturity, are shown below (in
thousands). Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
MARKET
COST(1) VALUE(2)
-------- ---------
<S> <C> <C>
Due in One Year or Less..................................... $ 4,075 $ 4,079
Due After One Year Through Five Years....................... 40,460 41,267
Due After Five Years through Ten Years...................... 92,935 96,509
Due After Ten Years......................................... 27,582 28,823
-------- --------
$165,052 $170,678
======== ========
</TABLE>
- ---------------
(1) Original cost adjusted for amortization of premiums and accretion of
discounts.
(2) Estimated market values have been based on quoted market prices.
The sources of net investment income for the years ended December 31, 1997,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed Maturities:
Available for Sale..................................... $8,978 $7,377 $4,583
Held to Maturity....................................... -- -- 1,366
Equity Securities........................................ 480 257 217
Cash and Cash Equivalents................................ 602 422 479
------ ------ ------
Total Investment Income.................................. 10,060 8,056 6,645
Investment Expense....................................... (357) (146) (139)
------ ------ ------
Net Investment Income.......................... $9,703 $7,910 $6,506
====== ====== ======
</TABLE>
There are no investments in fixed maturity securities that were non-income
producing during the years ended December 31, 1997, 1996 and 1995. Investment
expense includes $164,000, $60,000, and $84,000 in advisory fees paid to a
related party in 1997, 1996 and 1995, respectively.
Realized pre-tax gains (losses) on the sale of investments for the years
ended December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ------
<S> <C> <C> <C>
Fixed Maturities:
Available for Sale
Gross Realized Gains.................................. $ 22 $ 47 $ 403
Gross Realized Losses................................. (52) (28) (43)
------ ---- ------
Net Gain (Loss)............................................ (30) 19 360
------ ---- ------
Held to Maturity
Gross Realized Losses................................. -- -- (57)
------ ---- ------
Net Loss................................................... -- -- (57)
------ ---- ------
Equity Securities
Gross Realized Gains..................................... 628 280 223
Gross Realized Losses.................................... (614) (39) (345)
------ ---- ------
Net Gain (Loss)............................................ 14 241 (122)
------ ---- ------
Total Net Realized Investment Gain (Loss)........ $ (16) $260 $ 181
====== ==== ======
</TABLE>
F-11
<PAGE> 122
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RESTRICTED ASSETS
PIIC and PIC have investments, principally U.S. Treasury securities on
deposit with the various states in which they are licensed insurers. At December
31, 1997 and 1996 the carrying value on deposit totaled $10,912,000 and
$7,070,000, respectively.
5. TRUST ACCOUNTS
The Company is required to maintain certain investments in trust accounts
under reinsurance agreements with unrelated insurance companies that cede
insurance risks to the Company. At December 31, 1997 and 1996 the Company had
investments with a carrying value of $2,403,000 and $2,868,000, respectively, in
trust accounts pursuant to a terminated quota share reinsurance agreement. Under
the terms of this agreement, net premiums received by the Company were invested
and held in a trust account to pay future claims. Interest income on these
investments is distributed to the parties to the quota share agreement on a
quarterly basis. The Company receives its interest in net trust investments in
accordance with a formula that specifies certain percentages of funds to be
released over a five-year period as losses are settled.
The Company also maintains investments in trust accounts under current
reinsurance agreements with unrelated insurance companies. These investments
collateralize the Company's obligations under the reinsurance agreements. The
Company possesses sole responsibility for investment and reinvestment of the
trust account assets. All dividends, interest, and other income resulting from
investment of these assets are owned by the Company, and are distributed on a
monthly basis. At December 31, 1997 and 1996 the carrying value of these trust
fund investments were $12,205,000 and $23,223,000, respectively.
The Company's share of the investments in the trust accounts is included in
investments and cash equivalents, as applicable, in the accompanying
consolidated balance sheets.
6. PROPERTY AND EQUIPMENT
The following table summarizes property and equipment at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ ESTIMATED USEFUL
1997 1996 LIVES (YEARS)
---- ---- ----------------
<S> <C> <C> <C>
Furniture, Fixtures and Automobiles.............. $ 2,473 $ 2,256 5
Computer and Telephone Equipment................. 7,176 6,004 3 - 7
Land and Building................................ 2,277 2,272 40
Leasehold Improvements........................... 974 812 12
------- -------
12,900 11,344
Accumulated Depreciation and Amortization........ (7,103) (6,118)
------- -------
Property and Equipment........................... $ 5,797 $ 5,226
======= =======
</TABLE>
Included in property and equipment are costs incurred in developing or
purchasing information systems technology of $2,516,500 and $2,447,600 in 1997
and 1996, respectively. Amortization of these costs was $180,200, $100,100, and
$115,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Depreciation expense excluding amortization of capitalized information systems
technology costs was $858,200, $530,000, and $395,000, for the years ended
December 31, 1997, 1996 and 1995, respectively.
F-12
<PAGE> 123
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LIABILITY FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for Unpaid Loss and Loss Adjustment Expenses is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................. $ 96,642 $77,686 $59,175
Less Reinsurance Receivables....................... 10,919 9,440 5,580
-------- ------- -------
Net Balance at January 1........................... 85,723 68,246 53,595
-------- ------- -------
Incurred related to:
Current Year....................................... 56,725 41,083 34,152
Prior Years........................................ (1,716) (965) (925)
-------- ------- -------
Total Incurred....................................... 55,009 40,118 33,227
-------- ------- -------
Paid related to:
Current Year....................................... 9,512 7,427 6,186
Prior Years........................................ 22,292 15,214 12,390
-------- ------- -------
Total Paid........................................... 31,804 22,641 18,576
-------- ------- -------
Net Balance at December 31........................... 108,928 85,723 68,246
Plus Reinsurance Receivables....................... 13,502 10,919 9,440
-------- ------- -------
Balance at December 31............................... $122,430 $96,642 $77,686
======== ======= =======
</TABLE>
As a result of changes in estimates of insured events of prior years, the
Company reduced losses and loss adjustment expenses incurred by $1,716,000,
$965,000 and $925,000 in 1997, 1996 and 1995, respectively. Such favorable
development was due to losses emerging at a lesser rate than had been originally
anticipated when the initial reserves for the applicable accident years were
estimated.
8. INCOME TAXES
The composition of deferred tax assets and liabilities and the related tax
effects as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
---- ----
<S> <C> <C>
Assets:
Effect of Loss Reserve Discounting........................ $ 5,735 $4,725
Excess of Tax Over Financial Reporting Earned Premium..... 2,709 1,922
Other Assets.............................................. 128 127
------- ------
Total Assets...................................... 8,572 6,774
------- ------
Liabilities:
Deferred Policy Acquisition Costs, Deductible for Tax..... 3,752 3,074
Property and Equipment Basis.............................. 494 416
Tax Effect of Unrealized Appreciation of Securities....... 8,089 3,798
Other Liabilities......................................... 585 726
------- ------
Total Liabilities................................. 12,920 8,014
------- ------
Net Deferred Income Tax Liability................. $ 4,348 $1,240
======= ======
</TABLE>
F-13
<PAGE> 124
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the differences between the Company's
effective tax rate for financial statement purposes and the Federal statutory
rate (dollars in thousands):
<TABLE>
<CAPTION>
AMOUNT OF TAX PERCENT
------------- -------
<S> <C> <C>
For the year ended December 31, 1997:
Federal Tax at Statutory Rate............................... $ 7,773 35%
Nontaxable Municipal Bond Interest and Dividends Received
Exclusion................................................. (1,812) (8)
Other, Net.................................................. (623) (3)
------- ---
Income Tax Expense................................ $ 5,338 24%
======= ===
For the year ended December 31, 1996:
Federal Tax at Statutory Rate............................... $ 5,708 34%
Nontaxable Municipal Bond Interest and Dividends Received
Exclusion................................................. (1,670) (10)
Other, Net.................................................. (624) (4)
------- ---
Income Tax Expense................................ $ 3,414 20%
======= ===
For the year ended December 31, 1995:
Federal Tax at Statutory Rate............................... $ 4,178 34%
Nontaxable Municipal Bond Interest and Dividends Received
Exclusion................................................. (1,303) (11)
Other, Net.................................................. (417) (3)
------- ---
Income Tax Expense................................ $ 2,458 20%
======= ===
</TABLE>
As of December 31, 1997, the Company has approximately $0.9 million in net
operating loss carryforwards, which expire in 2000 and 2001, available to offset
future taxable income. Utilization of the loss carryfowards is limited to an
annual amount of $336,000. For financial reporting purposes, the tax benefit of
any utilization of these operating loss carryfowards is applied to reduce
goodwill ($114,000 in 1997) and does not reduce income tax expense.
Philadelphia Insurance has entered into tax sharing agreements with each of
its subsidiaries. Under the terms of these agreements, the income tax provision
is computed as if each subsidiary were filing a separate federal income tax
return including adjustments for the income tax effects of net operating losses
and other special tax attributes regardless of whether those attributes are
utilized in the Company's consolidated federal income tax return.
9. REINSURANCE
In the normal course of business, the Company has entered into various
reinsurance contracts with unrelated reinsurers. The Company participates in
such agreements for the purpose of limiting loss exposure and diversifying
business. Reinsurance contracts do not relieve the Company from its obligation
to policyholders.
The loss and loss adjustment expense reserves ceded under such arrangements
were $13,502,000 and $10,919,000 at December 31, 1997 and 1996, respectively.
The Company evaluates the financial condition of its reinsurers to minimize its
exposure to losses from reinsurer insolvencies. The percentage of ceded
reinsurance reserves that are with companies rated "A" (Excellent) or better by
A.M. Best Company is 100% and 97% as of December 31, 1997 and 1996,
respectively. Additionally, approximately 2%, 4%, and 11% of the Company's net
written premiums for the years ended December 31, 1997, 1996 and 1995,
respectively, were assumed from an unrelated reinsurance company.
F-14
<PAGE> 125
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of reinsurance on premiums written and earned is as follows (in
thousands):
<TABLE>
<CAPTION>
WRITTEN EARNED
-------- --------
<S> <C> <C>
For the Year Ended December 31, 1997:
Direct Business............................................. $157,060 $147,514
Reinsurance Assumed......................................... 2,031 2,614
Reinsurance Ceded........................................... 47,294 49,573
-------- --------
Net Premiums...................................... $111,797 $100,555
======== ========
Percentage Assumed of Net................................... 2.6%
========
For the Year Ended December 31, 1996:
Direct Business............................................. $132,611 $117,354
Reinsurance Assumed......................................... 4,244 4,466
Reinsurance Ceded........................................... 52,861 49,770
-------- --------
Net Premiums...................................... $ 83,994 $ 72,050
======== ========
Percentage Assumed of Net................................... 6.2%
========
For the Year Ended December 31, 1995:
Direct Business............................................. $ 97,519 $ 92,046
Reinsurance Assumed......................................... 6,661 7,461
Reinsurance Ceded........................................... 42,108 41,319
-------- --------
Net Premiums...................................... $ 62,072 $ 58,188
======== ========
Percentage Assumed of Net................................... 12.8%
========
</TABLE>
\ 10. SHAREHOLDERS' EQUITY
The Company has established non-qualified stock bonus and stock option
plans. Under the stock bonus plan, the Company has granted a total of 137,500
shares to certain officers of the Company, of which all such shares have been
issued and are vested.
Under the Company's stock option plan, stock options may be granted for the
purchase of common stock at a price not less than the fair market value on the
date of grant. Options outstanding as of December 31, 1994 are exercisable over
a four to five year vesting period. Options issued in 1997, 1996 and 1995 are
exercisable after the expiration of five years following the grant date. Under
this plan, the Company has reserved 2,475,000 shares of common stock for
issuance pursuant to options granted under the plan.
In addition to stock options granted pursuant to the Company's stock option
plan, the Company's Board of Directors have granted previous awards of 2,613,492
stock options.
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation plans at a fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for the
Company's compensation instruments is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
F-15
<PAGE> 126
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the Company's option activity, including
weighted average option information:
<TABLE>
<CAPTION>
1997 1996(2) 1995(2)
--------------------- --------------------- ---------------------
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
PER PER PER
OPTIONS OPTION(1) OPTIONS OPTION(1) OPTIONS OPTION(1)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 3,572,292 $ 3.86 3,200,642 $2.84 3,184,742 $2.81
Granted............................ 5,000 $16.38 917,900 $8.39 43,400 $6.11
Exercised.......................... (84,250) $ 4.42 (292,500) $3.33 (20,000) $4.47
Canceled........................... (20,000) $ 6.00 (253,750) $8.05 (7,500) $4.94
--------- --------- ---------
Outstanding at end of year......... 3,473,042 $ 3.85 3,572,292 $3.86 3,200,642 $2.84
========= ========= =========
Exercisable at end of year......... 2,768,792 2,819,218 3,097,392
Weighted-average fair value of
options granted during the
year............................. $6.38 $2.87 $2.14
</TABLE>
<TABLE>
<CAPTION>
EXERCISE REMAINING EXERCISE
OUTSTANDING AT PRICE CONTRACTUAL EXERCISABLE AT PRICE
DECEMBER 31, PER LIFE DECEMBER 31, PER
RANGE OF EXERCISE PRICES 1997 OPTION(1) (YEARS) 1997 OPTION(1)
- ------------------------ ----------------- --------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
2.61.......................... 2,691,742 $ 2.61 5.1 2,689,192 $2.61
4.75 to $7.31................. 108,400 $ 5.52 3.9 79,600 $5.37
8.13 to $9.31................. 667,900 $ 8.48 8.2 -- --
16.38......................... 5,000 $16.38 9.9 -- --
--------- ---------
3,473,042 $ 3.85 2,768,792 $2.69
========= =========
</TABLE>
- ---------------
(1) Weighted Average Exercise Price Per Option.
(2) Restated to reflect a two for one split of the Company's common stock
distributed in November 1997, see Note 11.
The Company has established a non-qualified Employee Stock Purchase Plan
(the "Stock Purchase Plan"). The aggregate maximum number of shares that may be
issued pursuant to the Stock Purchase Plan is 500,000. Shares may be purchased
under the Stock Purchase Plan by eligible employees during designated one-month
offering periods established by the Compensation Committee of the Board of
Directors at a purchase price of the lesser of 85% of the fair market value of
the shares on the first business day of the offering period or the date the
shares are purchased. The purchase price of shares may be paid by the employee
over six years pursuant to the execution of a promissory note. The promissory
note(s) are collateralized by such shares purchased under the Stock Purchase
Plan and are interest free. Under the Stock Purchase Plan, the Company issued
78,569 and 52,144 shares in 1997 and 1996, respectively. The weighted average
fair value of those purchase rights granted in 1997 and 1996 was $1.94 and
$1.51, respectively.
In addition, the Company has also established a non-qualified Directors
Stock Purchase Plan ("Directors Plan") for the benefit of non-employee
Directors. The aggregate maximum number of shares that may be issued pursuant to
the Directors Plan is 50,000. Non-employee Directors, during monthly offering
periods, may designate a portion of his or her fees to be used for the purchase
of shares under the terms of the Directors Plan at a purchase price of the
lesser of 85% of the fair market value of the shares on the first business day
of the offering period or the last business day of the offering period. No
shares have been issued pursuant to the Directors Plan as of December 31, 1997.
F-16
<PAGE> 127
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Since the Company has adopted the disclosure-only provisions of SFAS No.
123, no compensation cost has been recognized for the Company's compensation
instruments. The following represents pro forma information as if the Company
recorded compensation costs using the fair value of the issued compensation
instruments (the results may not be indicative of the actual effect on net
income in future years) (in thousands, except per average common share data):
<TABLE>
<CAPTION>
1997 1996(1) 1995(1)
------- ------- -------
<S> <C> <C> <C>
Net Income As Reported................................. $16,870 $13,374 $9,830
Assumed Stock Compensation Cost........................ 354 281 22
------- ------- ------
Pro Forma Net Income................................... $16,516 $13,093 $9,808
======= ======= ======
Diluted Earnings Per Average Common Share as
Reported............................................. $1.13 $0.94 $0.72
======= ======= ======
Pro Forma Diluted Earnings Per Average Common Share.... $1.11 $0.92 $0.72
======= ======= ======
</TABLE>
- ---------------
(1) Per share information restated to reflect a two for one split of the
Company's common stock distributed in November 1997, see Note 11.
The fair value of options at date of grant was estimated using the
Black-Scholes valuation model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected Stock Volatility................................... 25.9% 20.0% 19.3%
Risk Free Interest Rate..................................... 5.8% 5.8% 6.4%
Expected Option Life-Years.................................. 6.0 6.0 6.0
Expected Dividends.......................................... 0.0% 0.0% 0.0%
</TABLE>
11. COMMON STOCK SPLIT
On October 16, 1997, the Board of Directors approved a two for one split of
the Company's common stock payable to shareholders of record on October 27, 1997
for distribution on November 5, 1997. Weighted average common shares
outstanding, common stock equivalents, and earnings per share have been restated
to reflect this stock split.
12. PROFIT SHARING
The Company has a defined contribution Profit Sharing Plan, which includes
a 401K feature, covering substantially all employees. Under the plan, employees
may contribute up to an annual maximum of the lesser of 15% of eligible
compensation or the applicable Internal Revenue Code limit in a calendar year.
The Company makes a matching contribution in an amount equal to 50% of the
participant's pretax contribution, subject to a maximum of 6% of the
participant's eligible compensation. The Company may also make annual
discretionary profit sharing contributions at each plan year end. Participants
are fully vested in the Company's contribution upon completion of 7 years of
service. The Company's contributions to the plan were $474,300, $322,400, and
$267,500 in 1997, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENCIES
The Company is subject to routine legal proceedings in connection with its
property and casualty insurance business. The Company is not involved in any
pending or threatened legal or administrative proceedings which management
believes can reasonably be expected to have a material adverse effect on the
Company's financial condition or results of operations.
F-17
<PAGE> 128
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company currently leases office space to serve as its headquarters
location and 38 field offices for its production underwriters. Rental expense
for these operating leases was $916,700, $736,700, and $187,800 for the years
ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1998........................................................ $1,256,000
1999........................................................ 1,067,000
2000........................................................ 837,000
2001........................................................ 704,000
2002 and Thereafter......................................... 756,000
----------
Total Minimum Payments Required................... $4,620,000
==========
</TABLE>
14. SUMMARY OF QUARTERLY FINANCIAL INFORMATION -- UNAUDITED
The following quarterly financial information for each of the three months
ended March 31, June 30, September 30 and December 31, 1997 and 1996 is
unaudited. However, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the results of
operations for such periods, have been made for a fair presentation of the
results shown (in thousands, except share and per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED(1) THREE MONTHS ENDED(1)
------------------------------------------------------ -----------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1996 1996
---------- ---------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Earned Premiums.... $22,388 $25,163 $26,492 $26,512 $15,817 $17,190
Net Investment
Income............... $ 2,211 $ 2,404 $ 2,535 $2,553 $ 1,846 $ 1,885
Net Loss and Loss
Adjustment
Expenses............. $12,481 $13,832 $14,429 $14,267 $ 8,674 $ 9,089
Acquisition Costs and
Other Underwriting
Expenses............. $ 6,946 $ 7,858 $ 8,429 $ 8,111 $ 5,107 $ 5,836
Net Income............. $ 3,622 $ 3,992 $ 4,468 $ 4,788 $ 2,715 $ 3,057
Basic Earnings Per
Share................ $0.30 $0.33 $0.37 $0.39 $0.23 $0.26
Diluted Earnings Per
Share................ $0.25 $0.27 $0.30 $0.32 $0.19 $0.22
Weighted Average Common
Shares Outstanding... 12,133,216 12,175,688 12,223,940 12,240,286 11,627,702 11,754,382
Weighted Average Share
Equivalents
Outstanding.......... 2,570,174 2,674,217 2,815,533 2,792,963 2,372,724 2,394,441
---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Shares
and Share Equivalents
Outstanding.......... 14,703,390 14,849,905 15,039,473 15,033,249 14,000,426 14,148,823
========== ========== ========== ========== ========== ==========
<CAPTION>
THREE MONTHS ENDED(1)
----------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Net Earned Premiums.... $20,323 $18,720
Net Investment
Income............... $ 2,041 $ 2,138
Net Loss and Loss
Adjustment
Expenses............. $12,120 $10,235
Acquisition Costs and
Other Underwriting
Expenses............. $ 5,920 $ 5,347
Net Income............. $ 3,462 $ 4,140
Basic Earnings Per
Share................ $0.29 $0.34
Diluted Earnings Per
Share................ $0.24 $0.29
Weighted Average Common
Shares Outstanding... 12,055,068 12,081,944
Weighted Average Share
Equivalents
Outstanding.......... 2,128,804 2,387,123
---------- ----------
Weighted Average Shares
and Share Equivalents
Outstanding.......... 14,183,872 14,469,067
========== ==========
</TABLE>
- ---------------
(1) All periods, except for the three months ended December 31, 1997, were
restated to reflect a two for one split of the Company's common stock
distributed in November 1997, see Note 11.
F-18
<PAGE> 129
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
COLUMN C AMOUNT AT WHICH
COLUMN A COLUMN B ESTIMATED SHOWN IN THE
TYPE OF INVESTMENT COST * MARKET VALUE BALANCE SHEET
------------------ -------- ------------ ---------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and Government Agencies
and Authorities............................... $ 15,391 $ 15,655 $ 15,655
States, Municipalities and Political
Subdivisions.................................. 105,117 109,696 109,696
Public Utilities................................ 3,367 3,456 3,456
All Other Corporate Bonds....................... 39,775 40,483 40,483
Redeemable Preferred Stock......................... 1,402 1,388 1,388
-------- -------- --------
Total Fixed Maturities..................... 165,052 170,678 170,678
-------- -------- --------
Equity Securities:
Common Stocks:
Banks, Trust and Insurance Companies............ 15,202 12,485 12,485
Industrial, Miscellaneous and all other......... 14,299 34,503 34,503
-------- -------- --------
Total Equity Securities.................... 29,501 46,988 46,988
-------- -------- --------
Total Investments.......................... $194,553 $217,666 $217,666
======== ======== ========
</TABLE>
- ---------------
* Original cost of equity securities; original cost of fixed maturities adjusted
for amortization of premiums and accretion of discounts.
F-19
<PAGE> 130
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT ONLY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities Available for Sale at Market............. $ 30 $ 30
Equity Securities at Market............................... -- --
-------- -------
Total Investments................................. 30 30
Cash and Cash Equivalents................................... (3) 345
Mortgage Loans (a).......................................... 1,125 1,125
Equity in and Advances to Unconsolidated Subsidiaries (a)... 109,540 84,072
Goodwill less Accumulated Amortization of $1,495 and
$1,313.................................................... 589 771
Other Assets................................................ -- 10
-------- -------
Total Assets...................................... $111,281 $86,353
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Income Taxes Payable (Recoverable).......................... $ (162) $ 536
Other Liabilities........................................... 159 175
-------- -------
Total Liabilities................................. (3) 711
-------- -------
Commitments and Contingencies
Shareholders' Equity (b):
Preferred Stock, $.01 Par Value, 10,000,000 Shares
Authorized, None Issued and Outstanding................
Common Stock, No Par Value, 50,000,000 Shares Authorized;
12,242,431 and 12,079,612 Shares Issued and
Outstanding............................................ 42,788 41,167
Notes Receivable from Shareholders.......................... (1,422) (924)
Unrealized Investment Appreciation (Depreciation), Net of
Deferred Income Taxes..................................... 15,023 7,374
Retained Earnings........................................... 54,895 38,025
-------- -------
Total Shareholders' Equity........................ 111,284 85,642
-------- -------
Total Liabilities and Shareholders' Equity........ $111,281 $86,353
======== =======
</TABLE>
- ---------------
(a) These items have been eliminated in the Company's Consolidated Financial
Statements.
(b) 1996 share information restated to reflect a two for one split of the
Company's common stock distributed in November 1997.
See Notes to Consolidated Financial Statements.
F-20
<PAGE> 131
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
SCHEDULE II, CONTINUED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT ONLY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Revenue:
Dividends from Subsidiaries (a)........................... $ -- $ -- $6,000
Net Investment Income..................................... 10 11 63
Net Realized Investment Gain, (Loss) (b).................. -- 672 (10)
------- ------- ------
Total Revenue..................................... 10 683 6,053
------- ------- ------
Expenses:
Goodwill Amortization..................................... 68 79 89
Other..................................................... 472 417 291
------- ------- ------
Total Expenses.................................... 540 496 380
------- ------- ------
Income, (Loss) Before Income Taxes and Equity in Earnings of
Unconsolidated Subsidiaries............................... (530) 187 5,673
Income Tax Expense (Benefit)................................ (162) 74 (125)
------- ------- ------
Income, (Loss) Before Equity in Earnings of Unconsolidated
Subsidiaries.............................................. (368) 113 5,798
Equity in Earnings of Unconsolidated Subsidiaries........... 17,238 13,261 4,032
------- ------- ------
Net Income................................................ $16,870 $13,374 $9,830
======= ======= ======
</TABLE>
- ---------------
(a) This item has been eliminated in the Company's Consolidated Financial
Statements.
(b) $665 of this amount has been eliminated in the Company's Consolidated
Financial Statements for 1996.
See Notes to Consolidated Financial Statements.
F-21
<PAGE> 132
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
SCHEDULE II, CONTINUED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT ONLY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income................................................ $ 16,870 $ 13,374 $ 9,830
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Net Realized Investment (Gain), Loss................... -- (672) 10
Equity in Earnings of Unconsolidated Subsidiaries...... (17,238) (13,261) (4,032)
Goodwill Amortization.................................. 68 79 89
Change in Other Liabilities............................ (16) 25 150
Change in Other Assets................................. 10 (9) (38)
Change in Income Taxes Payable......................... (584) (88) (343)
-------- -------- -------
Net Cash Provided (Used) by Operating Activities..... (890) (552) 5,666
-------- -------- -------
Cash Flows From Investing Activities:
Proceeds From Sales of Investments in Equity Securities... -- 2,335 2,139
Cost of Fixed Maturities Available for Sale Acquired...... -- -- (30)
Cost of Equity Securities Acquired........................ -- (119) (509)
Net Transfers to Subsidiaries (a)......................... (581) (2,678) (7,118)
-------- -------- -------
Net Cash Used by Investing Activities................ (581) (462) (5,518)
-------- -------- -------
Cash Flows From Financing Activities:
Exercise of Employee Stock Options, Net of Tax Benefit.... 723 979 --
Collection of Notes Receivable............................ 375 207 --
Proceeds from Shares Pursuant to Employee Stock Purchase
Plan................................................... 25 -- --
-------- -------- -------
Net Cash Provided by Financing Activities............ 1,123 1,186 --
-------- -------- -------
Net Increase (Decrease) in Cash and Equivalents............. (348) 172 148
Cash and Cash Equivalents at Beginning of Year.............. 345 173 25
-------- -------- -------
Cash and Cash Equivalents at End of Year.................... $ (3) 345 $ 173
======== ======== =======
Cash Dividends Received From Unconsolidated Subsidiaries.... $ -- $ -- $ 6,000
======== ======== =======
Non-Cash Transactions:
Issuance of Shares Pursuant to Employee Stock Purchase
Plan in exchange for Notes Receivable.................. $ 873 $ 1,131 $ --
</TABLE>
- ---------------
(a) These items have been eliminated in the Company's Consolidated Financial
Statements.
See Notes to Consolidated Financial Statements.
F-22
<PAGE> 133
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
EARNED PREMIUMS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C COLUMN D COLUMN F
--------- ------------ COLUMN E -----------------
COLUMN B CEDED TO ASSUMED -------- PERCENTAGE OF
------------ OTHER FROM OTHER NET AMOUNT ASSUMED
COLUMN A GROSS AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- ------------ --------- ------------ -------- -----------------
<S> <C> <C> <C> <C> <C>
1997
Property and Casualty
Insurance................... $147,514 $49,573 $2,614 $100,555 2.6%
======== ======= ====== ======== ====
1996
Property and Casualty
Insurance................... $117,354 $49,770 $4,466 $ 72,050 6.2%
======== ======= ====== ======== ====
1995
Property and Casualty
Insurance................... $ 92,046 $41,319 $7,461 $ 58,188 12.8%
======== ======= ====== ======== ====
</TABLE>
F-23
<PAGE> 134
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
SCHEDULE VI -- SUPPLEMENTAL INFORMATION CONCERNING PROPERTY --
CASUALTY INSURANCE OPERATIONS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLAIMS AND CLAIMS
RESERVE FOR ADJUSTMENT EXPENSES
UNPAID INCURRED RELATED TO
DEFERRED CLAIMS DISCOUNT -------------------
POLICY AND CLAIM IF ANY NET NET (1) (2)
ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INVESTMENT CURRENT PRIOR
AFFILIATION WITH REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME YEAR YEAR
- --------------------------- ----------- ----------- ------------ -------- -------- ---------- -------- --------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Property -
Casualty Entities
December 31, 1997..... $10,970 $122,430 $0 $42,116 $100,555 $9,703 $56,725 $(1,716)
December 31, 1996..... $ 9,033 $ 96,642 $0 $33,154 $ 72,050 $7,910 $41,083 $ (965)
December 31, 1995..... $ 5,157 $ 77,686 $0 $18,119 $ 58,188 $6,506 $34,152 $ (925)
<CAPTION>
AMORTIZATION
OF DEFERRED PAID CLAIMS
POLICY AND CLAIM
ACQUISITION ADJUSTMENT NET WRITTEN
AFFILIATION WITH REGISTRANT COSTS EXPENSES PREMIUMS
- --------------------------- ------------ ----------- -----------
COLUMN A COLUMN I COLUMN J COLUMN K
<S> <C> <C> <C>
Consolidated Property -
Casualty Entities
December 31, 1997..... $25,034 $31,804 $111,797
December 31, 1996..... $17,739 $22,641 $ 83,994
December 31, 1995..... $13,662 $18,576 $ 62,072
</TABLE>
F-24
<PAGE> 135
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 16, 1998
PROSPECTUS
$207,000,000
PHILADELPHIA CONSOLIDATED
HOLDING CORP. [BELL LOGO]
[PHILADELPHIA INSURANCE COMPANIES]
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK,
STOCK PURCHASE CONTRACTS, STOCK PURCHASE UNITS AND WARRANTS
PCHC FINANCING I
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY
GUARANTEED BY PHILADELPHIA CONSOLIDATED HOLDING CORP.
Philadelphia Consolidated Holding Corp. ("Philadelphia Consolidated" or the
"Company"), directly or through such agents, dealers or underwriters as may be
designated from time to time, may offer, issue and sell, together or separately,
its (i) debt securities (the "Debt Securities"), which may be senior debt
securities (the "Senior Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities"), (ii) shares of its preferred stock, $0.01 par
value per share (the "Preferred Stock"), (iii) shares of its common stock, no
par value (the "Common Stock"), (iv) Stock Purchase Contracts ("Stock Purchase
Contracts") to purchase shares of Common Stock, (v) Stock Purchase Units, each
representing ownership of a Stock Purchase Contract and Preferred Securities (as
defined herein) or debt obligations of third parties, including U.S. Treasury
securities, securing the holder's obligation to purchase Common Stock under the
Stock Purchase Contracts ("Stock Purchase Units") and (vi) warrants to purchase
Debt Securities, Preferred Stock, Common Stock or other securities or rights
("Warrants").
PCHC Financing I (the "Trust"), a statutory business trust formed under the
laws of the State of Delaware, may offer, from time to time, preferred
securities, representing preferred undivided beneficial interests in the assets
of the Trust ("Preferred Securities"). The payment of periodic cash
distributions ("Distributions") with respect to Preferred Securities out of
moneys held by the Trust, and payments on liquidation, redemption or otherwise
with respect to such Preferred Securities, will be guaranteed by Philadelphia
Consolidated to the extent described herein (each, a "Trust Guarantee"). See
"Description of Preferred Securities" and "Description of Trust Guarantee." The
obligations of Philadelphia Consolidated under the Trust Guarantee will
constitute subordinated unsecured obligations of Philadelphia Consolidated and
will rank on a parity with all of Philadelphia Consolidated's other subordinated
unsecured obligations. See "Description of Trust Guarantee -- Status of the
Trust Guarantee." Debt Securities may be issued and sold by Philadelphia
Consolidated in one or more series to the Trust or a trustee of the Trust in
connection with the investment of the proceeds from the offering of Preferred
Securities and Common Securities (as defined herein) of the Trust. The Debt
Securities purchased by the Trust may be subsequently distributed pro rata to
holders of Preferred Securities and Common Securities in connection with the
dissolution of the Trust. The Debt Securities, Preferred Stock, Common Stock,
Stock Purchase Contracts, Stock Purchase Units, Warrants and Preferred
Securities are herein collectively referred to as the "Securities," with an
aggregate public offering price of up to $207,000,000 (or its equivalent in
foreign currencies or foreign currency units based on the applicable exchange
rate at the time of offering) in amounts, at prices and on terms to be
determined at the time of sale.
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Securities may be sold directly by Philadelphia Consolidated, through
agents designated from time to time or to or through underwriters or dealers.
Philadelphia Consolidated reserves the sole right to accept, and together with
its agents, from time to time, to reject in whole or in part any proposed
purchase of Securities to be made directly or through agents. If any agents or
underwriters are involved in the sale of any Securities, the names of such
agents or underwriters and any applicable fees, commissions or discounts will be
set forth in the applicable Prospectus Supplement. See "Plan of Distribution."
This Prospectus may not be used to consummate any sale of Securities unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is April , 1998
<PAGE> 136
(cover continued from previous page)
The form in which the Securities are to be issued, their specific
designation, aggregate principal amount or aggregate initial offering price,
maturity, if any, rate and times of payment of interest or dividends, if any,
redemption, conversion, and sinking fund terms, if any, voting or other rights,
if any, exercise price and detachability, if any, and other specific terms will
be set forth in a Prospectus Supplement (the "Prospectus Supplement"), together
with the terms of offering of such Securities. Any such Prospectus Supplement
will also contain information, as applicable, about certain material United
States Federal income tax considerations relating to the particular Securities
offered thereby.
The declaration of trust for the Trust also provides that, to the full
extent permitted by law, Philadelphia Consolidated shall indemnify any
Philadelphia Consolidated Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Philadelphia Consolidated Indemnified Person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe such person's conduct was unlawful. The
declaration of trust also provides that, to the full extent permitted by law,
Philadelphia Consolidated shall indemnify any Philadelphia Consolidated
Indemnified Person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
Trust to procure a judgment in its favor by reason of the fact that such person
is or was a Philadelphia Consolidated Indemnified Person against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such Philadelphia Consolidated Indemnified Person shall have been adjudged
to be liable to the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such Court of Chancery or such
other court shall deem proper. The declaration of trust further provides that
expenses (including attorneys' fees) incurred by a Philadelphia Consolidated
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in the immediately
preceding two sentences shall be paid by Philadelphia Consolidated in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Philadelphia Consolidated Indemnified Person
to repay such amount if it shall ultimately be determined that such person is
not entitled to be indemnified by Philadelphia Consolidated as authorized in any
such declaration.
The declaration of trust for the Trust also provides that Philadelphia
Consolidated shall indemnify each Fiduciary Indemnified Person against any loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
Trust or trusts under the Trust, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties thereunder.
The Common Stock of Philadelphia Consolidated is listed on the Nasdaq
National Market (the "NNM") of the Nasdaq Stock Market, Inc. under the symbol
"PHLY". Any Prospectus Supplement will also contain information, where
applicable, as to any other listing on a securities exchange of the Securities
covered by such Prospectus Supplement.
<PAGE> 137
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING DESCRIBED HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all the amendments and exhibits thereto, the
"Registration Statement") filed by Philadelphia Consolidated and the Trust with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Securities.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, although it does include a summary
of the material terms of the Indenture and the Declaration (each as defined
herein). Reference is made to such Registration Statement and to the exhibits
relating thereto for further information with respect to Philadelphia
Consolidated and its consolidated Subsidiaries, the Trust and the Securities.
Any statements contained herein concerning the provisions of any document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission or incorporated by reference herein are not necessarily complete,
and, in each instance, reference is made to the copy of such document so filed
for a more complete description of the matter involved. Each such statement is
qualified in its entirety by such reference.
Philadelphia Consolidated is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Office of
the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048. The
Commission also maintains a website that contains reports, proxy and information
statements and other information. The website address is http.//www.sec.gov.
No separate financial statements of the Trust have been included or
incorporated by reference herein. Philadelphia Consolidated does not consider
that such financial statements would be material to holders of the Preferred
Securities because (i) all of the voting securities of the Trust will be owned,
directly or indirectly, by Philadelphia Consolidated, a reporting company under
the Exchange Act, (ii) the Trust has and will have no independent operations but
exists for the sole purpose of issuing securities representing undivided
beneficial interests in its assets and investing the proceeds thereof in
Subordinated Debt Securities issued by Philadelphia Consolidated, and (iii) the
obligations of Philadelphia Consolidated described herein and in any
accompanying Prospectus Supplement, under the Declaration (as defined herein)
(including the obligation to pay expenses of the Trust), the Subordinated
Indenture and any supplemental indentures thereto, the Subordinated Debt
Securities issued to the Trust and the Trust Guarantee taken together,
constitute a full and unconditional guarantee by Philadelphia Consolidated of
payments due on the Preferred Securities. See "Description of Preferred
Securities of the Trust" and "Description of Trust Guarantee."
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although it
intends to seek and expects to receive exemption therefrom.
2
<PAGE> 138
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Philadelphia Consolidated with
the Commission pursuant to the Exchange Act are incorporated herein by
reference: (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "Form 10-K"); (ii) description of the Common Stock which is contained
in the Registration Statement on Form 8-A/A of Philadelphia Consolidated dated
September 13, 1993, registering the common stock of Philadelphia Consolidated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including any amendments or reports filed for the purpose of updating such
description; and (iii) the Current Report on Form 8-K dated April 16, 1998.
All documents filed by Philadelphia Consolidated pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities shall
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such documents. Any statement contained in this Prospectus
or in a document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference or in
any Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Philadelphia Consolidated will provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the documents referred to above
which have been or may be incorporated herein by reference (other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference in such documents). Requests for such copies should be directed to
Craig P. Keller, Vice President, Secretary and Chief Financial Officer,
Philadelphia Consolidated Holding Corp., One Bala Plaza, Suite 100, Bala Cynwyd,
Pennsylvania 19004, (610) 617-7900.
3
<PAGE> 139
PHILADELPHIA CONSOLIDATED
As used in this Section, unless the context otherwise requires, (i)
"Philadelphia Consolidated" or the "Company" refers to Philadelphia Consolidated
and its subsidiaries; (ii) the "Insurance Subsidiaries" refers to Philadelphia
Indemnity Insurance Company ("PIIC") and Philadelphia Insurance Company ("PIC"),
collectively; and (iii) "MIA" refers to Maguire Insurance Agency, Inc., an
underwriting manager. Philadelphia Consolidated was incorporated in Pennsylvania
in 1984, to serve as a holding company for its three wholly owned subsidiaries
(PIIC, PIC and MIA).
The Company designs property and casualty insurance products incorporating
value-added coverages and services for select target industries or niches. A
"mixed" marketing strategy is utilized whereby the Company's production
underwriting organization markets the Company's insurance products to the
insured, directly or through the Company's preferred agents, and also accepts
business from independent insurance brokers. The Company's production
underwriting organization operates from proprietary field offices located across
the United States and includes telemarketing staffs at its regional offices and
the Philadelphia home office.
The Company offers the following product lines:
Commercial Automobile and Excess Liability. The Company has provided
Commercial Automobile Products to the leasing and rent-a-car industries for over
35 years. Products offered to the rent-a-car industry include coverage for the
business owner's property, dual interest liability, and physical damage on the
rental vehicle.
Additionally, through arrangements with a number of the largest rent-a-car
companies, the Company offers its excess liability product at the rental car
counter to rent-a-car customers protecting them against liability for bodily
injury and property damage, which is in excess of the statutory coverage
provided with the rental vehicle and provides primary coverage over the renter's
personal automobile insurance coverage.
The Company also offers a full range of liability and physical damage
coverages to automobile leasing companies and their customers. For the driver
(the lessee), coverages include both primary liability and physical damage
coverage on the vehicle. For the owner (the lessor), coverages include
contingent and excess liability over the primary liability layer which (i)
protects lessors in the event of a loss when the primary coverage is absent or
inadequate and (ii) provides contingent physical damage coverage. Additional
products offered to leasing companies include interim primary liability and
physical damage coverage, which protects the lessor of the vehicle before and
after it is delivered to the lessee; residual value coverage which guarantees
the value of the leased vehicle at the termination of the lease; and guaranteed
asset protection coverage which protects the lessor and lessee for the
difference between the leased vehicle's actual cash value and the lease or loan
net value in instances where the vehicle is stolen or damaged beyond repair.
Commercial Package. The Company has been providing Commercial Multi Peril
Package Policies ("Package Programs") to specific targeted niche markets for
over 10 years. Among the organizations to which the Company offers its specialty
niche Package Programs are non-profit social service agencies, health and
fitness organizations, assisted living facilities, nursing homes, private and
specialty training schools and condominium/homeowner association facilities. The
Package Programs policies are tailored to include special value-added features
addressing the unique aspects of each of the above niche markets differentiating
the Company's product offerings from those of its competitors.
Specialty Lines. The Company has been providing specialty professional
liability products for approximately 10 years, initially offering Directors &
Officers Liability coverage to Nonprofit 501(c)(3) tax exempt organizations. The
Company's recent efforts have been focused on broadening the target market for
its specialty lines product offerings through the expansion of its field
production underwriting staff and the introduction of new products. The Company
has significantly expanded its errors and omissions product offered to the
independent insurance agent along with its miscellaneous professional liability
program which is currently offered to an array of professionals including:
mortgage bankers, claims adjusters, lawyers, title abstractors, and financial
advisors. During 1996, the Company introduced a proprietary package of coverages
in its Executive Safeguard policy offered to public and private companies. The
coverages offered in the
4
<PAGE> 140
Executive Safeguard policy include: directors and officers liability, employment
practices liability, fiduciary liability, and kidnap ransom insurance.
The Company's principal executive offices are located at One Bala Plaza,
Suite 100, Bala Cynwyd, Pennsylvania, 19004 (telephone number: (610) 617-7900).
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust (the "Declaration") executed by the Company as
sponsor for such trust (the "Sponsor"), and the Trustee (as defined herein) of
such trust and (ii) the filing of a certificate of trust with the Secretary of
State of the State of Delaware on April 2, 1998. The Trust exists for the
exclusive purposes of (i) issuing and selling the Preferred Securities and
common securities representing common undivided beneficial interests in the
assets of such Trust (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities"), (ii) using the gross proceeds from the sale
of the Trust Securities to acquire the Debt Securities and (iii) engaging in
only those other activities necessary, appropriate, convenient or incidental
thereto. All of the Common Securities will be directly or indirectly owned by
Philadelphia Consolidated. The Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Preferred Securities, except
that, if an event of default under the Declaration has occurred and is
continuing, the rights of the holders 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.
Philadelphia Consolidated will directly or indirectly acquire Common Securities
in an aggregate liquidation amount equal to at least three percent of the total
capital of the Trust.
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust has a term of up to seven years but may terminate earlier, as provided in
the Declaration. The Trust's business and affairs will be conducted by the
trustees (the "Trustee") appointed by Philadelphia Consolidated as the direct or
indirect holder of all of the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase or
reduce the number of, the Trustees of the Trust. The duties and obligations of
the Trustee shall be governed by the Declaration. A majority of the Trustees
(the "Regular Trustees") of the Trust will be persons who are employees or
officers of or who are affiliated with Philadelphia Consolidated. One Trustee of
the Trust will be a financial institution (the "Institutional Trustee") that is
not affiliated with Philadelphia Consolidated 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 Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), pursuant to the terms set forth in the applicable Prospectus Supplement.
In addition, unless the Institutional Trustee maintains a principal place of
business in the State of Delaware and otherwise meets the requirements of
applicable law, one Trustee of the Trust will be an entity having a principal
place of business in, or a natural person resident of, the State of Delaware
(the "Delaware Trustee"). Philadelphia Consolidated will pay all fees and
expenses related to the Trust and the offering of the Trust Securities.
Unless otherwise specified in the applicable Prospectus Supplement, (i) the
Institutional Trustee for the Trust shall be The First National Bank of Chicago,
and its address is One First National Plaza, Suite 0286, Chicago, Illinois and
(ii) the Delaware Trustee for the Trust shall be First Chicago Delaware Inc.,
and its address in the State of Delaware is 300 King Street, Wilmington,
Delaware. The principal place of business of the Trust shall be c/o
, telephone .
5
<PAGE> 141
USE OF PROCEEDS
Unless otherwise set forth in a Prospectus Supplement, the net proceeds
from the offering of the Securities will be used for general corporate purposes,
which may include acquisitions (including, without limitation, acquisitions of
programs or books of business), capital expenditures, capital contributions to
its subsidiaries and the repurchase by Philadelphia Consolidated of its Common
Stock. When a particular series of Securities is offered, the Prospectus
Supplement relating thereto will set forth Philadelphia Consolidated's intended
use for the net proceeds received from the sale of such Securities. Pending
application for specific purposes, the net proceeds may be invested in
marketable securities.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the unaudited consolidated ratio of earnings
to fixed charges of the Company for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
----- ----- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1)......... 73.6x 69.2x 196.0x 189.0x 12.3x
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is computed by dividing income before
income taxes plus fixed charges by fixed charges. Fixed charges consist of
interest expense on all indebtedness and the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third of operating lease rental expense).
The ratio of earnings to fixed charges and preferred stock dividends is not
separately presented; the calculation is equivalent to the ratio of earnings
to fixed charges since there was no preferred stock outstanding for any of
the periods presented above and, accordingly, there were no preferred stock
dividends for any of those periods.
6
<PAGE> 142
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities may be offered from time to time by Philadelphia
Consolidated as Senior Debt Securities and/or as Subordinated Debt Securities.
The Senior Debt Securities will be issued under an Indenture, as it may be
supplemented from time to time (the "Senior Indenture"), between Philadelphia
Consolidated and The First National Bank of Chicago, as trustee (the "Senior
Trustee"). The Subordinated Debt Securities will be issued under an Indenture,
as it may be supplemented from time to time (the "Subordinated Indenture"),
between Philadelphia Consolidated and The First National Bank of Chicago, as
trustee (the "Subordinated Trustee"). The term "Trustee," as used herein, refers
to either the Senior Trustee or the Subordinated Trustee, as appropriate. The
forms of the Senior Indenture and the Subordinated Indenture (being sometimes
referred to herein collectively as the "Indentures" and individually as an
"Indenture") have been filed as exhibits to the Registration Statement. The
terms of the Indentures are also governed by certain provisions of the Trust
Indenture Act. The following summary of certain material provisions of the Debt
Securities does not purport to be complete and is qualified in its entirety by
reference to the Indentures. All capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Indentures. For a
summary of certain definitions used in this section, see "Certain Definitions"
below.
GENERAL
The Indentures will provide for the issuance of Debt Securities in series
up to the aggregate amount from time to time authorized by Philadelphia
Consolidated for each series. A Prospectus Supplement will set forth the
following terms (to the extent such terms are applicable to such Debt
Securities) of and information relating to the Debt Securities in respect of
which this Prospectus is delivered: (1) the designation of such Debt Securities;
(2) classification as Senior or Subordinated Debt Securities; (3) the aggregate
principal amount of such Debt Securities; (4) the percentage of their principal
amount at which such Debt Securities will be issued; (5) the date or dates on
which such Debt Securities will mature; (6) the rate or rates, if any, per
annum, at which such Debt Securities will bear interest, or the method of
determination of such rate or rates; (7) the times and places at which such
interest, if any, will be payable; (8) provisions for sinking, purchase or other
analogous fund, if any; (9) the date or dates, if any, after which such Debt
Securities may be redeemed at the option of Philadelphia Consolidated or of the
holder and the redemption price or prices; (10) the date or the dates, if any,
after which such Debt Securities may be converted or exchanged at the option of
the holder into or for shares of Common Stock or Preferred Stock of Philadelphia
Consolidated and the terms for any such conversion or exchange; and (11) any
other specific terms of the Debt Securities. Principal, premium, if any, and
interest, if any, will be payable and the Debt Securities offered hereby will be
transferable, at the corporate trust office of the Trustee's agent in the
borough of Manhattan, City of New York, provided that payment of interest, if
any, may be made at the option of Philadelphia Consolidated by check mailed to
the address of the person entitled thereto as it appears in the Security
Register. (Section 301 of each Indenture)
If a Prospectus Supplement specifies that a series of Debt Securities is
denominated in a currency or currency unit other than United States dollars,
such Prospectus Supplement will also specify the denomination in which such Debt
Securities will be issued and the coin or currency in which the principal,
premium, if any, and interest, if any, on such Debt Securities will be payable,
which may be United States dollars based upon the exchange rate for such other
currency or currency unit existing on or about the time a payment is due.
Special United States federal income tax considerations applicable to any Debt
Securities so denominated will also be described in the applicable Prospectus
Supplement.
The Debt Securities may be issued in registered or bearer form and, unless
otherwise specified in a Prospectus Supplement, in denominations of $1,000 and
integral multiples thereof. Debt Securities may be issued in book-entry form,
without certificates. Any such issue will be described in the Prospectus
Supplement relating to such Debt Securities. No service charge will be made for
any transfer or exchange of the Debt Securities, but Philadelphia Consolidated
or the Trustee may require payment of a sum sufficient to cover any tax or other
government charge payable in connection therewith.
7
<PAGE> 143
Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount from their stated
principal amount. United States Federal income tax consequences and other
considerations applicable thereto will be described in the Prospectus Supplement
relating to such Debt Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indentures will provide that Philadelphia Consolidated shall not
consolidate with or merge into any other corporation or convey, transfer or
lease its properties and assets substantially as an entirety to any Person,
unless: (1) the corporation formed by such consolidation or into which
Philadelphia Consolidated is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of Philadelphia
Consolidated substantially as an entirety (A) shall be a corporation,
partnership, limited liability company or trust organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and (B) shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, Philadelphia Consolidated's obligation for the due and punctual
payment of the principal of (and premium, if any, on) and interest on all the
Debt Securities and the performance and observance of every covenant of the
Indentures on the part of Philadelphia Consolidated to be performed or observed;
(2) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (3) Philadelphia Consolidated
or such Person shall have delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and such supplemental indenture comply with the provisions of
the Indentures described in this "Merger, Consolidation and Sale of Assets"
section and that all conditions precedent therein provided for relating to such
transaction have been complied with. The provisions of the Indentures described
in this paragraph shall apply only to a merger or consolidation in which
Philadelphia Consolidated is not the surviving corporation and to conveyances,
leases and transfers by Philadelphia Consolidated as transferor or lessor.
(Section 801 of each Indenture)
The Indentures will further provide that upon any consolidation by
Philadelphia Consolidated with or merger by Philadelphia Consolidated into any
other corporation or any conveyance, transfer or lease of the properties and
assets of Philadelphia Consolidated substantially as an entirety to any Person
in accordance with the preceding paragraph, the successor Person formed by such
consolidation or into which Philadelphia Consolidated is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, Philadelphia Consolidated under the
Indentures with the same effect as if such successor Person had been named as
Philadelphia Consolidated therein, and in the event of any such conveyance or
transfer, Philadelphia Consolidated (which term shall for this purpose mean
Philadelphia Consolidated Holding Corp. or any successor Person which shall
theretofore become such in the manner described in the preceding paragraph),
except in the case of a lease, shall be discharged of all obligations and
covenants under the Indentures and the Debt Securities and the coupons and may
be dissolved and liquidated. (Section 802 of each Indenture)
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indentures with respect
to Debt Securities of any series:
(1) default in the payment of any interest on any Debt Securities of
that series or any related coupon, when such interest or coupon becomes due
and payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Debt Securities of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment when and as due
pursuant to the terms of the Debt Securities of that series and Article
Twelve of the Indentures; or
8
<PAGE> 144
(4) default in the performance, or breach, of any covenant or warranty
of Philadelphia Consolidated in the Indentures (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere under this "Events of Default" section), and
continuance of such default or breach for a period of 90 days after there
has been given, by registered or certified mail, to Philadelphia
Consolidated by the Trustee or to Philadelphia Consolidated and the Trustee
by the Holders of at least 25% in principal amount of all Outstanding Debt
Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" thereunder; or
(5) the entry of a decree or order by a court having jurisdiction in
the premises adjudging Philadelphia Consolidated bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of Philadelphia Consolidated
under the Federal Bankruptcy Code or any other applicable federal or state
law, or appointing a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of Philadelphia Consolidated or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 90 consecutive days; or
(6) the institution by Philadelphia Consolidated of proceedings to be
adjudicated bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of
a petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other applicable federal or state law, or
the consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of Philadelphia Consolidated or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due; or
(7) (A) there shall have occurred one or more defaults by Philadelphia
Consolidated in the payment of the principal of (or premium, if any, on)
Debt aggregating $50 million or more, when the same becomes due and payable
at the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived, or (B) Debt of Philadelphia Consolidated aggregating $50 million
or more shall have been accelerated or otherwise declared due and payable,
or required to be prepaid or repurchased (other than by regularly scheduled
required prepayment), prior to the stated maturity thereof; or
(8) any other Event of Default provided with respect to Debt
Securities of that series.
If an Event of Default described in clause (1), (2), (3), (4), (7) or (8)
above with respect to Debt Securities of any series at the time Outstanding
occurs and is continuing, then in every such case the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms of that series)
of all of the Debt Securities of that series to be due and payable immediately,
by a notice in writing to Philadelphia Consolidated (and to the Trustee if given
by Holders), and upon any such declaration such principal amount (or specified
portion thereof) shall become immediately due and payable. If an Event of
Default described in clause (5) or (6) above occurs and is continuing, then the
principal amount of all the Debt Securities shall become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder, subject, however, to all rights, powers and limitations provided for
by the Federal Bankruptcy Code or any other applicable Federal or State Law.
At any time after a declaration of acceleration with respect to Debt
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as provided in Article Five of the Indentures, the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series
(or of all series, as the case may be), by
9
<PAGE> 145
written notice to Philadelphia Consolidated and the Trustee, may rescind and
annul such declaration and its consequences if:
(1) Philadelphia Consolidated has paid or deposited with the Trustee a
sum sufficient to pay in the Currency in which the Debt Securities of such
series are payable (except as otherwise specified pursuant to Section 301
of the Indentures for the Debt Securities of such series and except, if
applicable, as provided in certain provisions of Section 312 of the
Indentures):
(A) all overdue interest on all Outstanding Debt Securities of that
series (or of all series, as the case may be) and any related coupons;
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Debt Securities of that series (or of all series, as the
case may be) which has become due otherwise than by such declaration of
acceleration, and interest on such unpaid principal at the rate or rates
prescribed therefor in such Debt Securities;
(C) to the extent that payment of such interest is lawful, interest
on overdue interest at the rate or rates prescribed therefor in such
Debt Securities; and
(D) all sums paid or advanced by the Trustee thereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Debt Securities of that
series (or of all series, as the case may be), other than the non-payment
of amounts of principal of (or premium, if any, on) or interest on Debt
Securities of that series (or of all series, as the case may be) which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513 of the Indentures.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Debt Securities because of an Event of Default
specified in clause (7) of the first paragraph of this section shall have
occurred and be continuing, such declaration of acceleration shall be
automatically annulled if the Debt that is the subject of such Event of Default
has been discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Debt, and written notice of such discharge or
rescission, as the case may be, shall have been given to the Trustee by
Philadelphia Consolidated and countersigned by the holders of such Debt or a
trustee, fiduciary or agent for such holders, within 30 days after such
declaration of acceleration in respect of the Debt Securities, and no other
Event of Default has occurred during such 30-day period which has not been cured
or waived during such period. (Section 502 of each Indenture)
Subject to Section 502 of each Indenture, the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
may on behalf of the Holders of all the Debt Securities of such series waive any
past default described in clause (1), (2), (3), (4), (7), or (8) of the first
paragraph of this section (or, in the case of a default described in clause (5)
or (6) of the first paragraph of this section, the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities may waive any
such past default), and its consequences, except a default (i) in respect of the
payment of the principal of (or premium, if any, on) or interest on any Debt
Security or any related coupon, or (ii) in respect of a covenant or provision
which under the Indentures cannot be modified or amended without the consent of
the Holder of each Outstanding Debt Security of such series affected. (Section
513 of each Indenture)
Upon any such waiver, any such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of the Indentures; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
(Section 513 of each Indenture)
No Holder of any Debt Security of any series or any related coupons shall
have any right to institute any proceeding, judicial or otherwise, with respect
to the Indentures, or for the appointment of a receiver or trustee, or for any
other remedy thereunder, unless (i) such Holder has previously given written
notice to the Trustee of a continuing Event of Default with respect to the Debt
Securities of that series; (ii) the Holders of
10
<PAGE> 146
not less than 25% in principal amount of the Outstanding Debt Securities of that
series in the case of any Event of Default under clause (1), (2), (3), (4), (7)
or (8) of the first paragraph of this section, or, in the case of any Event of
Default described in clause (5) or (6) of the first paragraph of this section,
the Holders of not less than 25% in principal amount of all Outstanding Debt
Securities, shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee under
each of the Indentures; (iii) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request; (iv) the Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute any such
proceeding; and (v) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Debt Securities of that series in
the case of any Event of Default described in clause (1), (2), (3), (4), (7) or
(8) of the first paragraph of this section, or, in the case of any Event of
Default described in clause (5) or (6) of the first paragraph of this section,
by the Holders of a majority or more in principal amount of all Outstanding Debt
Securities. (Section 507 of each Indenture)
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under either Indenture in good
faith. Subject to the provisions of the Indentures relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indentures is not under any obligation to exercise any of its rights
or powers under the Indentures at the request or direction of any of the Holders
unless such Holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
with respect to the Debt Securities of any series, the Holders of not less than
a majority in principal amount of the Outstanding Debt Securities of such series
shall 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 under the Indentures.
Within 90 days after the occurrence of any Default with respect to Debt
Securities of any series, the Trustee shall transmit in the manner and to the
extent provided in TIA Section 313(c), notice of such Default known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of (or
premium, if any, on) or interest on any Debt Securities of such series, or in
the payment of any sinking fund installment with respect to Debt Securities of
such series, the Trustee shall be protected in withholding 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 determines
that the withholding of such notice is in the interest of the Holders of Debt
Securities of such series and any related coupons; and provided further that, in
the case of any Default of the character specified in clause (7) of the first
paragraph of this section with respect to Debt Securities of such series, no
such notice to Holders shall be given until at least 30 days after the
occurrence thereof.
Philadelphia Consolidated is required to deliver to the Trustee, within 120
days after the end of each fiscal year, a brief certificate of Philadelphia
Consolidated's compliance with all of the conditions and covenants under the
Indentures.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURES
The Indentures will provide that Philadelphia Consolidated may, at its
option and at any time, terminate the obligations of Philadelphia Consolidated
with respect to the Outstanding Debt Securities of any series ("defeasance").
Such defeasance means that Philadelphia Consolidated shall be deemed to have
paid and discharged the entire indebtedness represented by the Outstanding Debt
Securities and any related coupons, except for the following which shall survive
until otherwise terminated or discharged under the Indentures: (A) the rights of
Holders of such Outstanding Debt Securities and any related coupons (i) to
receive, solely from the trust fund described in the Indentures, payments in
respect of the principal of (and premium, if any, on) and interest on such Debt
Securities and any related coupons when such payments are due, and (ii) to
receive shares of common stock or other Securities from Philadelphia
Consolidated upon conversion of any convertible Debt Securities issued
thereunder, (B) Philadelphia Consolidated's obligations to issue temporary Debt
Securities, register the transfer or exchange of any Debt Securities, replace
mutilated, destroyed, lost or
11
<PAGE> 147
stolen Debt Securities, maintain an office or agency for payments in respect of
the Debt Securities and, if Philadelphia Consolidated acts as its own Paying
Agent, hold in trust, money to be paid to such Persons entitled to payment, and
with respect to Additional Amounts, if any, on such Debt Securities as
contemplated in the Indentures, (C) the rights, powers, trusts, duties and
immunities of the Trustee under the Indentures and (D) the defeasance provisions
of the Indentures. With respect to Subordinated Debt Securities, money and
securities held in trust pursuant to the defeasance and covenant defeasance
provisions described herein, shall not be subject to the subordination
provisions of the Subordinated Indenture. In addition, Philadelphia Consolidated
may, at its option and at any time, elect to terminate the obligations of
Philadelphia Consolidated with respect to certain covenants that are set forth
in the Indentures, some of which are described in the "Certain Covenants"
section above, and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Debt Securities
("covenant defeasance"). (Section 1403 of each Indenture)
In order to exercise either defeasance or covenant defeasance:
(1) Philadelphia Consolidated shall irrevocably have deposited or
caused to be deposited with the Trustee, in trust, for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Debt Securities and
any related coupons, (A) money in an amount (in such Currency in which such
Debt Securities and any related coupons are then specified as payable at
Stated Maturity), or (B) Government Obligations applicable to such Debt
Securities (determined on the basis of the Currency in which such Debt
Securities are then specified as payable at Stated Maturity) which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment of principal (including any premium) and interest,
if any, under such Debt Securities and any related coupons, money in an
amount or (C) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants to pay and
discharge (i) the principal of (and premium, if any, on) and interest on
the Outstanding Debt Securities and any related coupons on the Stated
Maturity (or Redemption Date, if applicable) of such principal (and
premium, if any) or installment or interest and (ii) any mandatory sinking
fund payments or analogous payments applicable to the Outstanding Debt
Securities and any related coupons on the day on which such payments are
due and payable in accordance with the terms of the Indentures and of such
Debt Securities and any related coupons; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such Government Obligations to said payments with respect to such Debt
Securities and any related coupons. Before such a deposit, Philadelphia
Consolidated may give to the Trustee, in accordance with certain redemption
provisions in the Indentures, a notice of its election to redeem all or any
portion of such Outstanding Debt Securities at a future date in accordance
with the terms of the Debt Securities of such series and the redemption
provisions of the Indentures, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in applying
the foregoing; and
(2) no Default or Event of Default with respect to the Debt Securities
and any related coupons shall have occurred and be continuing on the date
of such deposit or, insofar as the Event of Default described in clauses
(5) and (6) of the Events of Default section above are concerned, at any
time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period); (3) such defeasance or
covenant defeasance shall not result in a breach or violation of, or
constitute a default under, the Indentures or any other material agreement
or instrument to which Philadelphia Consolidated is a party or by which it
is bound; (4) in the case of a defeasance, Philadelphia Consolidated shall
have delivered to the Trustee an Opinion of Counsel stating that (x)
Philadelphia Consolidated has received from, or there has been published
by, the Internal Revenue Service a ruling or (y) since the Issue Date,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the Holders of the Outstanding Debt Securities and any related coupons will
not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to 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 had not occurred; (5) in the case of a covenant
defeasance, Philadelphia
12
<PAGE> 148
Consolidated shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Outstanding Debt Securities and any
related coupons will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; (6) notwithstanding any other provisions of the defeasance and
covenant defeasance provisions of the Indentures, such defeasance or
covenant defeasance shall be effected in compliance with any additional or
substitute terms, conditions or limitations in connection therewith
pursuant to Section 301 of the Indentures; and (7) Philadelphia
Consolidated shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent under
the Indentures to either defeasance or covenant defeasance, as the case may
be, have been complied with. (Section 1404 of each Indenture)
SATISFACTION AND DISCHARGE
The Indentures shall upon Company Request cease to be of further effect
with respect to any series of Debt Securities (except as to any surviving rights
of registration of transfer or exchange of Debt Securities of such series herein
expressly provided for and the obligation of Philadelphia Consolidated to pay
any Additional Amounts as contemplated by Section 1005 of each Indenture) and
the Trustee, at the expense of Philadelphia Consolidated, shall execute proper
instruments acknowledging satisfaction and discharge of such Indenture as to
such series when (1) either (A) all Debt Securities of such series theretofore
authenticated and delivered and all coupons, if any, appertaining thereto (other
than (i) coupons appertaining to Bearer Securities surrendered for exchange for
Registered Securities and maturing after such exchange, whose surrender is not
required or has been waived as provided in Section 305 of the Indentures, (ii)
Debt Securities and coupons of such series which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section 306 of the
Indentures, (iii) coupons appertaining to Debt Securities called for redemption
and maturing after the relevant Redemption Date, whose surrender has been waived
as provided in Section 1106 of the Indentures, and (iv) Debt Securities and
coupons of such series for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in trust by
Philadelphia Consolidated and thereafter repaid to Philadelphia Consolidated, as
provided in Section 1003 of the Indentures) have been delivered to the Trustee
for cancellation; or (B) all Debt Securities of such series and, in the case of
(i) or (ii) below, any coupons appertaining thereto not theretofore delivered to
the Trustee for cancellation (i) have become due and payable, or (ii) will
become due and payable at their Stated Maturity within one year, or (iii) if
redeemable at the option of Philadelphia Consolidated, are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of Philadelphia Consolidated, and Philadelphia Consolidated, in the
case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose an amount, in
the Currency in which the Debt Securities of such series are payable, sufficient
to pay and discharge the entire indebtedness on such Debt Securities not
theretofore delivered to the Trustee for cancellation, for principal (and
premium, if any) and interest to the date of such deposit (in the case of Debt
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be; (2) Philadelphia Consolidated has paid or
caused to be paid all other sums payable hereunder by Philadelphia Consolidated;
and (3) Philadelphia Consolidated has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent described herein relating to the satisfaction and discharge of the
Indentures as to such series have been complied with. (Section 401 of each
Indenture)
AMENDMENTS AND WAIVERS
The Indentures will provide that at any time and from time to time,
Philadelphia Consolidated and the Trustee may, without the consent of any holder
of Debt Securities, enter into one or more indentures supplemental thereto for
certain specified purposes, including, among other things, (i) to cure
ambiguities, defects or inconsistencies, or to make any other provisions with
respect to questions or matters arising under the Indentures (provided that such
action shall not adversely affect the interests of the Holders in any material
respect), (ii) to effect or maintain the qualification of the Indentures under
the Trust Indenture Act, or
13
<PAGE> 149
(iii) to evidence the succession of another person to Philadelphia Consolidated
and the assumption by any such successor of the obligations of Philadelphia
Consolidated in accordance with the Indentures and the Debt Securities. (Section
901 of each Indenture). Other amendments and modifications of the Indentures or
the Debt Securities may be made by Philadelphia Consolidated and the Trustee
with the consent of the holders of not less than a majority of the aggregate
principal amount of all of the then Outstanding Debt Securities of any Series;
provided, however, that no such modification or amendment may, without the
consent of the holder of each Outstanding Debt Security affected thereby, (1)
change the Stated Maturity of the principal of, or any installment of interest
on, any Debt Security or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
any obligation of Philadelphia Consolidated to pay Additional Amounts
contemplated by Section 1005 of each Indenture (except as contemplated and
permitted by certain provisions of the Indentures), or 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 pursuant to Section
502 of the Indentures of the amount thereof provable in bankruptcy pursuant to
Section 504 of the Indentures, or adversely affect any right of repayment at the
option of any Holder of any Debt Security, or change any Place of Payment where,
or the Currency in which, any Debt Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case of
redemption or repayment at the option of the Holder, on or after the Redemption
Date or Repayment Date, as the case may be), or adversely affect any right to
convert or manage any Debt Securities as may be provided pursuant to Section 301
of the Indentures, or (2) reduce the percent in principal amount of the
Outstanding Debt Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, for any waiver of compliance with
certain provisions of the Indentures or certain defaults thereunder and their
consequences provided for in the Indentures, or reduce the requirements for
quorum or voting.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by and construed in
accordance with the laws of the State of New York. The Indentures are subject to
the provisions of the Trust Indenture Act that are required to be a part thereof
and shall, to the extent applicable, be governed by such provisions.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Capital Stock" means any and all shares, interests, participations, rights
or equivalents (however designated) of corporate stock of Philadelphia
Consolidated or any Principal Subsidiary.
"Company Order" or "Company Request" means a written request or order
signed in the name of Philadelphia Consolidated by its Chairman, its President,
any Vice President, its Treasurer or an Assistant Treasurer, and delivered to
the Trustee.
"Debt" means notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Fair Market Value" means the fair market value of the item in question as
determined by the Board of Directors acting in good faith and in exercise of its
fiduciary duties.
"Holder" means a Person in whose name a Debt Security is registered in the
Security Register.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debt Securities.
14
<PAGE> 150
"Issue Date" means the date of first issuance of the Debt Securities under
either Indenture.
"Maturity," when used with respect to any Debt Securities, means the date
on which the principal of such Debt Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption, notice of
option to elect repayment or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of Philadelphia Consolidated, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for Philadelphia Consolidated, including an employee of Philadelphia
Consolidated, and who shall be acceptable to the Trustee.
"Original Issue Discount Security" means any Debt Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 502 of
the Indentures.
"Outstanding," when used with respect to Debt Securities, means, as of the
date of determination, all Debt Securities theretofore authenticated and
delivered under the Indentures, except:
(i) Debt Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Debt Securities, or portions thereof, for whose payment, money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than Philadelphia Consolidated) in trust or set aside
and segregated in trust by Philadelphia Consolidated (if Philadelphia
Consolidated shall act as its own Paying Agent) for the Holders of such
Debt Securities;
(iii) Debt Securities, except to the extent provided in the
"Defeasance or Covenant Defeasance of the Indentures" section, with respect
to which Philadelphia Consolidated has effected defeasance and/or covenant
defeasance as provided in the Indenture; and
(iv) Mutilated, destroyed, lost or stolen Debt Securities which have
become or are about to become due and payable which have been paid pursuant
to Section 306 of the Indentures or in exchange for or in lieu of which
other Debt Securities have been authenticated and delivered pursuant to the
Indenture, other than any such Debt Securities in respect of which there
shall have been presented to the Trustee proof satisfactory to it that such
Debt Securities are held by a bona fide purchaser in whose hands the Debt
Securities are valid obligations of Philadelphia Consolidated; provided,
however, that in determining whether the Holders of the requisite principal
amount of Outstanding Debt Securities have given any request, demand,
authorization, direction, notice, consent or waiver under the Indentures,
and for the purpose of making the calculations required by TIA Section 313,
Debt Securities owned by Philadelphia Consolidated or any other obligor
upon the Debt Securities or any Affiliate of Philadelphia Consolidated or
such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in
making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Debt Securities
which the Trustee knows to be so owned shall be so disregarded. Debt
Securities so owned which have been pledged in good faith may be regarded
as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debt Securities
and that the pledgee is not Philadelphia Consolidated or any other obligor
upon the Debt Securities or any Affiliate of Philadelphia Consolidated or
such other obligor.
"Paying Agent" means any Person (including Philadelphia Consolidated acting
as Paying Agent) authorized by Philadelphia Consolidated to pay the principal of
(and premium, if any, on) or interest on any Debt Securities on behalf of
Philadelphia Consolidated.
15
<PAGE> 151
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Rolling Period" shall mean with respect to any fiscal quarter, such fiscal
quarter and the three immediately preceding fiscal quarters considered as a
single accounting period.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305 of the Indenture.
"Stated Maturity," when used with respect to any Debt Security or any
installment of principal thereof or interest thereon, means the date specified
in such Debt Security as the fixed date on which the principal of such Debt
Security or such installment of principal or interest is due and payable.
"Subsidiary" means any corporation of which at the time of determination
Philadelphia Consolidated, directly and/or indirectly through one or more
Subsidiaries, owns more than 50% of the Voting Stock.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which the Indentures were executed, except that any
supplemental indenture executed pursuant to the Indentures shall conform to the
requirements of the Trust Indenture Act as in effect on the date of execution
thereof.
"Trustee" means The First National Bank of Chicago until a successor
Trustee shall have become such pursuant to the applicable provisions of the
Indentures, and thereafter "Trustee" shall mean such successor Trustee.
"Vice President," when used with respect to Philadelphia Consolidated or
the Trustee, means any vice president, whether or not designated by a number or
a word or words added before or after the title "vice president."
"Voting Stock" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of a corporation (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
GENERAL DESCRIPTION OF CAPITAL STOCK
The following description of Philadelphia Consolidated's capital stock does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the more complete descriptions thereof set forth in Philadelphia
Consolidated's Articles of Incorporation, as amended (the "Articles"), and
By-laws, as amended (the "By-laws"), which documents are exhibits to this
Registration Statement.
Philadelphia Consolidated is authorized to issue up to 50,000,000 shares of
Common Stock, no par value, and up to 10,000,000 shares of Preferred Stock, $.01
par value per share. As of March 9, 1998, there were 12,282,370 shares of Common
Stock and no shares of Preferred Stock outstanding.
16
<PAGE> 152
DESCRIPTION OF PREFERRED STOCK
General. The following summary contains a description of certain general
terms of Philadelphia Consolidated's Preferred Stock. The particular terms of
any series of Preferred Stock that may be offered will be described in the
applicable Prospectus Supplement. If so indicated in a Prospectus Supplement,
the terms of any such series may differ from the terms set forth below. The
summary of terms of the Preferred Stock does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
Articles and any amendment(s) thereto relating to a particular series of offered
Preferred Stock which is or will be in the form filed or incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part at or prior to the time of the issuance of such series of Preferred
Stock.
The Board of Directors of Philadelphia Consolidated has the power, without
further action by the shareholders, to issue in one or more classes on series,
shares of Preferred Stock with full, limited, multiple, fractional or no voting
rights, and with such designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights or other special or
relative rights as shall be fixed from time to time by the Board of Directors.
The shares of any series of Preferred Stock will be, when issued, fully paid and
non-assessable and holders thereof will have no preemptive rights in connection
therewith.
Rank. Unless otherwise specified in the Prospectus Supplement relating to
a particular series of Preferred Stock, each series of Preferred Stock will rank
on parity as to dividends and liquidation rights in all respects with each other
series of Preferred Stock.
Dividend Rights. Holders of the Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors of
Philadelphia Consolidated, out of funds legally available therefor, cash
dividends at such rates and on such dates as are set forth in the Prospectus
Supplement relating to such series of Preferred Stock. Different series of the
Preferred Stock may be entitled to dividends at different rates or based upon
different methods of determination. Such rates may be fixed or variable or both.
Each such dividend will be payable to the holders of record as they appear on
the stock books of Philadelphia Consolidated on such record dates as will be
fixed by the Board of Directors of Philadelphia Consolidated or a duly
authorized committee thereof. Dividends on any series of the Preferred Stock may
be cumulative or noncumulative, as provided in the Prospectus Supplement
relating thereto.
Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Philadelphia Consolidated, the holders
of each series of Preferred Stock will be entitled to receive out of assets of
Philadelphia Consolidated available for distribution to shareholders, before any
distribution of assets is made to holders of Common Stock or any other class of
stock ranking junior to such series of the Preferred Stock upon liquidation,
liquidating distributions in the amount set forth in the Prospectus Supplement
relating to such series of Preferred Stock plus an amount equal to accrued and
unpaid dividends for the then current dividend period and, if such series of the
Preferred Stock is cumulative, for all dividend periods prior thereto, all as
set forth in the Prospectus Supplement with respect to such series of Preferred
Stock.
Redemption. The terms, if any, on which shares of a series of Preferred
Stock may be subject to optional or mandatory redemption, in whole or in part,
will be set forth in the Prospectus Supplement relating to such series.
Conversion and Exchange. The terms, if any, on which shares of a series of
Preferred Stock are convertible into another series of Preferred Stock or Common
Stock or exchangeable for another series of Preferred Stock or Common Stock will
be set forth in the Prospectus Supplement relating thereto. Such terms may
include provisions for conversion, either mandatory, at the option of the
holder, or at the option of Philadelphia Consolidated, in which case the number
of shares of another series of Preferred Stock or Common Stock to be received by
the holders of such series of Preferred Stock would be calculated as of a time
and in the manner stated in such Prospectus Supplement.
Transfer Agent and Registrar. The transfer agent, registrar and dividend
disbursement agent for each series of Preferred Stock will be designated in the
applicable Prospectus Supplement. The registrar for shares of each series of
Preferred Stock will send notices to shareholders of any meetings at which
holders of the Preferred Stock have the right to elect directors of Philadelphia
Consolidated or to vote on any other matter.
17
<PAGE> 153
Voting Rights. The holders of Preferred Stock of a series offered hereby
will not be entitled to vote except as indicated in the Prospectus Supplement
relating to such series of Preferred Stock or as required by applicable law.
DESCRIPTION OF COMMON STOCK
General. The holders of Common Stock are entitled to receive dividends,
when and as declared by the Board of Directors, out of funds legally available
therefor, and to receive pro rata the assets of Philadelphia Consolidated
legally available for distribution upon liquidation, after payment to any
holders of Preferred Stock having a liquidation preference over the Common
Stock. In addition, holders of Common Stock are entitled to one vote per share
on all matters voted on by shareholders generally, including the election of
directors. Shareholders do not have cumulative voting rights. There are no
preemptive, conversion or redemption rights applicable to the shares of the
Common Stock. The currently outstanding shares of Common Stock are fully paid
and non-assessable. The shares of Common Stock sold hereunder will be fully paid
and nonassessable when the shares are issued by Philadelphia Consolidated
against receipt of the purchase price therefor. The Common Stock is listed on
the NNM under the symbol "PHLY."
The issuance of or the ability of the Board of Directors to issue Preferred
Stock could adversely affect the voting power and other rights of the holders of
Common Stock or have the effect of decreasing the market price of the Common
Stock or of discouraging or hampering any attempt by a person or group to obtain
control of Philadelphia Consolidated including any attempt involving a bid for
the Common Stock at a premium over the then market price.
PENNSYLVANIA LAW AND CERTAIN CORPORATE PROVISIONS
The provisions of Pennsylvania Law and of the Articles and By-Laws which
are summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in such stockholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by
shareholders.
Pennsylvania Business Combination Statute. The Pennsylvania Business
Corporation Law of 1988 (the "PA BCL") contains several sections designed to
provide certain Pennsylvania-domiciled corporations and their shareholders with
protection against hostile takeovers and abusive takeover techniques. However,
these provisions do not apply to a corporation that has, in accordance with
certain procedures set forth in the PA BCL, opted out of such sections.
Philadelphia Consolidated has opted out of all such sections except Subchapter F
of Chapter 25 of the PA BCL (the "Business Combination Statute"). Philadelphia
Consolidated could subsequently elect not to be subject to the Business
Combination Statute by appropriate amendment of its Articles. However, such an
amendment must be approved by the vote of disinterested shareholders holding a
majority of Philadelphia Consolidated's shares entitled to vote in the election
of directors. In addition, such amendment would not become effective until 18
months from such vote and would not apply to a business combination with persons
who were interested shareholders prior to the vote.
The Business Combination Statute is designed to regulate certain "business
combinations" between corporations, such as Philadelphia Consolidated, which
have a class of voting shares registered under the Exchange Act, and their
"interested shareholders." In general, the Business Combination Statute
prohibits the consummation of certain enumerated "business combinations" during
a five-year moratorium period commencing on the date the interested shareholder
first acquires beneficial ownership of 20% or more of the voting shares of the
target corporation. After the moratorium period, the corporation can undertake a
business combination with the interested shareholder only upon receipt of
certain shareholder approvals.
The Business Combination Statute defines the term "interested shareholder"
as any person that, directly or indirectly, is the beneficial owner of 20% or
more of the shares entitled to be voted in an election of directors. Beneficial
ownership is broadly defined to include a person who, individually or through or
with affiliates or associates, directly or indirectly owns shares or has the
right to acquire or vote shares by virtue of written or oral agreements,
arrangements or understandings.
18
<PAGE> 154
The statute contains a detailed list of transactions that constitute
"business combinations," including, among others, (i) a merger or consolidation
of the corporation with the interested shareholder or the corporate affiliates
or associates of the interested shareholder; (ii) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition to the interested shareholder of
assets of the corporation or a subsidiary of the corporation having an aggregate
market value of at least 10% of the aggregate market value (as defined) of the
consolidated assets or outstanding stock of the corporation or representing ten
percent or more of the consolidated earning power or net income of the
corporation; (iii) the issuance or transfer by the corporation or a subsidiary
to the interested shareholder of stock having an aggregate market value equal to
five percent or more of the aggregate market value of all outstanding stock of
the corporation; (iv) adoption of a plan or proposal of liquidation or
dissolution of the corporation proposed by or pursuant to any oral or written
agreement, arrangement or understanding with the interested shareholder; (v) a
reclassification, recapitalization, merger or consolidation of the corporation
with any subsidiary or other transaction which is proposed by or pursuant to any
oral or written agreement, arrangement or understanding with the interested
shareholder and which has the effect of increasing the proportionate ownership
of shares by the interested shareholder; and (vi) receipt by the interested
shareholder of any disproportionate benefit from any loans, advances,
guarantees, pledges or other financial assistance, tax credits or other tax
advantages from the corporation.
The Business Combination Statute sets forth certain exceptions to the
restrictions contained therein. First, a proposed business combination can be
effected during the five-year moratorium period if the combination is approved
by a corporation's board of directors prior to the date on which the person
became an interested shareholder, or if the board approves the transaction in
which the person became an interested shareholder prior to the consummation of
such transaction. Second, a combination may be consummated during the five-year
moratorium period if at least 80% of the corporation's voting stock is owned by
the interested shareholder, the holders of a majority of the shares not held by
the interested shareholder or its affiliates approve the combination, and there
is compliance with certain fair price provisions that specify the minimum
consideration to be received by the corporation's shareholders in the
combination (the "Fair Price Provisions") or, alternatively, if the combination
is unanimously approved by all of the holders of the outstanding common shares
of the corporation. Finally, after the expiration of the five-year moratorium
period, a combination can occur upon approval of either (i) the holders of a
majority or the voting shares not held by the interested shareholder or its
affiliates, or (ii) the holders of a corporation's shares present or represented
at a duly called meeting. However, in the case of clause (ii), the business
combination may only be consummated if the consideration received by each
disinterested shareholder complies with the Fair Price Provisions.
Preferred Stock. The Board of Directors is authorized (without shareholder
approval) to issue one or more classes or series of Preferred Stock, with full,
limited, multiple, fractional or no voting rights, and with such designations,
preferences, qualifications, privileges. limitations, restrictions, options,
conversion rights or other special or relative rights as may be fixed from time
to time by the Board of Directors. These rights and privileges could adversely
affect the voting power of holders of Common Stock, and the authority of the
Board of Directors to issue Preferred Stock without further shareholder approval
could have the effect of delaying, deterring, or preventing a change in control
of Philadelphia Consolidated.
Special Meetings of Shareholders. Except as expressly required by law,
special meetings of shareholders may be called at any time only by: (i) the
Chief Executive Officer or Chief Operating Officer of Philadelphia Consolidated;
or (ii) a majority of the entire Board of Directors.
No Shareholder Action by Written Consent. The Articles provide that at any
time Philadelphia Consolidated has more than 75 shareholders, as it currently
has, no shareholder action shall be effective unless taken at a shareholder
meeting. This prevents the holders of a majority of the outstanding voting stock
of Philadelphia Consolidated from using procedures for shareholder action by
written consent to take shareholder action without giving all the shareholders
of Philadelphia Consolidated entitled to vote on a proposed action the
opportunity to participate in determining the proposed action.
Advance Notice Requirements for Shareholder Proposals and Director
Nominees. The By-laws establish an advance notice procedure with regard to
business proposed to be submitted by shareholders at any annual
19
<PAGE> 155
or special meeting of shareholders of Philadelphia Consolidated, including the
nomination of candidates for election as directors. The procedure provides that
a notice of proposed shareholder business or a shareholder nomination for
director must be timely given in writing to Philadelphia Consolidated prior to
the meeting. Generally, to be timely, notice relating to an annual meeting must
be received at the principal executive offices of Philadelphia Consolidated not
less than 50 days nor more than 75 days before such meeting. Notice to
Philadelphia Consolidated from a shareholder who proposes to nominate a person
at a meeting for election as a director must contain: (a) the name and address
of the shareholder intending to make the nomination and of the person or persons
to be nominated; (b) a representation that the shareholder intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (c) the address and principal occupation for the past five years of
the nominee; and (d) the written consent of the nominee to serve as a director
of Philadelphia Consolidated if so elected.
The chairperson of a meeting of shareholders may determine that a person is
not nominated in accordance with the nomination procedure, in which case such
person's nomination will be disregarded. If the chairperson of a meeting of
shareholders determines that other business was not properly brought before such
meeting in accordance with the By-law procedures, such business may or may not
be conducted at the meeting, in the chairperson's sole discretion. Nothing in
the nomination procedure or the business procedure will preclude discussion by
any shareholder of any nomination or business properly made or brought before
the annual or any other meeting in accordance with the above-mentioned
procedures.
Amendment of the By-laws. The By-laws provide that By-law provisions may
be adopted, altered, amended or repealed only by the affirmative vote of a
majority of the members of the Board of Directors or holders of at least 75% of
the outstanding shares of capital stock of Philadelphia Consolidated.
DESCRIPTION OF WARRANTS
GENERAL
Philadelphia Consolidated may issue Warrants to purchase Debt Securities,
Preferred Stock, Common Stock or any combination thereof, and such Warrants may
be issued independently or together with any such Securities and may be attached
to or separate from such Securities. Each series of Warrants will be issued
under a separate warrant agreement (each a "Warrant Agreement") to be entered
into between Philadelphia Consolidated and a warrant agent ("Warrant Agent").
The Warrant Agent will act solely as an agent of Philadelphia Consolidated in
connection with the Warrants of each such series and will not assume any
obligation or relationship of agency for or with holders or beneficial owners of
Warrants. The following sets forth certain general terms and provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currency or currencies, including composite currencies, in which the price
of such Warrants may be payable; (v) the designation and terms of the Securities
(other than Preferred Securities and Common Securities) purchasable upon
exercise of such Warrants; (vi) the price at which and the currency or
currencies, including composite currencies, in which the Securities (other than
Preferred Securities and Common Securities) purchasable upon exercise of such
Warrants may be purchased; (vii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (viii)
whether such Warrants will be issued in registered form or bearer form; (ix) if
applicable, the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) if applicable, the designation and terms of the
Securities (other than Preferred Securities and Common Securities) with which
such Warrants are issued and the number of such Warrants issued with each such
Security; (xi) if applicable, the date on and after which such Warrants and the
related Securities (other than Preferred Securities and Common Securities) will
be separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain
20
<PAGE> 156
United States Federal income tax considerations; and (xiv) any other terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.
DESCRIPTION OF PREFERRED SECURITIES OF THE TRUST
GENERAL
The Trust may issue, from time to time, only one series of Preferred
Securities having terms described in the Prospectus Supplement relating thereto.
The Declaration authorizes the Regular Trustees of the Trust to issue on behalf
of the Trust one series of Preferred Securities. The Declaration will be
qualified as an indenture under the Trust Indenture Act. The Institutional
Trustee, an independent trustee, will act as indenture trustee for the Preferred
Securities for purposes of compliance with the provisions of the Trust Indenture
Act. The Preferred Securities will have such terms, including distributions,
redemption, voting, liquidation rights and such other preferred, deferred or
other special rights or such restrictions as shall be established by the Regular
Trustees in accordance with the Declaration or as shall be set forth in the
Declaration or made part of the Declaration by the Trust Indenture Act.
Reference is made to any Prospectus Supplement relating to the Preferred
Securities of the Trust for specific terms of the Preferred Securities,
including, to the extent applicable, (i) the distinctive designation of such
Preferred Securities; (ii) the number of Preferred Securities issued by the
Trust; (iii) the annual distribution rate (or method of determining such rate)
for Preferred Securities issued by the Trust and the date or dates upon which
such distributions shall be payable (provided, however, that distributions on
such Preferred Securities shall, subject to any deferral provisions, and any
provisions for payment of defaulted distributions, be payable on a quarterly
basis to holders of such Preferred Securities as of a record date in each
quarter during which such Preferred Securities are outstanding); (iv) any right
of the Trust to defer quarterly distributions on the Preferred Securities as a
result of an interest deferral right exercised by Philadelphia Consolidated on
the Subordinated Debt Securities held by the Trust; (v) whether distributions on
Preferred Securities shall be cumulative, and, in the case of Preferred
Securities having such cumulative distribution rights, the date or dates or
method of determining the date or dates from which distributions on Preferred
Securities shall be cumulative; (vi) the amount or amounts which shall be paid
out of the assets of the Trust to the holders of Preferred Securities upon
voluntary or involuntary dissolution, winding-up or termination of the Trust;
(vii) the obligation or option, if any, of the Trust to purchase or redeem
Preferred Securities and the price or prices at which, the period or periods
within which and the terms and conditions upon which Preferred Securities shall
be purchased or redeemed, in whole or in part, pursuant to such obligation or
option with such redemption price to be specified in the applicable Prospectus
Supplement; (viii) the voting rights, if any, of Preferred Securities in
addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities as a condition to specified action or amendments to the Declaration;
(ix) the terms and conditions, if any, upon which Subordinated Debt Securities
held by the Trust may be distributed to holders of Preferred Securities; and (x)
any other relevant rights, preferences, privileges, limitations or restrictions
of Preferred Securities consistent with the Declaration or with applicable law.
All Preferred Securities offered hereby will be guaranteed by Philadelphia
Consolidated to the extent set forth below under "Description of Trust
Guarantee." The Trust Guarantee issued to the Trust, when taken together with
Philadelphia Consolidated's back-up undertakings, consisting of its obligations
under the Declaration (including the obligation to pay expenses of the Trust),
the applicable Indenture and any applicable supplemental indentures thereto and
the Subordinated Debt Securities issued to the Trust will provide a full and
unconditional guarantee by Philadelphia Consolidated of amounts due on the
Preferred Securities issued by the Trust. The payment terms of the Preferred
Securities will be the same as the Subordinated Debt Securities issued to the
Trust by Philadelphia Consolidated.
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust one series of Common Securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be
established by the Regular Trustees in accordance with the Declaration or as
shall otherwise be set forth therein. The terms of the Common Securities issued
by the Trust will be substantially identical to the terms of the Preferred
Securities issued by the Trust, and the Common Securities will rank pari passu,
and
21
<PAGE> 157
payments will be made thereon pro rata, with the Preferred Securities except
that, if an event of default under the Declaration has occurred and is
continuing, the rights of the holders 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.
The Common Securities will also carry the right to vote and to appoint, remove
or replace any of the Trustees of the Trust. All of the Common Securities of the
Trust will be directly or indirectly owned by Philadelphia Consolidated.
The financial statements of the Trust that issues Preferred Securities will
be reflected in Philadelphia Consolidated's consolidated financial statements
with the Preferred Securities shown as Philadelphia Consolidated-obligated
mandatorily-redeemable preferred securities of a subsidiary trust under minority
interest in consolidated subsidiaries. In a footnote to Philadelphia
Consolidated's audited financial statements there will be included statements
that the Trust is wholly-owned by Philadelphia Consolidated and that the sole
asset of the Trust is the Subordinated Debt Securities (indicating the principal
amount, interest rate and maturity date thereof).
DESCRIPTION OF TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
that will be executed and delivered by Philadelphia Consolidated for the benefit
of the holders, from time to time, of Preferred Securities. The Trust Guarantee
will be qualified as an indenture under the Trust Indenture Act. Unless
otherwise specified in the applicable Prospectus Supplement, The First National
Bank of Chicago will act as independent indenture trustee for Trust Indenture
Act purposes under the Trust Guarantee (the "Preferred Securities Guarantee
Trustee"). The terms of the Trust Guarantee will be those set forth in the Trust
Guarantee and those made part of the Trust Guarantee by the Trust Indenture Act.
The following summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the provisions of the form of Trust
Guarantee, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and the Trust Indenture Act. The
Trust Guarantee will be held by the Preferred Securities Guarantee Trustee for
the benefit of the holders of the Preferred Securities of the Trust.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement,
pursuant to the Trust Guarantee, Philadelphia Consolidated will agree, to the
extent set forth therein, to pay in full to the holders of the Preferred
Securities, the Guarantee Payments (as defined below) (except to the extent paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The following payments or
distributions with respect to the Preferred Securities (the "Guarantee
Payments"), to the extent not paid by the Trust, will be subject to the Trust
Guarantee (without duplication): (i) any accrued and unpaid distributions that
are required to be paid on such Preferred Securities, to the extent the Trust
shall have funds available therefor; (ii) the redemption price, including all
accrued and unpaid distributions to the date of redemption (the "Redemption
Price"), to the extent the Trust has funds available therefor, with respect to
any Preferred Securities called for redemption by the Trust; and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with such distribution of Debt Securities to the
holders of Preferred Securities or the redemption of all of the Preferred
Securities upon maturity or redemption of the Subordinated Debt Securities) the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on such Preferred Securities to the date of payment, to the extent
the Trust has funds available therefor or (b) the amount of assets of the Trust
remaining for distribution to holders of such Preferred Securities in
liquidation of the Trust. Philadelphia Consolidated's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
Philadelphia Consolidated to the holders of Preferred Securities or by causing
the Trust to pay such amounts to such holders.
The Trust Guarantee will not apply to any payment of distributions except
to the extent the Trust shall have funds available therefor. If Philadelphia
Consolidated does not make interest or principal payments on
22
<PAGE> 158
the Subordinated Debt Securities purchased by the Trust, the Trust will not pay
distributions on the Preferred Securities issued by the Trust and will not have
funds available therefore.
Philadelphia Consolidated has also agreed to guarantee the obligations of
the Trust with respect to the Common Securities (the "Common Guarantee") issued
by the Trust to the same extent as the Trust Guarantee, except that, if an Event
of Default under the Subordinated Indenture has occurred and is continuing,
holders of Preferred Securities under the Trust Guarantee shall have priority
over holders of the Common Securities under the Common Guarantee with respect to
distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF PHILADELPHIA CONSOLIDATED
Unless otherwise specified in the applicable Prospectus Supplement, in the
Trust Guarantee, Philadelphia Consolidated will covenant that, so long as any
Preferred Securities issued by the Trust remain outstanding, if there shall have
occurred any event of default under the Trust Guarantee or under the Declaration
of the Trust, then (a) Philadelphia Consolidated will not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of Philadelphia
Consolidated in connection with the satisfaction by Philadelphia Consolidated of
its obligations under any employee or agent benefit plans or the satisfaction by
Philadelphia Consolidated of its obligations pursuant to any contract or
security outstanding on the date of such event requiring Philadelphia
Consolidated to purchase capital stock of Philadelphia Consolidated, (ii) as a
result of a reclassification of Philadelphia Consolidated's capital stock (other
than into cash or other property) or the exchange or conversion of one class or
series of Philadelphia Consolidated's capital stock for another class or series
of Philadelphia Consolidated's capital stock, (iii) the purchase of fractional
interests in shares of Philadelphia Consolidated's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of
Philadelphia Consolidated (or rights to acquire capital stock) or repurchases or
redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan); (b) Philadelphia Consolidated shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by Philadelphia Consolidated which rank junior
to the Subordinated Debt Securities issued to the Trust and (c) Philadelphia
Consolidated shall not make any guarantee payments with respect to the foregoing
(other than pursuant to a Trust Guarantee).
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities of the Trust. The manner of obtaining any such
approval of holders of such Preferred Securities will be set forth in
accompanying Prospectus Supplement. All guarantees and agreements contained in
the Trust Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of Philadelphia Consolidated and shall inure to the benefit of
the holders of the Preferred Securities of the Trust then outstanding.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the failure
of Philadelphia Consolidated to perform any of its payment or other obligations
thereunder. The holders of a majority in liquidation amount of the Preferred
Securities to which the Trust Guarantee relates have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Securities Guarantee Trustee in respect of the Trust Guarantee or
to direct the exercise of any trust or power conferred upon the Preferred
Securities Guarantee Trustee under the Trust Guarantee.
23
<PAGE> 159
If the Preferred Securities Guarantee Trustee fails to enforce the Trust
Guarantee, any record holder of Preferred Securities to which the Trust
Guarantee relates may institute a legal proceeding directly against Philadelphia
Consolidated to enforce the Preferred Securities Guarantee Trustee's rights
under the Trust Guarantee without first instituting a legal proceeding against
the Trust, the Preferred Securities Guarantee Trustee or any other person or
entity. Notwithstanding the foregoing, if Philadelphia Consolidated has failed
to make a Guarantee Payment under the Trust Guarantee, a record holder of
Preferred Securities to which the Trust Guarantee relates may directly institute
a proceeding against Philadelphia Consolidated for enforcement of the Trust
Guarantee for such payment to the record holder of the Preferred Securities to
which the Trust Guarantee relates of the principal of or interest on the
applicable Debt Securities on or after the respective due dates specified in the
Debt Securities, and the amount of the payment will be based on the holder's pro
rata share of the amount due and owing on all of the Preferred Securities to
which the Trust Guarantee relates. Philadelphia Consolidated has waived any
right or remedy to require that any action be brought first against the Trust or
any other person or entity before proceeding directly against Philadelphia
Consolidated. The record holder in the case of the issuance of one or more
global Preferred Securities certificates will be The Depository Trust Company
acting at the direction of the beneficial owners of the Preferred Securities.
Philadelphia Consolidated will be required to provide annually to the
Preferred Securities Guarantee Trustee a statement as to the performance by
Philadelphia Consolidated of certain of its obligations under, the outstanding
Trust Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default to the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, after default with respect to
the Trust Guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Preferred Securities Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Guarantee at
the request of any holder of Preferred Securities to which the Trust Guarantee
relates unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION
The Trust Guarantee will terminate as to the Preferred Securities issued by
the Trust upon full payment of the Redemption Price of all Preferred Securities
of the Trust, upon distribution of the Debt Securities held by the Trust to the
holders of all of the Preferred Securities of the Trust or upon full payment of
the amounts payable in accordance with the Declaration of the Trust upon
liquidation of the Trust. The Trust Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of Preferred
Securities issued by the Trust must restore payment of any sums paid under such
Preferred Securities or the Trust Guarantee.
STATUS OF THE TRUST GUARANTEE
The Trust Guarantee will constitute a subordinated unsecured obligation of
Philadelphia Consolidated and will rank on a parity with all of Philadelphia
Consolidated's other subordinated unsecured obligations.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against Philadelphia Consolidated to enforce its rights under the Trust
Guarantee without instituting a legal proceeding against any other person or
entity).
GOVERNING LAW
The Trust Guarantee will be governed by and construed in accordance with
the law of the State of New York.
24
<PAGE> 160
DESCRIPTION OF STOCK PURCHASE
CONTRACTS AND STOCK PURCHASE UNITS
Philadelphia Consolidated may issue Stock Purchase Contracts, including
contracts obligating holders to purchase from Philadelphia Consolidated, and
Philadelphia Consolidated to sell to the holders, a specified number of shares
of Common Stock or Preferred Stock at a future date or dates. The consideration
per share of Common Stock or Preferred Stock 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 units ("Stock Purchase Units")
consisting of a Stock Purchase Contract and Debt Securities, Preferred
Securities or debt obligations of third parties, including U.S. Treasury
securities, securing the holders' obligations to purchase the Common Stock or
Preferred Stock under the Stock Purchase Contracts. The Stock Purchase Contracts
may require Philadelphia Consolidated 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 thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not necessarily be complete, and reference will be made to the
Stock Purchase Contracts, and, if applicable, collateral arrangements and
depositary arrangements, relating to such Stock Purchase Contracts or Stock
Purchase Units.
PLAN OF DISTRIBUTION
Any of the Securities being offered hereby may be sold in any one or more
of the following ways from time to time: (i) through agents; (ii) to or through
underwriters; (iii) through dealers; and (iv) directly by Philadelphia
Consolidated or, in the case of Trust Preferred Securities, by the Trust to
purchasers.
The distribution of the 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 Securities may be solicited by agents designated by
Philadelphia Consolidated from time to time. Any such agent involved in the
offer or sale of the Securities in respect of which this Prospectus is delivered
will be named, and any commissions payable by Philadelphia Consolidated or the
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 Securities so offered and sold.
If Securities are sold by means of an underwritten offering, Philadelphia
Consolidated and, in the case of an offering of Trust Preferred Securities, the
Trust will execute an underwriting agreement with an underwriter or underwriters
at the time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, the
respective amounts underwritten and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the applicable Prospectus Supplement which
will be used by the underwriters to make resales of the Securities in respect of
which this Prospectus is being delivered to the public. If underwriters are
utilized in the sale of any Securities in respect of which this Prospectus is
being delivered, such 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 the sale. Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters or directly by one or more underwriters. If any
underwriter or underwriters are utilized in the sale of Securities, unless
otherwise indicated in the applicable 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
such Securities will be obligated to purchase all such Securities if any are
purchased.
25
<PAGE> 161
Philadelphia Consolidated or the Trust, as applicable, may grant to the
underwriters options to purchase additional Securities, to cover
over-allotments, if any, at the initial public offering price (with additional
underwriting commissions or discounts), as may be set forth in the Prospectus
Supplement relating thereto. If Philadelphia Consolidated or the Trust, as
applicable, grants any over-allotment option, the terms of such over-allotment
option will be set forth in the Prospectus Supplement for such Securities.
If a dealer is utilized in the sale of Securities in respect of which this
Prospectus is delivered, Philadelphia Consolidated or the Trust, as applicable,
will sell such Securities to the dealer as principal. The dealer may then resell
such 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 item is defined in Securities Act, of the Securities so offered and sold.
The name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by Philadelphia
Consolidated or the Trust, as applicable, and the sale thereof may be made by
Philadelphia Consolidated or the 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 Prospectus Supplement relating thereto.
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 Philadelphia Consolidated or the Trust, as applicable.
Any remarketing firm will be identified and the terms of its agreement, if any,
with Philadelphia Consolidated or the Trust and its compensation will be
described in the applicable Prospectus Supplement. Remarketing firms may be
deemed to be underwriters, as that term is defined in the Securities Act, in
connection with the Securities remarketed thereby.
If so indicated in the applicable Prospectus Supplement, Philadelphia
Consolidated or the Trust, as applicable, may authorize agents and underwriters
to solicit offers by certain institutions to purchase Securities from
Philadelphia Consolidated or the Trust at the public offering price set forth in
the applicable Prospectus Supplement pursuant to delayed delivered contracts
providing for payment and delivery on the date or dates stated in the applicable
Prospectus Supplement. Such delayed delivery contracts will be subject to only
those conditions set forth in the applicable Prospectus Supplement. A commission
indicated in the applicable Prospectus Supplement will be paid to underwriters
and agents soliciting purchase of Securities pursuant to delayed delivery
contracts accepted by Philadelphia Consolidated or the Trust, as applicable.
Agents, underwriters, dealers and remarketing firms may be entitled under
relevant agreements with Philadelphia Consolidated or the Trust, as applicable,
to indemnification by Philadelphia Consolidated or the Trust against certain
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, underwriters, dealers and
remarketing firms may be required to make in respect thereof.
Each series of Securities will be a new issue and, other than the Common
Stock, which is listed on the NNM, will have no established trading market.
Philadelphia Consolidated may elect to list any series of Securities on an
exchange, and in the case of the Common Stock, on any additional exchange, but,
unless otherwise specified in the applicable Prospectus Supplement, Philadelphia
Consolidated shall not be obligated to do so. No assurance can be given as to
the liquidity of the trading market for any of the Securities.
Agents, underwriters, dealers and remarketing firms may be customers of,
engage in transactions with, or perform services for, Philadelphia Consolidated
and its Subsidiaries in the ordinary course of business.
26
<PAGE> 162
LEGAL OPINIONS
The validity of the Securities of offered hereby by Philadelphia
Consolidated and certain matters of Delaware law relating to the validity of the
Preferred Securities offered hereby by the Trust will be passed on for the Trust
and Philadelphia Consolidated by Wolf, Block, Schorr and Solis-Cohen LLP.
EXPERTS
The consolidated financial statements of Philadelphia Consolidated and its
subsidiaries as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 incorporated by reference in this Prospectus
have been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
27
<PAGE> 163
============================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR ANY UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, NOR ANY
SALE MADE HEREUNDER AND THEREUNDER, SHALL UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE
TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OF SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
PAGE
-----
<S> <C>
Prospectus Supplement Summary............... S-6
Explanatory Diagrams...................... S-22
Risk Factors................................ S-26
The Trust................................... S-35
Price Range of Common Stock and Dividends... S-36
Use of Proceeds............................. S-36
Condensed Consolidated Capitalization....... S-37
Accounting Treatment........................ S-38
Selected Consolidated Financial Data........ S-39
Business.................................... S-40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ S-52
Management.................................. S-57
Description of the FELINE PRIDES............ S-59
Description of the Purchase Contracts....... S-62
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement........ S-72
Description of the Trust Preferred
Securities................................ S-75
Description of the Guarantee................ S-86
Description of the Debentures............... S-89
Effect of Obligations Under the Debentures
and the Guarantee......................... S-95
Certain Federal Income Tax Consequences..... S-96
ERISA Considerations........................ S-103
Underwriting................................ S-104
Legal Opinions.............................. S-106
Index of Principal Terms for Prospectus
Supplement................................ S-107
Index to Financial Statements and
Schedules................................. F-1
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 3
Philadelphia Consolidated................... 4
The Trust................................... 5
Use of Proceeds............................. 6
Consolidated Ratio of Earnings to Fixed
Charges................................... 6
Description of the Debt Securities.......... 7
General Description of Capital Stock........ 16
Description of Warrants..................... 20
Description of Preferred Securities of the
Trust..................................... 21
Description of Trust Guarantee.............. 22
Description of Stock Purchase Contracts and
Stock Purchase Units...................... 25
Plan of Distribution........................ 25
Legal Opinions.............................. 27
Experts..................................... 27
</TABLE>
============================================================
============================================================
9,000,000 FELINE PRIDES(SM)
% TRUST ORIGINATED
PREFERRED SECURITIES(SM)
("TOPrS"(SM))
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
[BELL LOGO]
LOGO
PCHC
FINANCING I
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
APRIL , 1998
(SM)Service Mark of Merrill Lynch & Co., Inc.
============================================================
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fee............................................ $ 61,065
Nasdaq National Market Listing Fee..........................
Trustees' and Agents' Expenses..............................
Rating Agency Fee...........................................
*Accounting Fees and Expenses...............................
*Legal Fees and Expenses....................................
Blue Sky Fee................................................
*Miscellaneous..............................................
--------
Total Expenses.............................................. $
========
</TABLE>
- ---------------
* Estimated for purposes of completing the information required pursuant to this
Item 14.
Philadelphia Consolidated will pay all fees and expenses associated with
filing the Registration Statement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subchapter D (Sections 1741 through 1750) of Chapter 17 the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL"), contains provisions
for mandatory and discretionary indemnification of a corporation's directors,
officers, employees and agents (collectively "Representatives"), and related
matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify Representatives under certain prescribed circumstances
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with a threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, to which any of them is a party or threatened
to be made a party by reason of his or her being a Representative of the
corporation or serving at the request of the corporation as a Representative of
another corporation, partnership, joint venture, trust or other enterprise, if
he or she acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful.
Section 1742 provides for indemnification with respect to derivative and
corporate actions similar to that provided by Section 1741. However,
indemnification is not provided under Section 1742 in respect of any claim,
issue or matter as to which a Representative has been adjudged to be liable to
the corporation unless and only to the extent that the proper court determines
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, a Representative is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.
Section 1743 provides that indemnification against expenses is mandatory to
the extent that a Representative has been successful on the merits or otherwise
in defense of any such action or proceeding referred to in Section 1741 or 1742.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of a
Representative is proper because the Representative met the applicable standard
of conduct. Section 1744 further provides that such determination will be made
by the board of directors by a majority vote of a quorum consisting of directors
not parties to the action or proceeding; if a quorum is not
II-1
<PAGE> 165
obtainable or if obtainable and a majority vote of a quorum of disinterested
directors so directs, by independent legal counsel; or by the shareholders.
Section 1745 provides that expenses incurred by a Representative in
defending any action or proceeding referred to in Subchapter D of Chapter 17 of
the BCL may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of the
Representative to repay such amount if it shall ultimately be determined that
such Representative is not entitled to be indemnified by the corporation.
Section 1746 provides generally that except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter D of Chapter
17 of the BCL shall not be deemed exclusive of any other rights to which a
Representative seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in such Representative's official
capacity and as to action in another capacity while holding that office.
Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any Representative against any liability incurred by such
Representative in his or her capacity as a Representative, whether or not the
corporation would have the power to indemnify such Representative against that
liability under Subchapter D of Chapter 17 of the BCL.
Sections 1748 and 1749 apply the indemnification and advancement of
expenses provisions contained in Subchapter D of Chapter 17 of the BCL to all
constituent corporations absorbed in a consolidation, merger or division, as
well as the surviving or new corporations surviving or resulting therefrom, and
to service as a representative of a corporation or an employee benefit plan.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter D of Chapter 17 of the BCL
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Representative and shall inure to the benefit of
the heirs and personal representative of such person.
Section 9 of Article IV of Philadelphia Consolidated's By-Laws provides
indemnification to directors for all actions taken by them and for all failures
to take action to the fullest extent permitted by Pennsylvania law against all
expense, liability and loss reasonably incurred or suffered by them in
connection with any threatened, pending or completed action, suit or proceeding
(including, without limitation, an action, suit or proceeding by or in the right
of Philadelphia Consolidated), whether civil, criminal, administrative,
investigative or through arbitration. Section 9 of Article IV of Philadelphia
Consolidated's By-Laws also permits Philadelphia Consolidated, by action of its
board of directors, to indemnify officers, employees and other persons to the
same extent as directors. The provisions of Section 9 of Article IV of the
By-Laws relating to the limitation of directors' liability, to indemnification
and to the advancement of expenses constitute a contract between Philadelphia
Consolidated and each of its directors which may be modified as to any director
only with that director's consent or as otherwise specifically provided in
Section 9. Any repeal or amendment of Section 9 of Article IV of the By-Laws
which is adverse to any director will apply to such director only on a
prospective basis, and will not reduce any limitation on the personal liability
of a director of Philadelphia Consolidated, or limit the rights of an indemnitee
to indemnification or to the advancement of expenses with respect to any action
or failure to act occurring prior to the time of such repeal or amendment. No
repeal or amendment of the By-Laws will affect any or all of Section 9 of
Article IV so as either to reduce the limitation of directors' liability or
limit indemnification or the advancement of expenses in any manner unless
adopted by the unanimous vote of the directors of Philadelphia Consolidated then
serving or the affirmative vote of shareholders entitled to cast not less than a
majority of the votes that all shareholders are entitled to cast in the election
of directors.
Section 9 of Article IV further permits Philadelphia Consolidated to
maintain insurance, at its expense, for the benefit of any person on behalf of
whom insurance is permitted to be purchased by Pennsylvania law against any such
expenses, liability or loss, whether or not Philadelphia Consolidated would have
the power to
II-2
<PAGE> 166
indemnify such person against such expense, liability or loss under Pennsylvania
or other law. Philadelphia Consolidated has purchased directors' and officers'
liability insurance.
Article of the Declaration of Trust limits the liability to the Trust and
certain other persons and provides for the indemnification by the Trust or
Philadelphia Consolidated of Trustees, the Officers, other employees and certain
other persons.
ITEM 17. UNDERTAKINGS.
(a) The Undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of each
such Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrants of expenses
incurred or paid by a director, officer or controlling person of such Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(i) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 167
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (Standard Provisions) for
Debt Securities.**
1.2 Form of Underwriting Agreement (Standard Provisions) for
Common Stock.**
1.3 Form of Underwriting Agreement (Standard Provisions) for
Preferred Stock.**
1.4 Forms of Underwriting Agreement for Offering of Preferred
Securities, Stock Purchase Units, Stock Purchase Contracts,
Guarantees and Warrants.**
3.1 Articles of Incorporation of Philadelphia Consolidated, as
amended (incorporated by reference to Exhibit 3.1 filed with
Philadelphia Consolidated's Form S-1 Registration Statement
under the Securities Act of 1933 (Registration No.
33-65958)).
3.2 By-Laws of Philadelphia Consolidated, as amended
(incorporated by reference to Exhibit 3.2 filed with
Philadelphia Consolidated's Form S-1 Registration Statement
under the Securities Act of 1933 (Registration No.
33-65958)).
4.1 Form of Senior Indenture to be entered into by Philadelphia
Consolidated and The First National Bank of Chicago, as
Trustee.***
4.2 Form of Supplemental Indenture to be entered into by
Philadelphia Consolidated and The First National Bank of
Chicago, as Trustee.***
4.3 Certificate of Trust of PCHC Financing I.***
4.4 Declaration of Trust of PCHC Financing I.***
4.5 Form of Amended and Restated Declaration of Trust of PCHC
Financing I.***
4.6 Form of Guarantee Agreement by Philadelphia Consolidated
Holding Corp. with respect to PCHC Financing I.***
4.7 Form of Warrant Agreement.*
4.8 Form of Trust Preferred Security (included in Exhibit
4.5).***
4.9 Form of Warrant.*
4.10 Form of Debenture (included in Exhibit 4.2).***
4.11 Form of Purchase Contract Agreement between Philadelphia
Consolidated and The First National Bank of Chicago, as
Purchase Contract Agent (including as Exhibit A the form of
the Security Certificate).***
4.12 Form of Pledge Agreement among Philadelphia Consolidated,
The Chase Manhattan Bank, as Collateral Agent, and The First
National Bank of Chicago, as Purchase Contract Agent.***
4.13 Form of Remarketing Agreement.***
5.1 Opinion of Wolf, Block Schorr and Solis-Cohen LLP regarding
the legality of the Securities being registered by
Philadelphia Consolidated and the Trust hereby.*
8.1 Tax Opinion of Wolf, Block, Schorr and Solis-Cohen LLP.*
12.1 Statement re: Computation of Consolidated Ratio of Earnings
to Fixed Charges.****
23.1 Consent of Coopers & Lybrand L.L.P. related to the financial
statements of Philadelphia Consolidated Holding Corp.***
23.2 Consent of Wolf, Block Schorr and Solis-Cohen LLP (included
in Exhibit 5.1).*
24.1 Powers of attorney (included on signature pages of this
Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The First National Bank of Chicago, as
Trustee for the Senior Debt Securities.****
25.2 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The First National Bank of Chicago, as
Trustee under the Declaration of Trust and Preferred
Securities Guarantee of Philadelphia Consolidated Holding
Corp.****
</TABLE>
- ---------------
* To be filed by amendment.
** To be filed under subsequent Form 8-K.
*** Filed electronically herewith.
**** Previously filed.
II-4
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Philadelphia
Consolidated Holding Corp. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Amendment to its Registration Statement, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Bala Cynwyd, Pennsylvania on
April 16, 1998.
PHILADELPHIA CONSOLIDATED HOLDING CORP.
By: /s/ JAMES J. MAGUIRE
----------------------------------------
James J. Maguire
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities indicated on April 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JAMES J. MAGUIRE Chairman of the Board of Directors,
- ----------------------------------------------------- President, Chief Executive Officer
James J. Maguire and Director (Principal Executive
Officer)
/s/ CRAIG P. KELLER Vice President, Secretary and Chief
- ----------------------------------------------------- Financial Officer (Principal
Craig P. Keller Financial and Accounting Officer)
SEAN P. SWEENEY* Senior Vice President and Director
- -----------------------------------------------------
Sean P. Sweeney
JAMES J. MAGUIRE, JR.* Vice President and Director
- -----------------------------------------------------
James J. Maguire, Jr.
WILLIAM J. HENRICH, JR.* Director
- -----------------------------------------------------
William J. Henrich, Jr.
ROGER R. LARSON* Director
- -----------------------------------------------------
Roger R. Larson
PAUL R. HERTEL, JR.* Director
- -----------------------------------------------------
Paul R. Hertel, Jr.
THOMAS J. MCHUGH* Director
- -----------------------------------------------------
Thomas J. McHugh
MICHAEL J. MORRIS* Director
- -----------------------------------------------------
Michael J. Morris
J. EUSTACE WOLFINGTON* Director
- -----------------------------------------------------
J. Eustace Wolfington
*By: /s/ CRAIG P. KELLER
------------------------------------------------
Craig P. Keller
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCHC Financing
I certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and that it has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Wilmington, Delaware on April 16, 1998.
PCHC FINANCING I
By: /s/ CRAIG P. KELLER
------------------------------------
Craig P. Keller, Trustee
Pursuant to the requirements of the Securities Act, this amended
Registration Statement has been signed by the following persons in the
capacities indicated on April 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ CRAIG P. KELLER Trustee
- -----------------------------------------------------
Craig P. Keller
JAMES J. MAGUIRE, JR.* Trustee
- -----------------------------------------------------
James J. Maguire, Jr.
JACK T. CARBALLO* Trustee
- -----------------------------------------------------
Jack T. Carballo
</TABLE>
*By: /s/ CRAIG P. KELLER
---------------------------------------------------------
Craig P. Keller
Attorney-in-Fact
II-6
<PAGE> 170
EXHIBIT INDEX
<TABLE>
<CAPTION>
METHOD OF
EXHIBIT NO. DESCRIPTION FILING
- ----------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (Standard Provisions) for **
Debt Securities.
1.2 Form of Underwriting Agreement (Standard Provisions) for **
Common Stock.
1.3 Form of Underwriting Agreement (Standard Provisions) for **
Preferred Stock.
1.4 Forms of Underwriting Agreement for Offering of Preferred **
Securities, Stock Purchase Units, Stock Purchase Contracts,
Guarantees and Warrants.
3.1 Articles of Incorporation of Philadelphia Consolidated, as
amended (incorporated by reference to Exhibit 3.1 filed with
Philadelphia Consolidated's Form S-1 Registration Statement
under the Securities Act of 1933 (Registration No.
33-65958)).
3.2 By-Laws of Philadelphia Consolidated, as amended
(incorporated by reference to Exhibit 3.2 filed with
Philadelphia Consolidated's Form S-1 Registration Statement
under the Securities Act of 1933 (Registration No.
33-65958)).
4.1 Form of Senior Indenture to be entered into by Philadelphia ***
Consolidated and The First National Bank of Chicago, as
Trustee.
4.2 Form of Supplemental Indenture to be entered into by ***
Philadelphia Consolidated and The First National Bank of
Chicago, as Trustee.
4.3 Certificate of Trust of PCHC Financing I. ***
4.4 Declaration of Trust of PCHC Financing I. ***
4.5 Form of Amended and Restated Declaration of Trust of PCHC ***
Financing I.
4.6 Form of Guarantee Agreement by Philadelphia Consolidated ***
Holding Corp. with respect to PCHC Financing I.
4.7 Form of Warrant Agreement. *
4.8 Form of Trust Preferred Security (included in Exhibit 4.5). ***
4.9 Form of Warrant. *
4.10 Form of Debenture (included in Exhibit 4.2). ***
4.11 Form of Purchase Contract Agreement between Philadelphia ***
Consolidated and The First National Bank of Chicago, as
Purchase Contract Agent (including as Exhibit A the form of
the Security Certificate).
4.12 Form of Pledge Agreement among Philadelphia Consolidated, ***
The Chase Manhattan Bank, as Collateral Agent, and The First
National Bank of Chicago, as Purchase Contract Agent.
4.13 Form of Remarketing Agreement. ***
5.1 Opinion of Wolf, Block Schorr and Solis-Cohen LLP regarding *
the legality of the Securities being registered by
Philadelphia Consolidated and the Trust hereby.
8.1 Tax Opinion of Wolf, Block Schorr and Solis-Cohen LLP. *
12.1 Statement re: Computation of Consolidated Ratio of Earnings ****
to Fixed Charges.
23.1 Consent of Coopers & Lybrand L.L.P. related to the financial ***
statements of Philadelphia Consolidated Holding Corp.
23.2 Consent of Wolf, Block Schorr and Solis-Cohen LLP (included *
in Exhibit 5.1).
24.1 Powers of attorney (included on signature pages of this
Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture ****
Act of 1939 of The First National Bank of Chicago, as
Trustee for the Senior Debt Securities.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture ****
Act of 1939 of The First National Bank of Chicago, as
Trustee under the Declaration of Trust and Preferred
Securities Guarantee of Philadelphia Consolidated Holding
Corp.
</TABLE>
- ---------------
* To be filed by amendment.
** To be filed under subsequent Form 8-K.
*** Filed electronically herewith.
**** Previously filed.
<PAGE> 1
EXHIBIT 4.1
PHILADELPHIA CONSOLIDATED HOLDING CORP.,
AS ISSUER
TO
THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE
FORM OF INDENTURE
DATED AS OF APRIL , 1998
<PAGE> 2
PHILADELPHIA CONSOLIDATED HOLDING CORP.
RECONCILIATION AND TIE BETWEEN TRUST
INDENTURE ACT OF 1939, AS AMENDED
AND INDENTURE, DATED AS OF APRIL , 1998
TRUST INDENTURE INDENTURE SECTION
ACT SECTION
Section 310 (a)(1)...................................................609
(a)(2)...................................................609
(a)(3)........................................Not Applicable
(a)(4)........................................Not Applicable
(b).................................................608, 610
Section 311 (a)......................................................613
(b)......................................................613
Section 312 (a)..............................................701, 702(a)
(b)...................................................702(b)
(c)...................................................702(c)
Section 313 (a)...................................................703(a)
(b)...........................................Not Applicable
(c)...........................................703(a), 703(b)
(d)...................................................703(b)
Section 314 (a)......................................................704
(b)...........................................Not Applicable
(c)(1)...................................................102
(c)(2)...................................................102
(c)(3)........................................Not Applicable
(d)...........................................Not Applicable
(e)......................................................102
Section 315 (a)...................................................601(a)
(b)......................................................602
(c)...................................................601(b)
(d)...................................................601(c)
(d)(l)........................................601(a), 601(c)
(d)(2)................................................601(c)
(d)(3)................................................601(c)
(e)......................................................514
Section 316 (a)(1)(A)................................................512
(a)(1)(B)...........................................502, 513
(a)(2)........................................Not Applicable
(b)......................................................508
Section 317 (a)(1)...................................................503
(a)(2)...................................................504
(b).....................................................1009
Section 318 (a)......................................................107
- -----------------------
NOTE: THIS RECONCILIATION AND TIE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A
PART OF THIS INDENTURE.
<PAGE> 3
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION............................. 1
SECTION 101. Definitions.................................... 1
Act....................................................... 1
Affiliate................................................. 1
Authenticating Agent...................................... 2
Bankruptcy Law............................................ 2
Board of Directors........................................ 2
Board Resolution.......................................... 2
Business Day.............................................. 2
Capitalized Lease Obligation.............................. 2
Capital Stock............................................. 2
Commission................................................ 2
Common Depositary......................................... 2
Company................................................... 2
Company Request........................................... 2
Company Order............................................. 2
Corporate Trust Office.................................... 2
Covenant Defeasance....................................... 2
Custodian................................................. 2
Default................................................... 2
Defaulted Interest........................................ 2
Defeasance................................................ 3
Dollars................................................... 3
Event of Default.......................................... 3
Exchange Act.............................................. 3
GAAP...................................................... 3
Holder.................................................... 3
Security holder........................................... 3
Indebtedness.............................................. 3
Indenture................................................. 3
Interest.................................................. 3
Interest Payment Date..................................... 3
Lien...................................................... 3
Maturity.................................................. 3
Officer................................................... 3
Officer's Certificate..................................... 4
Opinion of Counsel........................................ 4
Original Issue Discount Security.......................... 4
Outstanding............................................... 4
Paying Agent.............................................. 4
Person.................................................... 4
Place of Payment.......................................... 4
Redemption Date........................................... 4
Redemption Price.......................................... 4
Registered Security....................................... 4
Regular Record Date....................................... 4
Responsible Officer....................................... 5
Securities................................................ 5
Security Register......................................... 5
<PAGE> 4
Security Registrar................................................. 5
Senior Indebtedness................................................ 5
Significant Subsidiary............................................. 5
Special Record Date................................................ 5
Stated Maturity.................................................... 5
Subsidiary......................................................... 5
Trust Indenture Act................................................ 5
Trustee............................................................ 5
U.S. Depositary.................................................... 5
U.S. Government Obligations........................................ 5
Vice President..................................................... 6
SECTION 102. Compliance Certificates and Opinions.................... 6
SECTION 103. Form of Documents Delivered to Trustee.................. 6
SECTION 104. Acts of Holders......................................... 7
SECTION 105. Notices, Etc., to Trustee and Company................... 7
SECTION 106. Notice to Holders; Waiver............................... 8
SECTION 107. Conflict with Trust Indenture Act....................... 8
SECTION 108. Effect of Headings and Table of Contents................ 8
SECTION 109. Successors and Assigns.................................. 8
SECTION 110. Separability Clause..................................... 8
SECTION 111. Benefits of Indenture................................... 8
SECTION 112. Governing Law........................................... 9
SECTION 113. Legal Holidays.......................................... 9
SECTION 114. No Recourse Against Others.............................. 9
ARTICLE 2
SECURITY FORMS..................... 9
SECTION 201. Forms Generally......................................... 9
SECTION 202. Form of Face of Security................................ 9
SECTION 203. Form of Reverse of Security............................. 11
SECTION 204. Form of Trustee's Certificate of
Authentication........................................ 14
SECTION 205. Securities in Global Form............................... 14
SECTION 206. CUSIP Number............................................ 15
SECTION 207. Form of Legend for the Securities in
Global Form........................................... 15
ARTICLE 3
THE SECURITIES..................... 15
SECTION 301. Amount Unlimited; Issuable in Series.................... 15
SECTION 302. Denominations........................................... 17
SECTION 303. Execution, Authentication, Delivery and Dating.......... 17
SECTION 304. Temporary Securities.................................... 18
SECTION 305. Registration, Registration of Transfer and Exchange..... 19
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities........ 20
SECTION 307. Payment of Interest; Interest Rights Preserved.......... 21
SECTION 308. Persons Deemed Owners................................... 22
SECTION 309. Cancellation............................................ 22
SECTION 310. Computation of Interest................................. 22
ARTICLE 4
SATISFACTION AND DISCHARGE............... 22
SECTION 401. Satisfaction and Discharge of Indenture................. 22
SECTION 402. Application of Trust Money.............................. 23
<PAGE> 5
ARTICLE 5
REMEDIES............................... 23
SECTION 501. Events of Default.............................................. 23
SECTION 502. Acceleration of Maturity; Rescission and Annulment............. 25
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee...................................................... 25
SECTION 504. Trustee May File Proofs of Claim............................... 26
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.... 26
SECTION 506. Application of Money Collected................................. 26
SECTION 507. Limitation on Suits............................................ 27
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest................................................ 27
SECTION 509. Restoration of Rights and Remedies............................. 27
SECTION 510. Rights and Remedies Cumulative................................. 28
SECTION 511. Delay or Omission Not Waiver................................... 28
SECTION 512. Control by Holders............................................. 28
SECTION 513. Waiver of Past Defaults........................................ 28
SECTION 514. Undertaking for Costs.......................................... 28
ARTICLE 6
THE TRUSTEE............................. 29
SECTION 601. Certain Duties and Responsibilities of the Trustee............. 29
SECTION 602. Notice of Defaults............................................. 29
SECTION 603. Certain Rights of Trustee...................................... 29
SECTION 604. Not Responsible for Recitals or Issuance of Securities......... 30
SECTION 605. May Hold Securities............................................ 30
SECTION 606. Money Held in Trust............................................ 30
SECTION 607. Compensation and Reimbursement................................. 30
SECTION 608. Disqualification; Conflicting Interests........................ 31
SECTION 609. Corporate Trustee Required; Eligibility........................ 31
SECTION 610. Resignation and Removal; Appointment of Successor.............. 31
SECTION 611. Acceptance of Appointment by Successor......................... 32
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.... 33
SECTION 613. Preferential Collection of Claims Against Company.............. 33
SECTION 614. Appointment of Authenticating Agent............................ 33
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.......... 35
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders...... 35
SECTION 702. Preservation of Information; Communications to Holders......... 35
SECTION 703. Reports by Trustee............................................. 36
SECTION 704. Reports by Company............................................. 36
ARTICLE 8
CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER............ 37
SECTION 801. When Company May Merge, Etc.................................... 37
SECTION 802. Opinion of Counsel............................................. 37
SECTION 803. Successor Corporation Substituted.............................. 37
ARTICLE 9
SUPPLEMENTAL INDENTURES....................... 37
SECTION 901. Supplemental Indentures Without Consent of Holders............. 37
SECTION 902. Supplemental Indentures with Consent of Holders................ 38
SECTION 903. Execution of Supplemental Indentures........................... 39
SECTION 904. Effect of Supplemental Indentures.............................. 39
SECTION 905. Conformity with Trust Indenture Act............................ 39
SECTION 906. Reference in Securities to Supplemental Indentures............. 39
<PAGE> 6
ARTICLE 10
COVENANTS.............................. 40
SECTION 1001. Payments of Securities......................................... 40
SECTION 1002. Maintenance of Office or Agency................................ 40
SECTION 1003. Corporate Existence............................................ 40
SECTION 1004. Payment of Taxes and Other Claims.............................. 40
SECTION 1005. Maintenance of Properties...................................... 41
SECTION 1006. Compliance Certificates........................................ 41
SECTION 1007. Commission Reports............................................. 41
SECTION 1008. Waiver of Stay, Extension or Usury Laws........................ 42
SECTION 1009. Money for Securities Payments to Be Held in Trust.............. 42
SECTION 1010. Limitation on Liens............................................ 43
SECTION 1011. Waiver of Certain Covenants.................................... 44
ARTICLE 11
REDEMPTION OF SECURITIES....................... 44
SECTION 1101. Applicability of Article....................................... 44
SECTION 1102. Election to Redeem; Notice to Trustee.......................... 44
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.............. 44
SECTION 1104. Notice of Redemption........................................... 44
SECTION 1105. Deposit of Redemption Price.................................... 45
SECTION 1106. Securities Payable on Redemption Date.......................... 45
SECTION 1107. Securities Redeemed in Part.................................... 46
ARTICLE 12
SINKING FUNDS............................ 46
SECTION 1201. Applicability of Article....................................... 46
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.......... 46
SECTION 1203. Redemption of Securities for Sinking Fund...................... 46
ARTICLE 13
DEFEASANCE AND COVENANT DEFEASANCE.................. 47
SECTION 1301. Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance.............................. 47
SECTION 1302. Defeasance and Discharge....................................... 47
SECTION 1303. Covenant Defeasance............................................ 47
SECTION 1304. Conditions to Defeasance or Covenant Defeasance................ 47
SECTION 1305. Deposited Money and Government Obligations To Be Held In Trust. 49
ARTICLE 14
SUBORDINATION............................ 49
SECTION 1401. Agreement of Securityholders that Securities Subordinated to
Extent Provided................................................ 49
SECTION 1402. Company not to Make Payments with Respect to Securities
in Certain Circumstances....................................... 49
SECTION 1403. Securities Subordinated to Prior Payment of the Senior
Indebtedness on Dissolution, Liquidation or Reorganization
of Company..................................................... 50
SECTION 1404. Security holders to be Subrogated to Right of Holders of
Senior Indebtedness............................................ 50
SECTION 1405. Obligation of the Company Unconditional........................ 51
SECTION 1406. Trustee Entitled to Assume Payments Not Prohibited in Absence
of Notice...................................................... 51
SECTION 1407. Application by Trustee of Monies Deposited With It............. 51
SECTION 1408. Subordination Rights not Impaired by Acts or Omissions
of Company or Holders of Senior Indebtedness................... 51
SECTION 1409. Security Holders Authorize Trustee to Effectuate
Subordination of Securities.................................... 52
SECTION 1410. Right of Trustee to Hold Senior Indebtedness................... 52
<PAGE> 7
SECTION 1411. Article Fourteen Not to Prevent Events of Default........ 52
ARTICLE 15
MISCELLANEOUS...................... 52
SECTION 1501. Miscellaneous............................................ 52
<PAGE> 8
Form of Indenture, dated as of April , 1998, between PHILADELPHIA
CONSOLIDATED HOLDING CORP., a corporation duly organized and existing under the
laws of the State of Pennsylvania (herein called the "Company "), having its
principal office at One Bala Plaza, Suite 100, Bala Cynwyd, PA 19004 and The
First National Bank of Chicago, a , as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(4) the word "including" (and with the correlative meaning "Include")
means including, without limiting the generality of, any description preceding
such term; and
(5) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE> 9
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Securities.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company;
provided, however, that when the context refers to actions or resolutions of the
Board of Directors, then the term "Board of Directors" shall also mean any duly
authorized committee of the Board of Directors of the Company or Officer
authorized to act with respect to any particular matter to exercise the power of
the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day," when used with respect to any Place of Payment, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or regulation to close.
"Capitalized Lease Obligation" means an obligation under a lease that
is required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligation shall
be the capitalized amount of such obligations determined in accordance with such
principles.
"Capital Stock" of any Person shall mean any and all shares, interests,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any preferred stock, but excluding any debt
securities convertible into such equity.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Depositary" has the meaning specified in Section 304.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller,
an Assistant Controller, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Corporate Trust Office" means the office of the Trustee in Chicago,
Illinois at which at any particular time its corporate trust business shall be
principally administered, which office at the date hereof is located at One
First National Plaza, Suite 0126, Chicago, Illinois 60670-0126.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
2
<PAGE> 10
"Dollars" and "$" means lawful money of the United States of America.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.
"GAAP" means such accounting principles that are generally accepted in
the United States of America as of the date of any computation required
hereunder.
"Holder" or "Security holder" means a Person in whose name a Security
if registered in the Security Register.
"Indebtedness" of any Person means, without duplication, (i) the
principal of and premium (if any) in respect of (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; (ii) all Capitalized Lease Obligations of such Person; (iii) 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); (iv) 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 (i) through
(iii) 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); (v) all obligations of the type referred to in clauses
(i) through (iv) 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; and (vi) all obligations of the type referred
to in clauses (i) through (v) of other Persons secured by any Lien 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.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Securities established as
contemplated by Section 301.
"Interest," when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"Interest Payment Date," when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, capitalized lease or other title retention
agreement).
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officer" means the Chairman of the Board, the Vice Chairman of the
Board, the President, the Executive Vice President, any Vice President, the
Treasurer, any Assistant Treasurer, the Controller, the Secretary or any
Assistant Secretary of the Company.
"Officer's Certificate" means a certificate signed by an Officer and
delivered to the Trustee.
3
<PAGE> 11
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company, and who shall be reasonably acceptable
to the Trustee.
"Original Issue Discount Security" means any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding," when used with respect to Securities or Securities of
any series, means, as of the date of determination, all such Securities
theretofore authenticated and delivered under this Indenture, except: (i)
Securities theretofore cancelled by the Trustee or delivered to the Trustee for
cancellation; (ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made; (iii)
Securities which have been paid pursuant to Section 306 or in exchange for or in
lieu of which other Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are valid
obligations of the Company; and (iv) Securities which have been defeased
pursuant to Section 1302; provided, however, that in determining whether the
Holders of the requisite principal amount of the Outstanding Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding for such purposes shall be that portion of the
principal amount thereof that could be declared to be due and payable upon the
occurrence of an Event of Default and the continuation thereof pursuant to the
terms of such Original Issue Discount Security as of the date of such
determination and (b) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company. The Company may act as Paying Agent with respect to any Securities
issued hereunder.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment," when used with respect to the Securities of any
series, means the place or places where the principal of (and premium, if any)
and interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"Redemption Date," when used with respect to any Security of any series
to be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security of any
series to be redeemed, means the price at which it is to be redeemed pursuant to
this Indenture.
"Registered Security" means any Security issued hereunder and
registered in the Security Register.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
4
<PAGE> 12
"Responsible Officer," when used with respect to the Trustee, means any
officer of the Trustee in its Corporate Trust Office and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Significant Subsidiary" means a Subsidiary or Subsidiaries of the
Company possessing assets (including the assets of its own Subsidiaries but
without regard to the Company or any other Subsidiary) having a book value, in
the aggregate, equal to not less than 10% of the book value of the aggregate
assets of the Company and its Subsidiaries calculated on a consolidated basis.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Company.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this Indenture was executed;
provided, however, that in the event that such Act is amended after such date,
"Trust Indenture Act" means the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"U.S. Depositary" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more permanent
global Securities, the Person designated as U.S. Depositary by the Company
pursuant to Section 301, which must be a clearing agency registered under the
Exchange Act until a successor U.S. Depositary shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "U.S. Depositary"
shall mean or include each Person who is then a U.S. Depositary hereunder, and
if at any time there is more than one such Person, "U.S. Depositary" shall mean
the U.S. Depositary with respect to the Securities of that series.
"U.S. Government Obligations" means securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed by the full
faith and credit of the United States of America which, in either case, are not
callable or redeemable at the option of the issuer thereof or otherwise subject
to prepayment, and shall also include a depository receipt issued by a New York
Clearing House bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment or interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a 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
5
<PAGE> 13
depository receipt or from any amount held by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, other than an action permitted
by Sections 205 and 704 hereof, the Company shall furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such Officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Officer or Officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
6
<PAGE> 14
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "ACT" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Registered Securities shall be proved by the
Security Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee and received by the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Administration, or
(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at the address of its principal office specified in the first paragraph of this
Indenture, attention: Secretary, or at any other address previously furnished in
writing to the Trustee by the Company.
7
<PAGE> 15
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture or any Security provides for notice to Holders of
any event, such notice shall be deemed sufficiently given (unless otherwise
herein or in such Security expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders or the validity of the proceedings to which such notice relates.
Where this Indenture or any Security provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Any request, demand, authorization, direction, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or shall be
excluded, as the case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws (other than the choice of law provisions) of the State
of New York.
8
<PAGE> 16
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day or on such other day as may be set out in the Officer's
Certificate pursuant to Section 301 at such Place of Payment with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity, provided that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
SECTION 114. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Security holder, by accepting
a Security, waives and releases all such liability. Such waivers and releases
are part of the consideration for the issuance of the Securities.
ARTICLE 2
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Securities of each series shall be in substantially the form set
forth in this Article, or in such other form as shall be established by or
pursuant to a Board Resolution or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
Officers executing such Securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
The Trustee's certificates of authentication shall be in substantially
the form set forth in this Article.
The definitive Securities shall be photocopied, printed, lithographed
or engraved on steel engraved borders or may be produced in any other manner,
all as determined by the Officers executing such Securities, as evidenced by
their execution of such Securities.
SECTION 202. FORM OF FACE OF SECURITY.
(If the Security is an Original Issue Discount Security, insert--FOR
PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), THE AMOUNT OF ORIGINAL ISSUE DISCOUNT (AS DEFINED IN SECTION 1273(a)(1)
OF THE CODE AND TREASURY REGULATION SECTION 1.1273-l(a) WITH RESPECT TO THIS
SECURITY IS , THE ISSUE PRICE (AS DEFINED IN TREASURY REGULATION SECTION
1.1273-2) OF THIS SECURITY IS , THE ISSUE DATE (AS DEFINED IN SECTION
1275(a)(2) OF THE CODE AND TREASURY REGULATION SECTION 1.1273-2) OF THIS
SECURITY IS AND THE YIELD TO MATURITY OF THIS SECURITY IS ).
9
<PAGE> 17
PHILADELPHIA CONSOLIDATED HOLDING CORP.
........................
No. ________ ($)________
PHILADELPHIA CONSOLIDATED HOLDING CORP., a corporation duly organized
and existing under the laws of Pennsylvania (herein called the "Company," which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to , or registered assigns, the
principal sum of $ on . (If the Security is to bear interest prior
to Maturity, insert --, and to pay interest thereon from _______________ or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, (semi-annually) (quarterly) (monthly) on and in each year,
commencing , at the rate of % per annum, until the principal hereof
is paid or made available for payment (If applicable insert--, and (to the
extent that the payment of such interest shall be legally enforceable) at the
rate of % per annum on any overdue principal and premium and on any overdue
installment of interest). The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the of (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.)
(If the Security is not to bear interest prior to Maturity, insert--The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption or at Stated
Maturity and in such case the overdue principal of this Security shall bear
interest at the rate of % per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
default in payment to the date payment of such principal has been made or duly
provided for. Interest on any overdue principal shall be payable on demand. Any
such interest on any overdue principal that is not so paid on demand shall bear
interest at the rate of % per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
demand for payment to the date payment of such interest has been made or duly
provided for, and such interest shall also be payable on demand.)
Payment of the principal of (and premium, if any) and (if applicable,
insert--any such) interest on this Security will be made at the office or agency
of the Company maintained for that purpose in , in Dollars (if
applicable, insert--; provided, however, that at the option of the Company
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register).
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
10
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
By:
Attest:
(SEAL)
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of April , 1998 (herein called the
"Indenture"), between the Company and as Trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof
(limited in aggregate principal amount to $ ).
(If applicable, insert--The Securities of this series are subject to redemption
upon not less than 30 nor more than 45 days' notice by first class mail, (if
applicable, insert--(1) on in any year commencing with the year and ending with
the year through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)) at any time (on
or after , ), as a whole or in part, at the election of the
Company, at the following Redemption Prices (expressed as percentages of the
principal amount):
If redeemed (on or before , %, and if redeemed) during
the 12-month period beginning of the years indicated,
Year Redemption Price Year Redemption Price
and thereafter at a Redemption Price equal to _______ of the principal amount,
together in the case of any such redemption (if applicable, insert -- (whether
through operation of the sinking fund or otherwise)) with accrued and unpaid
interest to the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.)
(If applicable, insert -- The Securities of this series are subject to
redemption upon not less than 30 nor more than 45 days' notice by first class
mail, (1) on in any year commencing with the year and ending with
the year through operation of the sinking fund for this series at the
Redemption Prices for redemption through operation of the sinking fund
(expressed as percentages of the principal amount) set forth in the table below,
and (2) at any time (on or after ____________), as a whole or in part, at the
election of the Company, at the Redemption
11
<PAGE> 19
Prices for redemption otherwise than through operation of the sinking fund
(expressed as percentages of the principal amount) set forth in the table below:
If redeemed during a 12-month period beginning of the years indicated,
Redemption Price for Redemption Price for
Redemption Through Redemption Otherwise
Operation of the Than Through Operation
Year Sinking Fund of the Sinking Fund
and thereafter at a Redemption Price equal to % of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued and unpaid interest to the Redemption
Date, but interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.)
(Notwithstanding the foregoing, the Company may not, prior to
redeem any Securities of this series as contemplated by (clause (2) of) the
preceding paragraph as a part of, or in anticipation of, any refunding operation
by the application, directly or indirectly, of moneys borrowed having an
interest cost to the Company (calculated in accordance with generally accepted
financial practice) of less than % per annum.)
(The sinking fund for this series provides for the redemption on
in each year beginning with the year and ending with the year
of (not less than) $ (("mandatory sinking fund") and not more than
$ aggregate principal amount of Securities of this series.) (Securities
of this series acquired or redeemed by the Company otherwise than through
(mandatory) sinking fund payments may be credited against subsequent (mandatory)
sinking fund payments otherwise required to be made--in the (inverse) order in
which they become due.)
(In the event of redemption of this Security in part only a new
Security or Securities of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.)
(If the Security is not an Original Issue Discount Security, insert --
If any Event of Default with respect to Securities of this series shall occur
and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.) (If the Security is an Original Issue Discount Security, insert --
If an Event of Default with respect to Securities of this series shall occur and
be continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal -- insert formula for determining the
amount.) Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal and overdue interest (in each case
to the extent that the payment of such interest shall be legally enforceable),
all of the Company's obligations in respect of the payment of the principal of
and interest, if any, on the Securities of this series shall terminate.
This Security is a senior unsecured obligation of the Company and will
rank pari passu in right of payment with all other senior unsecured obligations
of the Company.
This Security is subject to Defeasance as described in the Indenture.
The Indenture may be modified by the Company and the Trustee without
consent of any Holder with respect to certain matters as described in the
Indenture. In addition, the Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of
12
<PAGE> 20
each series to be affected. The Indenture also contains provisions permitting
the Holders of a majority in principal amount of the Securities of each series
at the time Outstanding, on behalf of the Holders of all Securities of such
series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall bind such Holder
and all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of (and
premium, if any) and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series, of authorized denominations and for the same Stated Maturity and
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of ($1,000) and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like aggregate principal
amount of Securities of this series of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture imposes certain limitations on the ability of the Company
to, among other things, merge or consolidate with any other Person or sell,
assign, transfer or lease all or substantially all of its properties or assets
(If other covenants are applicable pursuant to the provisions of Section 301,
insert here). All such covenants and limitations are subject to a number of
important qualifications and exceptions. The Company must report periodically to
the Trustee on compliance with the covenants in the Indenture.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under this
Security or the Indenture or for any claim based on, in respect of or by reason
of, such obligations or their creation. Each Holder, by accepting a Security,
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Security.
(If applicable, insert -- Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures ("CUSIP"), the
Company has caused CUSIP numbers to be printed on the Securities of this series
as a convenience to the Holders of the Securities of this series. No
representation is made as to the correctness or accuracy of such numbers as
printed on the Securities of this series and reliance may be placed only on the
other identification numbers printed hereon.)
All capitalized terms used in this Security without definition which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.
13
<PAGE> 21
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Your Signature:
--------------- ------------------------------------------
(Sign exactly as your name
appears on the other side
of this Security)
Signature Guaranty:
------------------------------------------------------------
(Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Transfer Agent, which requirements will
include membership or participation in STAMP or
such other "signature guarantee program" as may be
determined by the Transfer Agent in addition to,
or in substitution for, STAMP all in accordance
with the Exchange Act.)
Social Security Number or Taxpayer Identification Number:-----------------------
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated:
----------------------
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By:
--------------------------
Authorized Signatory
SECTION 205. SECURITIES IN GLOBAL FORM.
If Securities of a series are issuable in global form, as contemplated
by Section 301, then, notwithstanding the provisions of Section 302, any such
Security shall represent such of the Outstanding Securities of such series as
shall be specified therein and may provide that it shall represent the aggregate
amount of Outstanding Securities from
14
<PAGE> 22
time to time endorsed thereon and that the aggregate amount of Outstanding
Securities represented thereby may from time to time be reduced to reflect
exchanges. Any endorsement of a Security in global form to reflect the amount,
or any increase or decrease in the amount, of Outstanding Securities represented
thereby shall be made in such manner and upon instructions given by such Person
or Persons as shall be specified therein or in the Company Order to be delivered
to the Trustee pursuant to Section 303 or Section 304. Subject to the provisions
of Section 303 and, if applicable, Section 304, the Trustee shall deliver and
redeliver any Security in permanent global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 303 or 304 has
been, or simultaneously is, delivered, any instructions by the Company with
respect to endorsement or delivery or redelivery of a Security in global form
shall be in writing but need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel.
The provisions of Section 309 shall apply to any Security represented
by a Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form
together with written instructions (which need not comply with Section 102 and
need not be accompanied by an Opinion of Counsel) with regard to the reduction
in the principal amount of Securities represented thereby.
Notwithstanding the provisions of Sections 201 and 307, unless
otherwise specified as contemplated by Section 301, payment of principal of,
premium, if any, and interest on any Security in permanent global form shall be
made to the Person or Persons specified therein.
Notwithstanding the provisions of Section 308 and except as provided in
the preceding paragraph, the Company, the Trustee and any agent of the Company
and the Trustee shall treat a Person as the Holder of such principal amount of
Outstanding Securities represented by a permanent global Security as shall be
specified in a written statement of the Holder of such permanent global
Security.
SECTION 206. CUSIP NUMBER.
The Company in issuing Securities of any series may use a "CUSIP"
number, and, if so, the Trustee may use the CUSIP number in notices of
redemption or exchange as a convenience to Holders of such series; provided,
that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed on the notice or on the
Securities of such series, and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP number of any series of
Securities.
SECTION 207. FORM OF LEGEND FOR THE SECURITIES IN GLOBAL FORM.
Any Security in global form authenticated and delivered hereunder shall
bear a legend in substantially the following form:
"This Security is in global form within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Common Depositary or
a U.S. Depositary. Unless and until it is exchanged in whole or in part for
Securities in certificated form, this Security may not be transferred except as
a whole by the Common Depositary or a U.S. Depositary or by a nominee of the
Common Depositary or a nominee of the U.S. Depositary as the case may be."
ARTICLE 3
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
15
<PAGE> 23
The Securities may be issued from time to time in one or more series.
There shall be established in or pursuant to a Board Resolution, and set forth
in an Officer's Certificate, or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of any series:
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture (except
for Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities of the series pursuant to
Sections 304, 305, 306, 906 or 1107);
(3) whether any Securities of the series are to be issuable in
permanent global form with or without coupons and, if so, (i) whether beneficial
owners of interests in any such permanent global security may exchange such
interests for Securities of such series and of like tenor of any authorized form
and denomination and the circumstances under which any such exchanges may occur,
if other than in the manner provided in Section 305, and (ii) the name of the
Common Depositary (as defined in Section 304) or the U.S. Depositary, as the
case may be, with respect to any global security;
(4) the date or dates on which the principal of the Securities of the
series is payable;
(5) the rate or rates at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall accrue, the
Interest Payment Dates on which such interest shall be payable and the Regular
Record Date for the interest payable on any Interest Payment Date and, if
applicable to such series of Securities, the basis points and United States
Treasury rate(s) and any other rates to be used in calculating the reset rate;
(6) the place or places where the principal of (and premium, if any)
and interest on Securities of the series shall be payable;
(7) the right of the Company, if any, to defer any payment of principal
of or interest on the Securities of the series, and the maximum length of any
such deferral period;
(8) the period or periods within which, the price or prices at which
and the terms and conditions upon which Securities of the series may be
redeemed, in whole or in part, at the option of the Company, pursuant to any
sinking fund or otherwise;
(9) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous provisions or
at the option of a Holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which Securities of
the series shall be redeemed or purchased, in whole or in part, pursuant to such
obligation, and, where applicable, the obligation of the Company to select the
Securities to be redeemed;
(10) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be issuable;
(11) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502;
(12) additional Events of Default with respect to Securities of the
series, if any, other than those set forth herein;
(13) if either or both of Section 1302 and Section 1303 shall be
inapplicable to the Securities of the series (provided that if no such
inapplicability shall be specified, then both Section 1302 and Section 1303
shall be applicable to the Securities of the series);
16
<PAGE> 24
(14) if other than U.S. dollars, the currency or currencies or units
based on or related to currencies in which the Securities of such series shall
be denominated and in which payments or principal of, and any premium and
interest on, such Securities shall or may by payable;
(15) additional covenants with respect to Securities of the series, if
any, other than those set forth herein;
(16) if other than the Trustee, the identity of the Registrar and any
Paying Agent; and
(17) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to such Board Resolution and set forth in such Officer's Certificate or in any
such Indenture supplemental hereto.
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officer's
Certificate setting forth, or providing the manner for determining, the terms of
the Securities of such series.
SECTION 302. DENOMINATIONS.
The Securities of each series shall be issuable in registered form
without coupons in such denominations as shall be specified as contemplated by
Section 301. In the absence of any such provisions with respect to the
Securities of any series, the Securities of such series shall be issuable in
denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile. The seal of the Company
may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Securities. Typographical and other
minor errors or defects in any such reproduction of the seal or any such
signature shall not affect the validity or enforceability of any security that
has been duly authenticated and delivered by the Trustee.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and make such Securities available for
delivery. If the form or terms of the Securities of the series have been
established in or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Sections 315(a)
through (d) of the Trust Indenture Act) shall be fully protected in relying
upon, an Opinion of Counsel stating,
(a) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
17
<PAGE> 25
(b) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 301, that such terms have
been established in conformity with the provisions of this Indenture;
(c) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company, enforceable in accordance with their terms, except
to the extent enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law); and
(d) that no consent, approval, authorization, order, registration or
qualification of or with any court or any governmental agency or body having
jurisdiction over the Company is required for the execution and delivery of such
Securities by the Company, except such as have been obtained (except that no
opinion need be expressed as to state securities or Blue Sky laws).
If such form or terms have been so established, the Trustee shall not
be required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee, or in the written opinion of
counsel to the Trustee (which counsel may be an employee of the Trustee) such
authentication may not lawfully be made or would involve the Trustee in personal
liability.
Notwithstanding the provisions of Section 301 and of the immediately
preceding paragraph, if all Securities of a series are not to be originally
issued at one time, it shall not be necessary to deliver the Officer's
Certificate otherwise required pursuant to Section 301 or the Company Order and
Opinion of Counsel otherwise required pursuant to the immediately preceding
paragraph at or prior to the time of authentication of each security of such
series if such documents are delivered at or prior to the authentication upon
original issuance of the first security of such series to be issued.
If the Company shall establish pursuant to Section 301 that the
Securities of a series are to be issued in the form of one or more global
Securities, then the Company shall execute and the Trustee shall, in accordance
with this Section and the Company Order with respect to the authentication and
delivery of such series, authenticate and deliver one or more global Securities
that (i) shall be in an aggregate amount equal to the aggregate principal amount
specified in such Company Order, (ii) shall be registered in the name of the
Common Depositary or U.S. Depositary, as the case may be, therefor or its
nominee, and (iii) shall be made available for delivery by the Trustee to such
depositary or pursuant to such depositary's instruction.
Each depositary designated pursuant to Section 301 must, at the time of
its designation and at all times while it serves as depositary, be a clearing
agency registered under the Exchange Act and any other applicable statute or
regulation.
Unless otherwise provided for in the form of security, each security
shall be dated the date of its authentication.
No security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
security shall be conclusive evidence, and the only evidence, that such security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
make available for delivery, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
18
<PAGE> 26
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
In the case of Securities of any series, such temporary Securities may
be in global form, representing all or a portion of the Outstanding Securities
of such series.
Except in the case of temporary Securities in global form (which shall
be exchanged in accordance with the provisions of Section 305), if temporary
Securities of any series are issued, the Company will cause definitive
Securities of that series to be prepared without unreasonable delay. After the
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company in a Place of Payment for that series, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities of any
series, the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations and of like
tenor. Until so exchanged, the temporary Securities of any series shall in all
respects be entitled to the same benefits under this Indenture as definitive
Securities of such series.
If temporary Securities of any series are issued in global form, any
such temporary global Security shall, unless otherwise provided therein, be
delivered to the office of a depositary or common depositary (the "COMMON
DEPOSITARY") for credit to the respective accounts of the beneficial owners of
such Securities (or to such other accounts as they may direct).
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of registration of transfers of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any security of any
series at the office or agency of the Company in Place of Payment for that
series, the Company shall execute, and the Trustee shall authenticate and make
available for delivery, in the name of the designated transferee or transferees,
one or more new Securities of the same series, of any authorized denominations
and of a like aggregate principal amount and Stated Maturity.
At the option of the Holder, Securities of any series may be exchanged
for other Securities of the same series, of any authorized denominations and of
a like aggregate principal amount and Stated Maturity, upon surrender of the
Securities to be exchanged at such office or agency. Whenever any Securities are
so surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the Securities which the Holder
making the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 301, any permanent global security shall be exchangeable
only as provided in this paragraph. If the beneficial owners of interests in a
permanent global security are entitled to exchange such interests for Securities
of such series and of like tenor and principal amount of another authorized form
and denomination, as specified and as subject to the conditions contemplated by
Section 301, then without unnecessary delay but in any event not later than the
earliest date on which such interests may be so exchanged, the Company shall
deliver to the Trustee definitive Securities of that series in aggregate
principal amount equal to the principal amount of such permanent global
security, executed by the Company. On or after the earliest date on which such
interests may be so exchanged, such permanent global Securities shall be
surrendered from time to time by the Common Depositary or the U.S. Depositary,
as the case may be, and in accordance with instructions given to the Trustee and
the Common Depositary or the U.S. Depositary, as the case may be (which
instructions shall be in writing but need not comply with Section 102 or be
accompanied by an Opinion of Counsel), as shall be specified in the Company
Order with respect thereto to the Trustee, as the Company's agent for such
purpose, to be exchanged, in whole or in part, for definitive Securities of the
same series
19
<PAGE> 27
without charge. The Trustee shall authenticate and make available for delivery,
in exchange for each portion of such surrendered permanent global security, a
like aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such permanent
global security to be exchanged which shall be in the form of the Securities of
such series; provided, however, that no such exchanges may occur during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of Securities of that series selected for redemption under
Section 1103 and ending at the close of business on the day of such mailing.
Promptly following any such exchange in part, such permanent global Security
shall be returned by the Trustee to the Common Depositary or the U.S.
Depositary, as the case may be, or such other Common Depositary or U.S.
Depositary referred to above in accordance with the written instructions of the
Company referred to above. If a Security in the form specified for such series
is issued in exchange for any portion of a permanent global Security after the
close of business at the office or agency where such exchange occurs on (i) any
Regular Record Date and before the opening of business at such office or agency
on the relevant Interest Payment Date, or (ii) any Special Record Date and
before the opening of business at such office or agency on the related proposed
date for payment of interest or Defaulted Interest, as the case may be, such
interest or Defaulted Interest will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of such security in
the form specified for such series, but will be payable on such Interest Payment
Date or proposed date for payment, as the case may be, only to the Person to
whom interest in respect of such portion of such permanent global Security is
payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligation, of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
Unless otherwise provided in the Securities to be transferred or
exchanged, no service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange Securities of any series during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
Securities of that series selected for redemption under Section 1103 and ending
at the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any security so selected for redemption in whole or in
part, except the unredeemed portion of any security being redeemed in part.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such Security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, make payment with respect to such Security.
20
<PAGE> 28
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security of such series
and the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Section
307 provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder of Securities of such series
at its address as it appears in the Security Register, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names the
Securities of such series (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be listed,
and upon such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this Section
307, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
21
<PAGE> 29
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
None of the Company, the Trustee or any agent of the Company or the
Trustee shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interest of a
Security in global form, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest. Notwithstanding the
foregoing, with respect to any Security in global form, nothing herein shall
prevent the Company or the Trustee or any agent of the Company or the Trustee
from giving effect to any written certification, proxy or other authorization
furnished by any Common Depositary (or its nominee), as a Holder, with respect
to such Security in global form or impair, as between such Common Depositary and
owners of beneficial interests in such Security in global form, the operation of
customary practices governing the exercise of the right of such Common
Depositary (or its nominee) as holder of such Security in global form.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities shall be held by the Trustee and may
be destroyed (and, if so destroyed, certification of their destruction shall be
delivered to the Company, unless, by a Company Order, the Company shall direct
that cancelled Securities be returned to it).
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
ARTICLE 4
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for or in the form of security for such series), when the
Trustee, upon Company Request and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1009) have been delivered to the Trustee
for cancellation; or
22
<PAGE> 30
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited with the
Trustee as trust funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore delivered
to the Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or the Stated Maturity or Redemption Date, as the case
may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent provided
for herein relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Company to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1009 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1009, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with or
received by the Trustee.
ARTICLE 5
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"EVENT OF DEFAULT," wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or to 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 Company defaults in the payment of interest on any Security of
that series when such interest becomes due and payable and the default continues
for a period of 30 days; provided, however, that if the Company is permitted by
the terms of the Securities of the applicable series to defer the payment in
question, the date on which such payment is due and payable shall be the date on
which the Company is required to make payment following such deferral, if such
deferral has been elected pursuant to the terms of the Securities; or
(2) the Company defaults in the payment of the principal of (or
premium, if any, on) any Security of that series when the same becomes due and
payable at Maturity, upon redemption (including redemptions under Article 11),
or otherwise; provided, however, that if the Company is permitted by the terms
of the Securities of the applicable series to defer the payment in question, the
date on which such payment is due and payable shall be the date
23
<PAGE> 31
on which the Company is required to make payment following such deferral, if
such deferral has been elected pursuant to the terms of the Securities; or
(3) the Company fails to observe or perform any of its other covenants,
warranties or agreements in the Securities of that series or this Indenture
(other than a covenant, agreement or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit of series of
Securities other than that series), and the failure to observe or perform
continues for the period and after the notice specified in the last paragraph of
this Section; or
(4) any Event of Default under any series of Securities issued pursuant
to this Indenture or any event of default, as defined in any other Indenture,
mortgage, indenture, or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of the Company or a
Subsidiary (whether such Indebtedness now exists or shall hereafter be created
or incurred) shall occur and shall consist of default in the payment of such
Indebtedness at the maturity thereof (after giving effect to any applicable
grace period) or shall result in Indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable,
and such default in payment is not cured or such acceleration shall not be
rescinded or annulled within 10 days after written notice to the Company from
the Trustee or to the Company and to the Trustee from the Holders of at least
10% in aggregate principal amount of the Securities of that series at the time
outstanding; provided that it shall not be an Event of Default if the principal
amount of Indebtedness (other than Indebtedness represented by Securities issued
pursuant to this Indenture) which is not paid at maturity or the maturity of
which is accelerated is less than the amount equal to 1% of the Company's
consolidated total assets (determined as of its most recent fiscal year-end)
provided further that if, prior to a declaration of acceleration of the maturity
of the Securities of that series or the entry of judgment in favor of the
Trustee in a suit pursuant to Section 503, such default shall be remedied or
cured by the Company or waived by the holders of such Indebtedness, then the
Event of Default hereunder by reason thereof shall be deemed likewise to have
been thereupon remedied, cured or waived without further action upon the part of
either the Trustee or any of the Holders of the Securities of that series, and
provided further, that, subject to Sections 601 and 602, the Trustee shall not
be charged with knowledge of any such default unless written notice of such
default shall have been given to the Trustee by the Company, by a holder or an
agent of a holder of any such Indebtedness, by the trustee then acting under any
indenture or other instrument under which such default shall have occurred, or
by the Holders of at least five percent in aggregate principal amount of the
Securities of that series at the time outstanding; or
(5) the Company pursuant to or within the meaning of any Bankruptcy Law
(A) commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (B) consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding under any Bankruptcy Law,
(C) consents to or acquiesces in the institution of bankruptcy or insolvency
proceedings against it, (D) applies for, consents to or acquiesces in the
appointment of or taking possession by a Custodian of the Company or for any
material part of its property, (E) makes a general assignment for the benefit of
its creditors or (F) takes any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(6) (i) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any Bankruptcy Law which shall (A) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in respect of the
Company, (B) appoint a Custodian of the Company or for any material part of its
property, or (C) order the winding-up or liquidation of its affairs, and such
judgment, decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (ii) any bankruptcy or insolvency petition or application
is filed, or any bankruptcy or insolvency proceeding is commenced against the
Company and such petition, application or proceeding is not dismissed within 60
days; or (iii) a warrant of attachment is issued against any material portion of
the property of the Company which is not released within 60 days of service; or
(7) any other Event of Default provided with respect to Securities of
that series.
A Default under clause (3) above is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series notify the Company of the Default and the
Company does not cure the Default within 60 days after receipt of the notice.
The notice must specify the Default,
24
<PAGE> 32
demand that it be remedied and state that the notice is a "Notice of Default."
When a Default under clause (3) above is cured within such 60-day period, it
ceases.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default with respect to Securities of any series (other
than an Event of Default specified in clause (5) or (6) of Section 501) occurs
and is continuing, the Trustee by notice in writing to the Company, or the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of that series by notice in writing to the Company and the Trustee,
may declare the unpaid principal of and accrued interest to the date of
acceleration (or, if the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) on all the Outstanding Securities of that series to be due
and payable immediately and, upon any such declaration, the Outstanding
Securities of that series (or specified principal amount) shall become and be
immediately due and payable.
If an Event of Default specified in clause (5) or (6) of Section 501
occurs, all unpaid principal of and accrued interest on the Outstanding
Securities of that series (or specified principal amount) shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder of any Security of that series.
Upon payment of all such principal and interest, all of the Company's
obligations under the Securities of that series and (upon payment of the
Securities of all series) this Indenture shall terminate, except obligations
under Section 607.
The Holders of a majority in principal amount of the Outstanding
Securities of that series by notice to the Trustee may rescind an acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal and interest of the Securities of that series that
has become due solely by such declaration of acceleration, have been cured or
waived, (ii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal that has become due
otherwise than by such declaration of acceleration have been paid, (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and (iv) all payments due to the Trustee and any
predecessor Trustee under Section 607 have been made.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if:
(1) default is made in the payment of any interest on any Security of
any series when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security of any series at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the rate
or rates prescribed therefor in such Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the reasonable costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
25
<PAGE> 33
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to secure any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceedings, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS
WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article in respect
of the Securities of any series shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities in respect of which moneys have been collected
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section 607
applicable to such series;
Second: To the payment of the amounts then due and unpaid for principal
of (and premium, if any) and interest on the Securities of such series in
respect of which or for the benefit of which such money has been collected,
26
<PAGE> 34
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities of such series for principal (and premium, if
any) and interest, respectively; and
Third: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 506. At least fifteen (15) days before such
record date, the Trustee shall mail to each Holder and the Company a notice that
states the record date, the payment date and the amount to be paid.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of Holders of Securities of
any series shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other of such Holders, or to obtain or to seek to obtain priority
or preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all Holders of Securities of the affected series.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the Stated Maturity or Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding has been instituted.
27
<PAGE> 35
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Securities
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall 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
Securities of such series, provided that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(3) subject to Section 601, the Trustee need not take any action which
might involve the Trustee in personal liability or be unduly prejudicial to the
Holders not joining therein.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may by written notice to the Trustee on
behalf of the Holders of all the Securities of such series waive any Default or
Event of Default with respect to such series and its consequences, except a
Default or Event of Default
(1) in respect of the payment of the principal of (or premium, if any)
or interest on any Security of such series, or
(2) in respect of a covenant or other provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such Default or Event of Default shall cease to
exist and shall be deemed to have been cured, for every purpose of this
Indenture and the Securities of such series; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of
28
<PAGE> 36
this Section shall not apply to any suit instituted by the Company, to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities of any series, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of (or premium, if any) or
interest on any Security on or after the Stated Maturity or Maturities expressed
in such Security (or, in the case of redemption, on or after the Redemption
Date).
ARTICLE 6
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES OF
THE TRUSTEE.
(a) Except during the continuance of an Event of Default, the Trustee's
duties and responsibilities under this Indenture shall be governed by Section
315(a) of the Trust Indenture Act.
(b) In case an Event of Default has occurred and is continuing, and is
known to the Trustee, the Trustee shall exercise the rights and powers vested in
it by this Indenture, and shall use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) None of the provisions of Section 315(d) of the Trust Indenture Act
shall be excluded from this Indenture.
SECTION 602. NOTICE OF DEFAULTS.
Within 30 days after the occurrence of any Default or Event of Default
with respect to the Securities of any series, the Trustee shall give to all
Holders of Securities of such series, as their names and addresses appear in the
Security Register, notice of such Default or Event of Default known to the
Trustee, unless such Default or Event of Default shall have been cured or
waived; provided, however, that, except in the case of a Default or Event of
Default in the payment of the principal of (or premium, if any) or interest on
any Security of such series or in the payment of any sinking fund installment
with respect to Securities of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or directors or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders
of Securities of such series.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
29
<PAGE> 37
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity to its reasonable satisfaction
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) prior to the occurrence of an Event of Default with respect to the
Securities of any series and after the curing or waiving of all such Events of
Default which may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, approval or other paper or document, or the books and records of the
Company, unless requested in writing to do so by the Holders of a majority in
principal amount of the Outstanding Securities of any series; provided, however,
that if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is not, in the opinion of the Trustee, reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such costs, expenses or
liabilities as a condition to so proceeding; the reasonable expense of every
such investigation shall be paid by the Company or, if paid by the Trustee,
shall be repaid by the Company upon demand;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF SECURITIES.
The recitals herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee or any Authenticating Agent assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder (including amounts held by
the Trustee as Paying Agent) need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed upon in writing
with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
30
<PAGE> 38
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability, damage, claim or expense, including taxes (other than taxes
based upon or determined or measured by the income of the Trustee), incurred
without gross negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(5) or Section 501(6), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section 607 shall survive this Indenture.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
The Trustee shall be disqualified only where such disqualification is
required by Section 310(b) of the Trust Indenture Act. Nothing shall prevent the
Trustee from filing with the Commission the application referred to in the
second to last paragraph of Section 310(b) of the Trust Indenture Act.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. Neither the Company nor any Person directly or indirectly
controlling, controlled by, or under common control with the Company may serve
as Trustee. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT
OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.
31
<PAGE> 39
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six months; or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request herefor by the Company or by any such
Holder of a Security who has been a bona fide Holder of a Security for at least
six months; or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 315(e) of the
Trust Indenture Act, any Holder who has been a bona fide Holder of a security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and shall comply with the
applicable requirements of Section 611. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
611, become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company with
respect to such Securities. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the Company or the
Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each appointment
of a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to all
Holders of Securities of such series as their names and addresses appear in the
security Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
32
<PAGE> 40
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental Indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under the Trust Indenture Act.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Securities remain Outstanding the Trustee
may appoint an Authenticating Agent or Agents with respect to one or more series
of Securities which shall be authorized to act on behalf of, and subject to the
direction of, the Trustee to authenticate Securities of such series issued upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an
33
<PAGE> 41
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent 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 Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities of the series with respect to which such Authenticating Agent will
serve, as their names and addresses appear in the security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant
to this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternate
certificate of authentication in the following form:
Form of Authenticating Agent's
Certificate of Authentication
Dated:
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO
As Trustee
By:
As Authenticating Agent
By:
Authorized Signatory
34
<PAGE> 42
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not later than January 1 and July 1 in each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of the preceding December 15 or June 15, as the case
may be; and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
provided, however, that so long as the Trustee is the Security Registrar, no
such list shall be required to be furnished.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants") apply
in writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Indenture or under the Securities and is accompanied by a copy of the
form of proxy or other communication which such applicants propose to transmit
then the Trustee shall, within five Business Days after the receipt of such
application, at its election, either
(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with Section 702(a); or
(ii) inform such applicants as to the approximate number of
Holders whose names and addresses appear in the information preserved at the
time by the Trustee in accordance with Section 702(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other communication, if
any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appears in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interest of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Holders with reasonable promptness after the entry of
such order and the renewal of such tender; otherwise the Trustee shall be
relieved of any obligation or duty to such applicants respecting their
application.
35
<PAGE> 43
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with Section 702(b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
SECTION 703. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year commencing with the year
1998, the Trustee shall transmit by mail to all Holders of Securities as
provided in Section 313(c) of the Trust Indenture Act, a brief report dated as
of May 15, if required by and in compliance with Section 313(a) of the Trust
Indenture Act.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall:
(1) file with the Trustee, within 30 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company
is not required to file information, documents or reports pursuant to either of
said Sections, then it shall file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations;
(3) transmit by mail to all Holders, as their names and addresses
appear in the Security Register, (a) concurrently with furnishing the same to
its shareholders, the Company's annual report to shareholders, containing
certified financial statements, and any other financial reports which the
Company generally furnishes to its shareholders, and (b) within 30 days after
the filing thereof with the Trustee, such summaries of any other information,
documents and reports required to be filed by the Company pursuant to paragraphs
(1) and (2) of this Section as may be required by rules and regulations
prescribed from time to time by the Commission; and
(4) furnish to the Trustee, on or before May 1 of each year, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this paragraph, such compliance shall be determined without regard to any
period of grace or requirement of notice provided under this Indenture. Such
certificate need not comply with Section 102.
36
<PAGE> 44
ARTICLE 8
CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER
SECTION 801. WHEN COMPANY MAY MERGE, ETC.
The Company shall not consolidate with, or merge with or into any other
corporation (whether or not the Company shall be the surviving corporation), or
sell, assign, transfer or lease all or substantially all of its properties and
assets as an entirety or substantially as an entirety to any Person or group of
affiliated Persons, in one transaction or a series of related transactions,
unless:
(1) either the Company shall be the continuing Person or the Person (if
other than the Company) formed by such consolidation or with which or into which
the Company is merged or the Person (or group of affiliated Persons) to which
all or substantially all the properties and assets of the Company as an entirety
or substantially as an entirety are sold, assigned, transferred or leased shall
be a corporation (or constitute corporations) organized and existing under the
laws of the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Securities and this Indenture; and
(2) immediately before and after giving effect to such transaction or
series of related transactions, no Event of Default, and no Default, shall have
occurred and be continuing.
SECTION 802. OPINION OF COUNSEL.
The Company shall deliver to the Trustee prior to the proposed
transaction(s) covered by Section 801 an Officer's Certificate and an Opinion of
Counsel stating that the transaction(s) and such supplemental indenture comply
with this Indenture and that all conditions precedent to the consummation of the
transaction(s) under this Indenture have been met.
SECTION 803. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation by the Company with or merger by the Company
into an other corporation or any lease, sale, assignment, or transfer of all or
substantially all of the property and assets of the Company in accordance with
Section 801, the successor corporation formed by such consolidation or into
which the Company is merged or the successor corporation or affiliated group of
corporations to which such lease, sale, assignment, or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation or corporations had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor corporation or
corporations shall be relieved of all obligations and covenants under this
Indenture and the Securities and in the event of such conveyance or transfer,
except in the case of a lease, any such predecessor corporation may be dissolved
and liquidated.
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without notice to or the consent of any Holders, the Company, when authorized by
a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
37
<PAGE> 45
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be for
the benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of series) or to surrender
any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default with respect to all or any
series of Securities; or
(4) to add or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of Securities
in bearer form, registrable or not registrable as to principal, and with or
without interest coupons; or
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only when
there is no Security Outstanding of any series created prior to the execution of
such supplemental Indenture which is entitled to the benefit of such provision;
or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
611(b); or
(9) to cure any ambiguity, defect or inconsistency or to correct or
supplement any provision herein which may be inconsistent with any other
provision herein; or
(10) to make any change that does not materially adversely affect the
interests of the Holders of Securities of any series.
Upon request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in (and subject to the last sentence
of) Section 903, the Trustee shall join with the Company in the execution of any
supplemental indenture authorized or permitted by the terms of this Indenture.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the written consent of the Holders of a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee
shall, subject to Section 903, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding security affected
thereby,
(1) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof or extend the time for payment thereof, or 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 pursuant to
Section 502, or change any Place of Payment where, or the coin or currency in
which, any security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
38
<PAGE> 46
any waiver of compliance with certain provisions of this Indenture or Defaults
or Events of Default hereunder and their consequences provided for in this
Indenture; or
(3) change the redemption provisions (including Article Eleven) hereof
in a manner adverse to such Holder; or
(4) modify any of the provisions of this Section or Section 513, except
to increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Security affected thereby; provided, however, that this clause
shall not be deemed to require the consent of any Holder with respect to changes
in the references to "the Trustee" and concomitant changes in this Section, or
the deletion of this proviso, in accordance with the requirements of Sections
611(b) and 901(8).
A supplemental indenture which changes or eliminates any covenant or
other provisions of this Indenture which as expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
The Trustee shall sign any supplemental indenture authorized pursuant
to this Article, subject to the last sentence of this Section 903. In executing,
or accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created by
this Indenture, the Trustee shall be entitled to receive, and (subject to
Section 601) shall be fully protected in relying upon, an Officer's Certificate
and an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
Indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticate and delivered by the
Trustee in exchange for Outstanding Securities of such series.
39
<PAGE> 47
ARTICLE 10
COVENANTS
SECTION 1001. PAYMENTS OF SECURITIES.
With respect to each series of Securities, the Company will duly and
punctually pay the principal of (and premium, if any) and interest on such
Securities in accordance with their terms and this Indenture, and will duly
comply with all the other terms, agreements and conditions contained in, or made
in the Indenture for the benefit of, the Securities of such series.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain an office or agency in each Place of Payment
where Securities may be surrendered for registration of transfer or exchange or
for presentation for payment, where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee as set forth in Section 105
hereof and the Company hereby appoints the Trustee as its agent to receive all
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. CORPORATE EXISTENCE.
Subject to Article 8 hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and that of each of its Subsidiaries and the rights (charter and
statutory) of the Company and its Subsidiaries; provided, however, that (a) the
Company shall not be required to preserve any such right, license or franchise
or the corporate existence of any of its Subsidiaries if the Board of Directors,
or the board of directors of the Subsidiary concerned, as the case may be, shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company or any of its Subsidiaries and that the loss thereof
is not materially disadvantageous to the Holders, and (b) nothing herein
contained shall prevent any Subsidiary of the Company from liquidating or
dissolving, or merging into, or consolidating with the Company (provided that
the Company shall be the continuing or surviving corporation) or with any one or
more Subsidiaries if the Board of Directors or the board of directors of the
Subsidiary concerned, as the case may be, shall so determine.
SECTION 1004. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge, or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a material lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
40
<PAGE> 48
SECTION 1005. MAINTENANCE OF PROPERTIES.
The Company will cause all material properties used or useful in the
conduct of its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working order (normal wear and
tear excepted) and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties, or disposing of any of them, if such discontinuance or disposal
is, in the judgment of the Board of Directors or of the board of directors of
the Subsidiary concerned, as the case may be, desirable in the conduct of the
business of the Company or any Subsidiary of the Company and not materially
disadvantageous to the Holders.
SECTION 1006. COMPLIANCE CERTIFICATES.
(a) The Company shall deliver to the Trustee within 90 days after the
end of each fiscal year of the Company (which fiscal year currently ends on
December 31), an Officer's Certificate stating whether or not the signer knows
of any Default or Event of Default by the Company that occurred prior to the end
of the fiscal year and is then continuing. If the signer does know of such a
Default or Event of Default, the certificate shall describe each such Default or
Event of Default and its status and the specific section or sections of this
Indenture in connection with which such Default or Event of Default has
occurred. The Company shall also promptly notify the Trustee in writing should
the Company's fiscal year be changed so that the end thereof is on any date
other than the date on which the Company's fiscal year currently ends. The
certificate need not comply with Section 102 hereof.
(b) The Company shall deliver to the Trustee, within 10 days after the
occurrence thereof, notice of any acceleration which with the giving of notice
and the lapse of time would be an Event of Default within the meaning of Section
501(4) hereof.
(c) The Company shall deliver to the Trustee forthwith upon becoming
aware of a Default or Event of Default (but in no event later than 10 days after
the occurrence of each Default or Event of Default that is continuing), an
Officer's Certificate setting forth the details of such Default or Event of
Default and the action that the Company proposes to take with respect thereto
and the specific section or sections of this Indenture in connection with which
such Default or Event of Default has occurred.
SECTION 1007. COMMISSION REPORTS.
(a) The Company shall file with the Trustee, within 30 days after it
files them with the Commission, copies of the quarterly and annual reports and
of the information, documents, and other reports (or copies of such portions of
any of the foregoing as the Commission may by rules and regulations prescribe)
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. If the Company is not subject to the requirement
of such Section 13 or 15(d) of the Exchange Act, the Company shall file with the
Trustee, within 30 days after it would have been required to file such
information with the Commission, financial statements, including any notes
thereto and, with respect to annual reports, an auditors' report by an
accounting firm of established national reputation and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," both
comparable to that which the Company would have been required to include in such
annual reports, information, documents or other reports if the Company had been
subject to the requirements of such Sections 13 or 15(d) of the Exchange Act.
The Company also shall comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
(b) So long as the Securities remain outstanding, the Company shall
cause its annual report to shareholders and any other financial reports
furnished by it to shareholders generally, to be mailed to the Holders at their
addresses appearing in the register of Securities maintained by the Security
Registrar in each case at the time of such mailing or furnishing to
shareholders. If the Company is not required to furnish annual or quarterly
reports to its shareholders pursuant to the Exchange Act, the Company shall
cause its financial statements, including any notes thereto and, with respect to
annual reports, an auditors' report by an accounting firm of established
national reputation and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations," to be so filed with
41
<PAGE> 49
the Trustee and mailed to the Holders within 90 days after the end of each of
the Company's fiscal years and within 45 days after the end of each of the first
three quarters of each fiscal year.
(c) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Company may
be required to deliver to the Holders under this Section 1007.
SECTION 1008. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim, and will actively resist any and all efforts to be compelled to take the
benefit or advantage of, any stay or extension law or any usury law or other
law, which would prohibit or forgive the Company from paying all or any portion
of the principal of and/or interest on the Securities as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 1009. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any
series of Securities, it will, prior to each due date of the principal of (and
premium, if any) or interest on any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure to so act.
The Company will cause each Paying Agent for any series of Securities
(other than the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities of that series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any payment
of principal (and premium, if any) or interest on the Securities of that series;
and
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any security of any series and remaining unclaimed
42
<PAGE> 50
for two years after such principal (and premium, if any) or interest has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee of
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in New York, New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1010. LIMITATION ON LIENS.
Neither the Company will, nor will it permit any Significant Subsidiary
to, create, incur, or suffer to exist any Lien in, of or on the property of the
Company or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its property if the same shall not at the time be delinquent or thereafter can
be paid without penalty or are being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with generally
accepted principles of accounting shall have been set aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Company or its Subsidiaries.
(v) Liens on the capital stock, partnership interest, or other evidence
of ownership of any Subsidiary or such Subsidiary's assets that secure
financings for such Subsidiary.
(vi) Purchase money liens upon or in property now owned or hereafter
acquired in the ordinary course of business (consistent with the Company's
business practices) to secure (A) the purchase price of such property or (B)
Indebtedness incurred solely for the purpose of financing the acquisition,
construction, or improvement of any such property to be subject to such liens,
or Liens existing on any such property at the time of acquisition, or
extensions, renewals, or replacements of any of the foregoing for the same or a
lesser amount; provided that no such lien shall extend to or cover any property
other than the property being acquired, constructed, or improved and
replacements, modifications, and proceeds of such property, and no such
extension, renewal, or replacement shall extend to or cover any property not
theretofore subject to the Lien being extended, renewed, or replaced.
(vii) Liens existing on the date Securities are first issued hereunder.
(viii) Liens for no more than 90 days arising from a transaction
involving accounts receivable or third-party reimbursements of the Company
(including the sale of such accounts receivable or third-party reimbursements),
where such accounts receivable or third-party reimbursements arose in the
ordinary course of the Company's business.
43
<PAGE> 51
SECTION 1011. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1010 or 1011 hereof, if before or
after the time for such compliance the Holders of not less than a majority in
principal amount of the Securities at the time Outstanding of each series which
is affected thereby, shall, by consent in writing of such Holders, either waive
such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or conditions except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
ARTICLE 11
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with their terms and (except as
otherwise specified as contemplated by Section 301 for Securities of any series)
in accordance with this Article.
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company
of less than all the Securities of any series, the Company shall, at least 45
days prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Securities of such series to be redeemed. In
the case of any redemption of Securities prior to the expiration of any
restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officer's Certificate evidencing compliance with such restriction.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 90 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, substantially pro rata, by lot
or by any other method as the Trustee considers fair and appropriate and that
complies with the requirements of the principal national securities exchange, if
any, on which such Securities are listed, and which may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of that series; provided that
in case the Securities of such series have different terms and maturities, the
Securities to be redeemed shall be selected by the Company and the Company shall
give notice thereof to the Trustee.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of the Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in part,
to the portion of the principal amount of such Securities which has been or is
to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 45 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at this address appearing in
the Security Register.
44
<PAGE> 52
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will be come due
and payable upon each such security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date;
(5) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(6) that the redemption is for a sinking fund, if such is the case;
(7) the CUSIP number, if any, of the Securities to be redeemed; and
(8) unless otherwise provided as to a particular series of Securities,
if at the time of publication or mailing of any notice of redemption the Company
shall not have deposited with the Trustee or Paying Agent and/or irrevocably
directed the Trustee or Paying Agent to apply, from money held by it available
to be used for the redemption of Securities, an amount in cash sufficient to
redeem all of the Securities called for redemption, including accrued interest
to the Redemption Date, such notice shall state that it is subject to the
receipt of the redemption moneys by the Trustee or Paying Agent before the
Redemption Date (unless such redemption is mandatory) and such notice shall be
of no effect unless such moneys are so received before such date.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1009) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such security for redemption in accordance with said notice, such security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Regular or Special Record Dates
according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate prescribed
thereof or in the security.
45
<PAGE> 53
SECTION 1107. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company at a Place of Payment therefor (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such security without service charge, a new Security or Securities of
the same series and Stated Maturity, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the security so surrendered.
ARTICLE 12
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of a series, except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "Mandatory Sinking
Fund Payment," and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "Optional
Sinking Fund Payment." If provided for by the terms of Securities of any series,
the cash amount of any sinking fund payment may be subject to redemption as
provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (1) may deliver Securities of a series (other than any
Securities previously called for redemption) and (2) may apply as a credit
Securities of a series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of such series required to be made
pursuant to the terms of such Securities as provided for by the terms of such
series; provided that such Securities have not been previously so credited. Such
Securities shall be received and credited for such purpose by the Trustee at the
Redemption Price specified in such Securities for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officer's
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivering and crediting Securities of that series
pursuant to Section 1202 and will also deliver to the Trustee any Securities to
be so delivered. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 1103 and cause notice of
the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 1104. Such notice having been duly
given, the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 1106 and 1107.
46
<PAGE> 54
ARTICLE 13
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT
DEFEASANCE OR COVENANT DEFEASANCE.
Unless pursuant to Section 301 provision is made for the
inapplicability of either or both of (a) Defeasance of the Securities of a
series under Section 1302 or (b) Covenant Defeasance of the Securities of a
series under Section 1303, then the provisions of such Section or Sections, as
the case may be, together with the other provisions of this Article, shall be
applicable to the Securities of such series, and the Company may at its option
by Board Resolution, at any time, with respect to the Securities of such series,
elect to have either Section 1302 (unless inapplicable) or Section 1303 (unless
inapplicable) be applied to the Outstanding Securities of such series upon
compliance with the applicable conditions set forth below in this Article.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of the option provided in Section 1301 to
defease the Outstanding Securities of a particular series, the Company shall be
discharged from its obligations with respect to the Outstanding Securities of
such series on the date the applicable conditions set forth in Section 1304 are
satisfied (hereinafter, "Defeasance"). Defeasance shall mean that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Outstanding Securities of such series and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same); provided, however, that the
following rights, obligations, powers, trusts, duties and immunities shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities of such series to receive, solely from the
trust fund provided for in Section 1304, payments in respect of the principal of
(and premium, if any) and interest on such Securities when such payments are
due, (B) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002 and 1009, (C) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (D) this Article. Subject to
compliance with this Article, the Company may exercise its option with respect
to Defeasance under this Section 1302 notwithstanding the prior exercise of its
option with respect to Covenant Defeasance under Section 1303 in regard to the
Securities of such series.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise of the option provided in Section 1301 to
obtain a Covenant Defeasance with respect to the Outstanding Securities of a
particular series, the Company shall be released from its obligations under this
Indenture (except its obligations under Sections 304, 305, 306, 506, 509, 610,
1001, 1002, 1006, 1008 and 1009) with respect to the Outstanding Securities of
such series on and after the date the applicable conditions set forth in Section
1304 are satisfied (hereinafter, "Covenant Defeasance"). Covenant Defeasance
shall mean that, with respect to the Outstanding Securities of such series, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in this Indenture (except its
obligations under Sections 304, 305, 306, 506, 509, 610, 1001, 1002, 1006, 1008
and 1009), whether directly or indirectly by reason of any reference elsewhere
herein or by reason of any reference to any other provision herein or in any
other document, and such omission to comply shall not constitute an Event of
Default under Section 501(4) with respect to Outstanding Securities of such
series, and the remainder of this Indenture and of the Securities of such series
shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to Defeasance under Section 1302
and Covenant Defeasance under Section 1303 with respect to the Outstanding
Securities of a particular series:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 609 who shall agree to comply with the provisions of this Article
applicable to it), under the terms of an irrevocable trust agreement in form and
substance reasonably satisfactory to
47
<PAGE> 55
such Trustee, as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of such Securities, (A) Dollars in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than the due date of any payment, money in an amount, or (C) a combination
thereof, in each case sufficient, after payment of all federal, state and local
taxes or other charges or assessments in respect thereof payable by the Trustee,
in the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, (i) the principal of (and premium, if any, on)
and each installment of principal of (and premium, if any) and interest on the
Outstanding Securities of such series on the Stated Maturity of such principal
or installment of principal or interest and (ii) any mandatory sinking fund
payments or analogous payments applicable to the Outstanding Securities of such
series on the day on which such payments are due and payable in accordance with
the terms of this Indenture and of such Securities.
(2) No Default or Event of Default with respect to the Securities of
such series shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit, and no Default or Event of Default
under clause (5) or (6) of Section 501 hereof shall occur and be continuing, at
any time during the period ending on the 31st day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied until the
expiration of such period).
(3) Such deposit, Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(4) Such Defeasance or Covenant Defeasance shall not cause any
Securities of such series then listed on any national securities exchange
registered under the Exchange Act to be delisted.
(5) In the case of an election with respect to Section 1302, the
Company shall have delivered to the Trustee either (A) a ruling directed to the
Trustee received from the Internal Revenue Service to the effect that the
Holders of the Outstanding Securities of such series will not recognize income,
gain or loss for federal income tax purposes as a result of such Defeasance and
will be subject to 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 had not
occurred or (B) an Opinion of Counsel, based on such ruling or on a change in
the applicable federal income tax law since the date of this Indenture, in
either case to the effect that, and based thereon such opinion shall confirm
that, the Holders of the Outstanding Securities of such series will not
recognize income, gain or loss for federal income tax purposes as a result of
such Defeasance and will be subject to 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 had not occurred.
(6) In the case of an election with respect to Section 1303, the
Company shall have delivered to the Trustee an Opinion of Counsel or a ruling
directed to the Trustee received from the Internal Revenue Service to the effect
that the Holders of the Outstanding Securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred.
(7) Such Defeasance or Covenant Defeasance shall be effected in
compliance with any additional terms, conditions or limitations which may be
imposed on the Company in connection therewith pursuant to Section 301.
(8) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Defeasance under Section 1302 or
the Covenant Defeasance under Section 1303 (as the case may be) have been
complied with.
48
<PAGE> 56
SECTION 1305. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS
TO BE HELD IN TRUST.
Subject to the provisions of the last paragraph of Section 1009, all
money and Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee--collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities of a particular series shall be held in trust and applied
by the Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1304 or the principal and interest received in respect
thereof, other than any such tax, fee or other charge which by law is for the
account of the Holders of the Outstanding Securities of such series.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver to pay to the Company from time to time upon Company Request any
money or Government Obligations held by it as provided in Section 1304 which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited for
the purpose for which such money or Government Obligations were deposited.
ARTICLE 14
MISCELLANEOUS
SECTION 1401. MISCELLANEOUS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
49
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
By
Name:
Title:
Attest:
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
By
Name:
Title:
Attest:
Name:
Title:
<PAGE> 1
EXHIBIT 4.2
FORM OF FIRST SUPPLEMENTAL INDENTURE
Dated as of April __, 1998
between
PHILADELPHIA CONSOLIDATED HOLDING CORP.
AS ISSUER
and
THE FIRST NATIONAL BANK OF CHICAGO
AS TRUSTEE
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS................................................................ 1
SECTION 1.1. Definition of Terms.......................................... 1
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES............................. 3
SECTION 2.1. Designation and Principal Amount............................. 3
SECTION 2.2. Maturity..................................................... 3
SECTION 2.3. Form and Payment............................................. 3
SECTION 2.4. Global Debenture............................................. 3
SECTION 2.5. Interest..................................................... 4
ARTICLE III
REDEMPTION OF THE DEBENTURES............................................... 5
SECTION 3.1. Tax Event Redemption......................................... 5
SECTION 3.2. Redemption Procedure for Debentures.......................... 5
SECTION 3.3. No Sinking Fund.............................................. 6
SECTION 3.4. Option to Put Debentures upon a Failed Remarketing........... 6
SECTION 3.5. Repurchase Procedure for Debentures.......................... 6
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD....................................... 6
SECTION 4.1. Extension of Interest Payment Period......................... 6
SECTION 4.2. Notice of Extension.......................................... 7
ARTICLE V
EXPENSES................................................................... 8
SECTION 5.1. Payment of Expenses.......................................... 8
SECTION 5.2. Payment Upon Resignation or Removal.......................... 8
ARTICLE VI
NOTICE..................................................................... 8
SECTION 6.1. Notice by the Company........................................ 8
i
<PAGE> 3
Page
ARTICLE VII
FORM OF DEBENTURE.......................................................... 9
SECTION 7.1. Form of Debenture............................................ 9
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES............................................... 17
SECTION 8.1. Original Issue of Debentures................................. 17
ARTICLE IX
MISCELLANEOUS.............................................................. 17
SECTION 9.1. Ratification of Indenture.................................... 17
SECTION 9.2. Trustee Not Responsible for Recitals......................... 17
SECTION 9.3. Governing Law................................................ 17
SECTION 9.4. Separability................................................. 17
SECTION 9.5. Counterparts................................................. 17
SECTION 9.6. Guarantee and Declaration.................................... 18
ARTICLE X
REMARKETING................................................................ 18
SECTION 10.1. Effectiveness of this Article................................ 18
SECTION 10.2. Remarketing Procedures....................................... 18
ii
<PAGE> 4
FORM OF FIRST SUPPLEMENTAL INDENTURE, dated as of April __, 1998 (the
"First Supplemental Indenture"), between PHILADELPHIA CONSOLIDATED HOLDING
CORP., a corporation duly organized and existing under the laws of the State of
Pennsylvania, (the "Company"), and The First National Bank of Chicago, as
trustee (the "Trustee").
WHEREAS, the Company executed and delivered the indenture dated as of
April __, 1998 (the "Base Indenture"), to the Trustee to provide for the future
issuance of the Company's senior unsecured debentures, notes or other evidence
of indebtedness (the "Securities"), to be issued from time to time in one or
more series as might be determined by the Company under the Base Indenture;
WHEREAS, pursuant to the terms of the Base Indenture, the Company
desires to provide for the establishment of a new series of its Securities to be
known as its __% Debentures due ___ 16, 2003 (the "Debentures"), the form and
substance of such Debentures and the terms, provisions and conditions thereof to
be set forth as provided in the Base Indenture and this First Supplemental
Indenture (together, the "Indenture");
WHEREAS, PCHC Financing I, a Delaware statutory business trust (the
"Trust"), has offered to the public its __% Trust Originated Preferred
Securities (the "Trust Preferred Securities"), representing, undivided
beneficial ownership interests in the assets of the Trust, and proposes to
invest the proceeds from such offering, together with the proceeds of the
issuance and sale by the Trust to the Company of its __% Common Securities (the
"Common Securities" and together with the Trust Preferred Securities, the "Trust
Securities"), in the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this First Supplemental Indenture and all requirements necessary to make this
First Supplemental Indenture a valid instrument in accordance with its terms,
and to make the Debentures, when executed by the Company and authenticated and
delivered by the Trustee, the valid obligations of the Company and all acts and
things necessary have been done and performed to make this First Supplemental
Indenture enforceable in accordance with its terms, and the execution and
delivery of this First Supplemental Indenture has been duly authorized in all
respects:
NOW THEREFORE, in consideration of the purchase and acceptance of the
Debentures by the Holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Debentures and the
terms, provisions and conditions thereof, the Company covenants and agrees with
the Trustee as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning when used in
this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental Indenture has
the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) headings are for convenience of reference only and do not affect
interpretation;
(e) the following terms have the meanings given to them in the
Declaration: (i) Applicable Principal Amount; (ii)Authorized Newspaper; (iii)
Business Day; (iv) Clearing Agency; (v) Delaware Trustee; (vi) DTC; (vii) FELINE
<PAGE> 5
PRIDES; (viii) Growth PRIDES; (ix) Income PRIDES; (x) Institutional Trustee;
(xi) Investment Company Event; (xii) Trust Preferred Security Certificate;
(xiii) Pricing Agreement; (xiv) Purchase Agreement; (xv) Put Option (xvi)
Quotation Agent; (xvii) Regular Trustees; (xviii) Redemption Amount, (xix) Reset
Agent; (xx) Reset Announcement Date; (xxi) Reset Spread;(xxii) Tax Event;
(xxiii) Tax Event Redemption Date; (xxvi) Treasury Portfolio Purchase Price;
(xxv) Treasury Portfolio; and (xxvi) Treasury Securities and (xxvii) Two-Year
Benchmark Treasury.
(f) the following terms have the meanings given to them in this Section
1.11(f):
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Custodial Agent" means Chase Manhattan Bank, as Custodial Agent.
"Debenture Repayment Price" shall have the meaning set forth in Section
3.4.
"Declaration" means the Amended and Restated Declaration of Trust of
PCHC Financing I, a Delaware statutory business trust, dated as of April __,
1998.
"Deferred Interest" shall have the meaning set forth in Section 4.1
hereof.
"Dissolution Event" means that, as a result of the occurrence and
continuation of a Tax Event, an Investment Company Event or otherwise, the Trust
is to be dissolved in accordance with the Declaration, and, except in the case
of a Tax Event Redemption, the Debentures held by the Institutional Trustee are
to be distributed to the holders of the Trust Securities issued by the Trust pro
rata in accordance with the Declaration.
"Exchange Agent" means the Institutional Trustee.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Failed Remarketing" shall have the meaning set forth in Section 5.4(b)
of the Purchase Contract Agreement.
"Global Debentures" shall have the meaning set forth in Section 2.4.
"Non Book-Entry Trust Preferred Securities" shall have the meaning set
forth in Section 2.4 .
"Pledge Agreement" means the Pledge Agreement dated as of April __,
1998, among the Company, the Trust, Chase Manhattan Bank, as collateral agent
and The First National Bank of Chicago, as purchase contract agent.
"Purchase Contract" shall have the meaning set forth in the Purchase
Contract Agreement, dated as of April __, 1998, between the Company and The
First National Bank of Chicago, as purchase contract agent.
"Purchase Contract Settlement Date" means ___ 16, 2001.
"Remarketing Agent" means Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
"Remarketing Agreement" means the Remarketing Agreement, dated as of
April __, 1998, among the Company, the Trust, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as remarketing agent and The First
National Bank of Chicago, as purchase contract agent.
"Remarketing Date" shall have the meaning set forth in the Remarketing
Agreement.
2
<PAGE> 6
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.01. Designation and Principal Amount.
There is hereby authorized a series of Securities designated the __%
Debentures (the "Debentures") due ___ 16, 2003, limited in aggregate principal
amount to $ _________, which amount shall be as set forth in any written order
of the Company for the authentication and delivery of Debentures pursuant to
Section 303 of the Base Indenture.
SECTION 2.02. Maturity. The Maturity Date will be ___ 16, 2003.
SECTION 2.03. Form and Payment.
Except as provided in Section 2.4, the Debentures shall be issued in
fully registered certificated form without interest coupons, bearing identical
terms. Principal and interest on the Debentures issued in certificated form will
be payable, the transfer of such Debentures will be registrable and such
Debentures will be exchangeable for Debentures bearing identical terms and
provisions at the office or agency of the Institutional Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Holder at such address as shall appear in the Security
Register. Notwithstanding the foregoing, so long as the Holder of any Debentures
is the Institutional Trustee, the payment of the principal of and interest
(including Compounded Interest and expenses and taxes of the Trust set forth in
Section 4.1 hereof, if any) on such Debentures held by the Institutional Trustee
will be made at such place and to such account as may be designated by the
Institutional Trustee.
SECTION 2.04. Global Debenture.
(a) In connection with a Dissolution Event,
(i) the Debentures in certificated form may be presented to
the Trustee by the Institutional Trustee in exchange for a global Debenture in
an aggregate principal amount equal to the aggregate principal amount of all
outstanding Debentures (a "Global Debenture"), to be registered in the name of
the Clearing Agency, or its nominee, and delivered by the Institutional Trustee
to the Clearing Agency for crediting to the accounts of its participants
pursuant to the instructions of the Regular Trustees. The Company upon any such
presentation shall execute a Global Debenture in such aggregate principal amount
and deliver the same to the Trustee for authentication and delivery in
accordance with the Indenture. Payments on the Debentures issued as a Global
Debenture will be made to the Clearing Agency; and
(ii) if any Trust Preferred Securities are held in non
book-entry certificated form, the Debentures in certificated form may be
presented to the Trustee by the Institutional Trustee and any Trust Preferred
Security Certificate which represents Trust Preferred Securities other than
Trust Preferred Securities held by the Clearing Agency or its nominee ("Non
Book-Entry Trust Preferred Securities") will be deemed to represent beneficial
interests in the Debentures presented to the Trustee by the Institutional
Trustee having an aggregate principal amount equal to the aggregate liquidation
amount of the Non Book-Entry Trust Preferred Securities until such Trust
Preferred Security Certificates are presented to the Security Registrar for
transfer or reissuance at which time such Trust Preferred Security Certificates
will be cancelled and a Debenture, registered in the name of the holder of the
Trust Preferred Security Certificate or the transferee of the holder of such
Trust Preferred Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Trust
Preferred Security Certificate cancelled, will be executed by the Company and
delivered to the Trustee for authentication and delivery in accordance with the
Indenture to such holder. On issue of such Debentures, Debentures with an
equivalent
3
<PAGE> 7
aggregate principal amount that were presented by the Institutional Trustee to
the Trustee will be deemed to have been cancelled.
(b) Unless and until it is exchanged for the Debentures in registered
form, a Global Debenture may be transferred, in whole but not in part, only to
another nominee of the Clearing Agency, or to a successor Clearing Agency
selected or approved by the Company or to a nominee of such successor Clearing
Agency.
(c) If at any time the Clearing Agency notifies the Company that it is
unwilling or unable to continue as a Clearing Agency or if at any time the
Clearing Agency for such series shall no longer be registered or in good
standing under the Securities Exchange Act of 1934, as amended, or other
applicable statute or regulation, and a successor Clearing Agency for such
series is not appointed by the Company within 90 days after the Company receives
such notice or becomes aware of such condition, as the case may be, the Company
will execute, and, subject to Article III of the Indenture, the Trustee, upon
written notice from the Company, will authenticate and deliver the Debentures in
definitive registered form without coupons, in authorized denominations, and in
an aggregate principal amount equal to the principal amount of the Global
Debenture in exchange for such Global Debenture. In addition, the Company may at
any time determine that the Debentures shall no longer be represented by a
Global Debenture. In such event the Company will execute, and subject to Section
3.3 of the Base Indenture, the Trustee, upon receipt of an Officer's Certificate
evidencing such determination by the Company, will authenticate and deliver the
Debentures in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Debenture in exchange for such Global Debenture. Upon the
exchange of the Global Debenture for such Debentures in definitive registered
form without coupons, in authorized denominations, the Global Debenture shall be
cancelled by the Trustee. Such Debentures in definitive registered form issued
in exchange for the Global Debenture shall be registered in such names and in
such authorized denominations as the Clearing Agency, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Securities to the Clearing Agency for
delivery to the Persons in whose names such Securities are so registered.
SECTION 2.05. Interest.
(a) Each Debenture will bear interest initially at the rate of __% per
annum (the "Coupon Rate") from the original date of issuance until ____ 15,
2001, and at the Reset Rate thereafter until the principal thereof becomes due
and payable, and on any overdue principal and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the Coupon Rate until ____ 15, 2001 and at the Reset Rate
thereafter, compounded quarterly, payable (subject to the provisions of Article
IV herein) quarterly in arrears on February 16, May 16, August 16 and November
16 of each year (each, an "Interest Payment Date") commencing on ____ 16, 1998,
to the Person in whose name such Debenture or any predecessor Debenture is
registered, at the close of business on the Regular Record Date for such
interest installment, which, in respect of (i) Debentures of which the
Institutional Trustee is the Holder and the Trust Preferred Securities are in
book-entry only form or (ii) a Global Debenture, shall be the close of business
on the Business Day next preceding that Interest Payment Date. Notwithstanding
the foregoing sentence, if (i) the Debentures are held by the Institutional
Trustee and the Trust Preferred Securities are no longer in book-entry only form
or (ii) the Debentures are not represented by a Global Debenture, the Company
may select a Regular Record Date for such interest installment which shall be
more than one Business Day but less than 60 Business Days prior to an Interest
Payment Date.
(b) The Coupon Rate on the Debentures will be reset on the third
Business Day immediately preceding the Purchase Contract Settlement Date to the
Reset Rate (which Reset Rate will become effective on and after the Purchase
Contract Settlement Date). On the tenth (10) Business Day immediately preceding
the Purchase Contract Settlement Date, the Reset Announcement Date, the Reset
Spread and the relevant Two-Year Benchmark Treasury will be announced by the
Company. On the Business Day immediately following such Reset Announcement Date,
the Holders of Debentures will be notified of such Reset Spread and Two-Year
Benchmark Treasury by the Company. Such notice shall be sufficiently given to
such Holders of Debentures if published in an Authorized Newspaper.
4
<PAGE> 8
(c) Not later than seven calendar days nor more than 15 calendar days
immediately preceding the Reset Announcement Date, the Company will request that
the Clearing Agency or its nominee (or any successor Clearing Agency or its
nominee) or the Institutional Trustee, notify the Holders of Debentures of such
Reset Announcement Date and the procedures to be followed by such holders of
Debentures wishing to settle the related Purchase Contract with separate cash on
the Business Day immediately preceding the Purchase Contract Settlement Date.
(d) The amount of interest payable for any period will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Except as
provided in the following sentence, the amount of interest payable for any
period shorter than a full quarterly period for which interest is computed, will
be computed on the basis of the actual number of days elapsed in such a 90-day
period. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of interest 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 is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.01. Tax Event Redemption.
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem the Debentures in whole (but not in part) at any time at a
Redemption Price per Debenture equal to the Redemption Amount plus accrued and
unpaid interest thereon, including Compounded Interest and the expenses and
taxes of the Trust set forth in Section 4.1 hereof, if any, to the date of such
redemption (the "Tax Event Redemption Date"). If, following the occurrence of a
Tax Event, the Company exercises its option to redeem the Debentures, then the
proceeds of such redemption, if distributed to the Institutional Trustee as the
sole Holder of such Debentures, will be applied by the Institutional Trustee to
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed, at the Redemption
Price. If, following the occurrence of a Tax Event prior to the Purchase
Contract Settlement Date, the Company exercises its option to redeem the
Debentures, the Company shall appoint the Quotation Agent to assemble the
Treasury Portfolio in consultation with the Company. Notice of any redemption
will be mailed at least 30 days but not more than 60 days before the Tax Event
Redemption Date to each registered Holder of the Debentures to be prepaid at its
registered address. Unless the Company defaults in payment of the Redemption
Price, on and after the redemption date interest shall cease to accrue on such
Debentures.
SECTION 3.02. Redemption Procedure for Debentures.
Payment of the Redemption Price to each Holder of Debentures shall be
made by the Paying Agent, no later than 12:00 noon, New York City time, on the
Tax Event Redemption Date, by check or wire transfer in immediately available
funds at such place and to such account as may be designated by each such Holder
of Debentures, including the Institutional Trustee or the Collateral Agent, as
the case may be. If the Trustee holds immediately available funds sufficient to
pay the Redemption Price of the Debentures (or, if the Company is acting as
Paying Agent or the Institutional Trustee has received the Redemption Price),
then, on such Tax Event Redemption Date, such Debentures will cease to be
outstanding and interest thereon will cease to accrue, whether or not such
Debentures have been received by the Company, and all other rights of the Holder
in respect of the Debentures shall terminate and lapse (other than the right to
receive the Redemption Price upon delivery of such Debentures but without
interest on such Redemption Price).
5
<PAGE> 9
SECTION 3.03. No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
SECTION 3.04. Option to Put Debentures upon a Failed Remarketing.
If a Failed Remarketing (as described in Section 5.4(b) of the Purchase
Contract Agreement and incorporated herein by reference) has occurred, each
holder of Securities who holds such Securities on the day immediately following
the Purchase Contract Settlement Date, shall, upon at least three Business Days'
prior notice, have the right (the "Put Option") on the Business Day immediately
following __ 16, 2001, to require the Trust to distribute their pro rata share
of Debentures to the Exchange Agent and to require the Exchange Agent to put
such Debentures, on behalf of such holders on ____ __, 2001 (the "Put Option
Exercise Date") at a repayment price of $10 per Security plus an amount equal to
the accrued and unpaid Distributions (including deferred distributions, if any)
thereon to the date of payment (the "Debenture Repayment Price").
SECTION 3.05. Repurchase Procedure for Debentures.
(a) In order for the Debentures to be repurchased on the Put
Option Exercise Date, the Company must receive on or prior to 5:00 p.m. New York
City time on the third Business Day immediately preceding the Put Option
Exercise Date, at the principal executive offices of Philadelphia Consolidated
Holding Corp. in Bala Cynwyd, Pennsylvania, the Debentures to be repurchased
with the form entitled "Option to Elect Repayment" on the reverse of or
otherwise accompanying such Debentures duly completed. Any such notice received
by the Trustee shall be irrevocable. All questions as to the validity,
eligibility (including time of receipt) and acceptance of the Debentures for
repayment shall be determined by the Company, whose determination shall be final
and binding.
(b) Payment of the Debenture Repayment Price to the Exchange
Agent shall be made through the Trustee, subject to the Trustee's receipt of
payment from the Company in accordance with the terms of the Indenture either
through the Trustee or the Company acting as Paying Agent, no later than 12:00
noon, New York City time, on the Put Option Exercise Date, and to such account
as may be designated by the Exchange Agent. If the Trustee holds immediately
available funds sufficient to pay the Debenture Repayment Price of the
Debentures presented for repayment (or, if the Company is acting as Paying Agent
and the Institutional Trustee has received the Debenture Repayment Price), then,
immediately prior to the close of business on the Business Day immediately
preceding the Put Option Exercise Date, such Debentures will cease to be
outstanding and interest thereon will cease to accrue, whether or not such
Debentures have been received by the Company, and all other rights of the Holder
in respect of the Debentures, including the Holder's right to require the
Company to repay such Debentures, shall terminate and lapse (other than the
right to receive the Debenture Repayment Price upon delivery of such Debentures
but without interest on such Debenture Repayment Price). Neither the Trustee nor
the Company will be required to register or cease to be registered the transfer
of any Debenture for which repayment has been elected.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.01. Extension of Interest Payment Period.
The Company shall have the right at any time, and from time to time,
during the term of the Debentures, to defer payments of interest by extending
the interest payment period of such Debentures for a period not extending, in
the aggregate, beyond the Maturity Date of the Debentures (the "Extended
Interest Payment Period"), during which Extended Interest Payment Period no
interest shall be due and payable. To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the extension of the
interest payment period pursuant to this Section 4.1, will bear interest thereon
at the rate of ___% until ___ 15, 2001, and at the Reset Rate thereafter
6
<PAGE> 10
compounded quarterly for each quarter of the Extended Interest Payment Period
("Compounded Interest"). At the end of the Extended Interest Payment Period, the
Company shall pay all interest accrued and unpaid on the Debentures, including
any expenses and taxes of the Trust set forth in Section 5.1 hereof and
Compounded Interest (together, "Deferred Interest") that shall be payable to the
Holders of the Debentures in whose names the Debentures are registered in the
Security Register on the first record date after the end of the Extended
Interest Payment Period; provided, however, that during any such Extended
Interest Payment Period, (a) the Company shall not declare or pay dividends on
or make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security outstanding on the date of such event requiring the Company to
purchase capital stock of the Company, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company
capital stock, (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (iv) dividends
or distributions in capital stock of the Company (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the issuance
or exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan or the declaration thereunder of a
dividend of rights in the future), (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank junior to the Debentures, and
(c) the Company shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Guarantee). Prior to the
termination of any Extended Interest Payment Period, the Company may further
extend such period, provided that such period together with all such previous
and further extensions thereof shall not extend beyond the Maturity Date of the
Debentures. Upon the termination of any Extended Interest Payment Period and the
payment of all Deferred Interest then due, the Company may commence a new
Extended Interest Payment Period, subject to the foregoing requirements. No
interest shall be due and payable during an Extended Interest Payment Period,
except at the end thereof, but the Company, at its option, may prepay on any
Interest Payment Date all or any portion of the interest accrued during the then
elapsed portion of an Extended Interest Payment Period.
SECTION 4.02. Notice of Extension.
(a) If the Institutional Trustee is the only registered Holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Regular Trustees, the Institutional
Trustee and the Trustee of its selection of such Extended Interest Payment
Period one Business Day before the earlier of (i) the next succeeding date on
which Distributions on the Trust Securities issued by the Trust are payable, or
(ii) the date the Trust is required to give notice of the record date, or the
date such Distributions are payable, to the [Securities Exchange] or other
applicable self-regulatory organization or to holders of the Trust Preferred
Securities issued by the Trust, but in any event at least one Business Day
before such record date.
(b) If the Institutional Trustee is not the only Holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give the Holders of the Debentures and the Trustee written
notice of its selection of such Extended Interest Payment Period at least 10
Business Days before the earlier of (i) the next succeeding Interest Payment
Date, or (ii) the date the Company is required to give notice of the record or
payment date of such interest payment to the [Securities Exchange] or other
applicable self-regulatory organization or to Holders of the Debentures.
7
<PAGE> 11
ARTICLE V
EXPENSES
SECTION 5.01. Payment of Expenses.
In connection with the offering, sale and issuance of the Debentures to
the Institutional Trustee and in connection with the sale of the Trust
Securities by the Trust, the Company, in its capacity as borrower with respect
to the Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Debentures, including commissions to the underwriters payable
pursuant to the Underwriting Agreement and the Pricing Agreement and
compensation of the Trustee under the Indenture in accordance with the
provisions of Section 607 of the Base Indenture;
(b) pay all costs and expenses of the Trust including, but not limited
to, costs and expenses relating to the organization of the Trust, the offering,
sale and issuance of the Trust Securities (including commissions to the
underwriters in connection therewith), the fees and expenses of the
Institutional Trustee and the Delaware Trustee, the costs and expenses relating
to the operation of the Trust, including without limitation, costs and expenses
of accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing, and disposition of Trust assets) to which the Trust
might become subject;
(c) be primarily liable for any indemnification obligations arising
with respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
SECTION 5.02. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the Base
Indenture or the removal or resignation of the Trustee, the Company shall pay to
the Trustee all amounts accrued to the date of such termination, removal or
resignation. Upon termination of the Declaration or the removal or resignation
of the Delaware Trustee or the Institutional Trustee, as the case may be, the
Company shall pay to the Delaware Trustee or the Institutional Trustee, as the
case may be, all amounts accrued to the date of such termination, removal or
resignation.
ARTICLE VI
NOTICE
SECTION 6.01. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article VI. Notwithstanding any of the
provisions of the Base Indenture and this First Supplemental Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Debentures pursuant to the provisions of the Base Indenture;
provided, however, that if the Trustee shall not have received the notice
provided for in this Article VI at least two Business Days prior to the date
upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (or premium, if
any) or interest on any Debenture), then, anything herein contained to the
contrary notwithstanding, the Trustee shall
8
<PAGE> 12
have full power and authority to receive such money and to apply the same to the
purposes for which they were received, and shall not be affected by any notice
to the contrary that may be received by it within two Business Days prior to
such date.
ARTICLE VII
FORM OF DEBENTURE
SECTION 7.01. Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms:
(FORM OF FACE OF DEBENTURE)
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - THIS DEBENTURE
IS A GLOBAL DEBENTURE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED
TO AND IS REGISTERED IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE OR THE
CLEARING AGENCY. THIS DEBENTURE IS EXCHANGEABLE FOR DEBENTURES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
DEBENTURE (OTHER THAN A TRANSFER OF THIS DEBENTURE AS A WHOLE BY THE CLEARING
AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING
AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE
REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.]
UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY DEBENTURE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.]
No._____________________
$_______________________
PHILADELPHIA CONSOLIDATED HOLDING CORP.
___% DEBENTURE
DUE ___ 16, 2003
PHILADELPHIA CONSOLIDATED HOLDING CORP., a Pennsylvania corporation
(the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to , the principal sum of ($______________) on ___ 16, 2003 (such date
is hereinafter referred to as the "Maturity Date"), and to pay interest on said
principal sum from _______, 1998, or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest has been paid or
duly provided for, quarterly (subject to deferral as set forth herein) in
arrears on February 16, May 16, August 16 and November 16 of each year,
commencing on ___ 16, 1998, initially
9
<PAGE> 13
at the rate of ___% per annum until ___ 15, 2001, and at the Reset Rate
thereafter until the principal hereof shall have become due and payable, and on
any overdue principal and premium, if any, and (without duplication and to the
extent that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the rate of ___% until ____ 15, 2001, and at
the Reset Date thereafter, compounded quarterly. The interest rate will be reset
on the third business day preceding ____ 16, 2001 to the Reset Rate (as
determined by the Reset Agent). The amount of interest payable on any Interest
Payment Date shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. In the event that any date on which interest is payable on
this Debenture is not a Business Day, then payment of interest payable on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date. The interest installment so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the person in whose name this Debenture
(or one or more Predecessor Securities, as defined in said Indenture) is
registered at the close of business on the regular record date for such interest
installment which in the case of a Global Debenture shall be the close of
business on the business day next preceding such Interest Payment Date;
provided, however, if pursuant to the terms of the Indenture the Debentures are
no longer represented by a Global Debenture, the Company may select such regular
record date for such interest installment which shall be more than one Business
Day but less than 60 Business Days prior to an Interest Payment Date. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered Holders on such regular record date and
may be paid to the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on a special
record date to be fixed by the Trustee for the payment of such defaulted
interest, notice whereof shall be given to the registered Holders of this series
of Debentures not less than 10 days prior to such special record date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Debentures may be listed,
and upon such notice as may be required by such exchange all as more fully
provided in the Indenture. The principal of (and premium, if any) and the
interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the registered Holders at such address
as shall appear in the Security Register or by wire transfer to an account
appropriately designated by the Holders entitled thereto. Notwithstanding the
foregoing, so long as the Holder of this Debenture is the Institutional Trustee
or the Collateral Agent, the payment of the principal of (and premium, if any)
and interest on this Debenture will be made at such place and to such account as
may be designated in writing by the Institutional Trustee or the Collateral
Agent.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, senior and unsecured and will rank in right of payment on
parity with all other senior unsecured obligations of the Company.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
10
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated: April __, 1998
PHILADELPHIA CONSOLIDATED HOLDING CORP.
By:________________________________________
Name:
Title:
By:________________________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series of Debentures described in the
within-mentioned Indenture.
Dated____________________________
The First National Bank of Chicago
as Trustee
By:______________________________
Authorized Signatory
<PAGE> 15
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Securities of the
Company (herein sometimes referred to as the "Securities"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of April __, 1998 (the "Base Indenture"), duly executed
and delivered between the Company and The First National Bank of Chicago, as
Trustee (the "Trustee") (as supplemented by a First Supplemental Indenture,
dated April __, 1998), (the Base Indenture as so supplemented, the "Indenture"),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Trustee, the Company and the Holders of the
Securities. By the terms of the Indenture, the Securities are issuable in series
that may vary as to amount, date of maturity, rate of interest and in other
respects as provided in the Indenture. This series of Securities is limited in
aggregate principal amount as specified in said First Supplemental Indenture.
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem Debentures in whole (but not in part) at any time at a Redemption
Price per Debenture equal to the Redemption Amount plus accrued and unpaid
interest thereon, including Compounded Interest and expenses and taxes of the
Trust (each as defined herein), if any, to the Tax Event Redemption Date. The
Redemption Price shall be paid to each Holder of the Debenture by the Company,
no later than 12:00 noon, New York City time, on the Tax Event Redemption Date,
by check or wire transfer in immediately available funds, at such place and to
such account as may be designated by each such Holder.
The Debentures are not entitled to the benefit of any sinking fund.
If a Failed Remarketing (as described in Section 5.4(b) of the Purchase
Contract Agreement and incorporated herein by reference) has occurred, each
holder of Securities who holds such Securities on the day immediately following
The Purchase Contract Settlement Date, shall, upon at least three Business Days'
prior notice, have the right (the "Put Option") on the Business Day immediately
following ___ 16, 2001, to require the Trust to distribute their pro rata share
of Debentures to the Exchange Agent and to require the Exchange Agent to put
such Debentures, on behalf of such holders on June 1, 2001 (the "Put Option
Exercise Date") at a repayment price of $10 per Security plus an amount equal to
the accrued and unpaid Distributions (including deferred distributions, if any)
thereon to the date of payment (the "Debenture Repayment Price").
In order for the Debentures to be so repurchased, the Company must receive,
on or prior to 5:00 p.m. New York City Time on the third Business Day
immediately preceding the Put Option Exercise Date, at the principal executive
offices of Philadelphia Consolidated Holding Corp. in Bala Cynwyd, Pennsylvania,
the Debentures to be repurchased with the form entitled "Option to Elect
Repayment" on the reverse of or otherwise accompanying such Debentures duly
completed. Any such notice received by the Trustee shall be irrevocable. All
questions as to the validity, eligibility (including time of receipt) and
acceptance of the Debentures for repayment shall be determined by the Company,
whose determination shall be final and binding. The payment of the Debenture
Repayment Price in respect of such Debentures shall be made, either through the
Trustee or the Company acting as Paying Agent, no later than 12:00 noon, New
York City time, on the Put Option Exercise Date.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures for
the purpose of, among other things, adding any provisions to or changing or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying the rights of the Holders of the Debentures; provided,
however, that, among other things, no such
12
<PAGE> 16
supplemental indenture shall (i) reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon (subject to the
Company's right to defer such payments in the manner set forth herein), or
reduce any premium payable upon the redemption thereof, without the consent of
the Holder of each Debenture so affected, or (ii) reduce the aforesaid
percentage of Debentures, the Holders of which are required to consent to any
such supplemental indenture, without the consent of the Holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Securities of any series at the time outstanding affected thereby, on behalf
of all of the Holders of the Debentures of such series, to waive a Default or
Event of Default with respect to such series, and its consequences, except a
Default or Event of Default in the payment of the principal of or premium, if
any, or interest on any of the Securities of such series. Any such consent or
waiver by the registered Holder of this Debenture (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Debenture and of any Debenture issued in
exchange for or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Debenture at the time and place and at the rate and in the
money herein prescribed.
So long as the Company is not in default in the payment of interest on the
Debenture, the Company shall have the right at any time during the term of the
Debentures from time to time to extend the interest payment period of such
Debentures for a period not extending, in the aggregate, beyond the Maturity
Date of the Debentures (an "Extended Interest Payment Period"). At the end of an
Extended Interest Payment Period, the Company shall pay all interest then
accrued and unpaid (together with the interest thereon at the rate of __% until
___ 15, 2001 and at the Reset Rate thereafter to the extent that payment of such
interest is enforceable under applicable law). In the event that the Company
exercises this right, then (a) the Company shall not declare or pay dividends or
make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security outstanding on the date of such event requiring the Company to
purchase capital stock of the Company, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (iv) dividends
or distributions in capital stock of the Company (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the issuance
or exchange of capital stock or (v) redemptions or purchases of any rights
outstanding under a shareholder rights plan or the declaration thereunder of a
dividend of rights in the future), (b) the Company shall not make any payment of
interest, principal or premium, if any, or repay, repurchase or redeem any debt
securities issued by the Company that rank junior to the Debentures, and (c) the
Company shall not make any guarantee payments with respect to the foregoing
(other than payments pursuant to the Guarantee). Prior to the termination of any
such Extended Interest Payment Period, the Company may further extend the
interest payment period; provided, that such Extended Interest Payment Period,
together with all such previous and further extensions thereof, may not extend
beyond the Maturity Date of the Debenture. At the termination of any such
Extended Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amount then due, the Company may commence a new
Extended Interest Payment Period, subject to the above requirements.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered Holder hereof on the
Security Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee in The City of
New York and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company or the Trustee duly
executed by the registered Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Debentures of authorized denominations
and for the same aggregate principal amount and series will be issued
13
<PAGE> 17
to the designated transferee or transferees. No service charge will be made for
any such transfer, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debenture, the
Company, the Trustee, any Paying Agent and the Security Registrar may deem and
treat the registered holder hereof as the absolute owner hereof (whether or not
this Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Security Registrar) for the purpose
of receiving payment of or on account of the principal hereof and premium, if
any, and interest due hereon and for all other purposes, and neither the Company
nor the Trustee nor any Paying Agent nor any Security Registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on this Debenture, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
shareholder, officer or director, past, present or future, as such, of the
Company or of any predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issuance hereof, expressly waived and
released.
The Indenture imposes certain limitations on the ability of the Company to,
among other things, merge or consolidate with any other Person or sell, assign,
transfer or lease all or substantially all of its properties or assets. All such
covenants and limitations are subject to a number of important qualifications
and exceptions. The Company must report periodically to the Trustee on
compliance with the covenants in the Indenture.
The Debentures of this series are issuable only in registered form without
coupons in denominations of $10 and any integral multiple thereof. This Global
Debenture is exchangeable for Debentures in definitive form only under certain
limited circumstances set forth in the Indenture. As provided in the Indenture
and subject to certain limitations therein set forth, Debentures of this series
so issued are exchangeable for a like aggregate principal amount of Debentures
of this series of a different authorized denomination, as requested by the
Holder surrendering the same.
All terms used in this Debenture that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
14
<PAGE> 18
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company
to repay $_____ principal amount of the within Debenture, pursuant to its terms,
on the "Put Option Exercise Date," together with any interest thereon accrued
but unpaid to the date of repayment, to the undersigned at:
(Please print or type name and address of the undersigned)
and to issue to the undersigned, pursuant to the terms of the Debenture, a new
Debenture or Debentures representing the remaining aggregate principal amount of
this Debenture.
For this Option to Elect Repayment to be effective, this Debenture with the
Option to Elect Repayment duly completed must be received by the Company at
Philadelphia Consolidated Holding Corp., Attn: Secretary, One Bala Plaza, Suite
100, Bala Cynwyd, Pennsylvania, 19004, no later than 5:00 p.m. on June 1, 2001.
Dated: Signature:__________________________________
Signature Guarantee:________________________
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Debenture without alternation or
enlargement or any change whatsoever.
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
15
<PAGE> 19
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Debenture on the books of the Trust. The agent may
substitute another to act for him or her.
Date:
----------------------------
Signature:
----------------------------------
Signature Guarantee:
------------------------
(Sign exactly as your name appears on the other side of this Debenture)
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
16
<PAGE> 20
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.01. Original Issue of Debentures.
Debentures in the aggregate principal amount of $__________ may, upon
execution of this First Supplemental Indenture, be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its Chairman, its Vice Chairman, its President, or any Vice
President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods) accrued on Outstanding
Securities as of the end of the year and (ii) such other specific information
relating to such original issue discount as may then be relevant under the
Internal Revenue Code of 1986, as amended from time to time.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Ratification of Indenture.
The Indenture as supplemented by this First Supplemental Indenture, is
in all respects ratified and confirmed, and this First Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein and
therein provided.
SECTION 9.02. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.
SECTION 9.03. Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed to
be a contract made under the internal laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of said State.
SECTION 9.04. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this First
Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
SECTION 9.05. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
17
<PAGE> 21
SECTION 9.06. Guarantee and Declaration
The Guarantee and the Declaration shall be deemed to be specifically
described in this First Supplemental Indenture for purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE X
REMARKETING
SECTION 10.01. Effectiveness of this Article.
This Article Ten shall only become effective upon a
Dissolution Event which occurs prior to the Remarketing of the Trust Preferred
Securities pursuant to this Agreement. Until such Dissolution Event, this
Article Ten shall have no effect.
SECTION 10.02. Remarketing Procedures.
(a) The Company shall request, not later than 15 nor more than
30 calendar days prior to the Remarketing Date that the Depositary notify the
Holders of the Debentures and the holders of FELINE PRIDES of the Remarketing
and of the procedures that must be followed if a Holder of Debentures wishes to
exercise such Holder's rights with respect to the Put Option if there is a
Failed Remarketing.
(b) Not later than 5:00 P.M., New York City time, on the fifth
Business Day immediately preceding the Purchase Contract Settlement Date, each
Holder of the Debentures may elect to have Debentures held by such Holder
remarketed. Under Section 5.4 of the Purchase Contract Agreement, Holders of
Income PRIDES that do not give notice of their intention to make a Cash
Settlement of their related Purchase Contracts in the manner specified in such
Section shall be deemed to have consented to the tender for purchase of the
Debentures comprising a component of such Income PRIDES. Holders of Debentures
that are not a component of Income PRIDES shall give notice of their election to
have such Securities remarketed to the Custodial Agent pursuant to the Pledge
Agreement. Any such notice shall be irrevocable after 5:00 P.M., New York City
time, on the fifth Business Day immediately preceding the Purchase Contract
Settlement Date and may not be conditioned upon the level at which the Reset
Rate is established. Promptly after 5:30 P.M., New York City time, on such fifth
Business Day, the Trustee, based on the notices received by it prior to such
time (including notices from the Purchase Contract Agent as to Purchase
Contracts as to which Cash Settlement has been elected), shall notify the Trust,
the Company and the Remarketing Agent of the number of Debentures to be tendered
for purchase.
(c) If any Holder of Income PRIDES does not give a notice of
intention to make a Cash Settlement or gives a notice of election to tender
Debentures as described in Section 10.2(b), the Debentures of such Holder shall
be deemed tendered, notwithstanding any failure by such Holder to deliver or
properly deliver such Debentures to the Remarketing Agent for purchase.
(d) The right of each Holder to have Debentures tendered for
purchase shall be limited to the extent that (i) the Remarketing Agent conducts
a remarketing pursuant to the terms of the Remarketing Agreement, (ii)
Debentures tendered have not been called for redemption, (iii) the Remarketing
Agent is able to find a purchaser or purchasers for tendered Debentures and (iv)
such purchaser or purchasers deliver the purchase price therefor to the
Remarketing Agent.
(e) On the Remarketing Date, the Remarketing Agent shall use
commercially reasonable efforts to remarket, at a price equal to 100% of the
aggregate principal amount thereof, Debentures tendered or deemed tendered for
purchase.
18
<PAGE> 22
(f) If none of the Holders elect to have Debentures held by
them remarketed, the Reset Rate shall be the rate determined by the Remarketing
Agent, in its sole discretion, as the rate that would have been established had
a remarketing been held on the Remarketing Date.
(g) If the Remarketing Agent has determined that it will be
able to remarket all Debentures tendered or deemed tendered for purchase at a
price of at least 100% of the aggregate principal amount thereof prior to 4:00
P.M., New York City time, on the Remarketing Date, the Remarketing Agent shall
determine the Reset Rate, which shall be the rate per annum (rounded to the
nearest one-thousandth (0.001) of one percent per annum) which the Remarketing
Agent determines, in its sole judgment, to be the lowest rate per annum that
will enable it to remarket all Debentures tendered or deemed tendered for
remarketing.
(h) If, by 4:00 P.M., New York City time, on the Remarketing
Date, the Remarketing Agent is unable to remarket all Debentures tendered or
deemed tendered for purchase, a Failed Remarketing shall be deemed to have
occurred and the Remarketing Agent shall so advise by telephone the Clearing
Agency, the Trustee, the Company and the Collateral Agent.
(i) By approximately 4:30 P.M., New York City time, on the
Remarketing Date, provided that there has not been a Failed Remarketing, the
Remarketing Agent shall advise, by telephone (i) the Clearing Agency, the
Trustee, the Company and the Collateral Agent of the Reset Rate determined in
the Remarketing and the number of Debentures sold in such remarketing, (ii) each
purchaser (or the Depositary Participant thereof) of the Reset Rate and the
number of Debentures such purchaser is to purchase and (iii) each purchaser to
give instructions to its Clearing Agency Participant to pay the purchase price
on the Purchase Contract Settlement Date in same day funds against delivery of
the Debentures purchased through the facilities of the Clearing Agency.
(j) In accordance with the Clearing Agency's normal
procedures, on the Purchase Contract Settlement Date, the transactions described
above with respect to each Debenture tendered for purchase and sold in the
remarketing shall be executed through the Clearing Agency, and the accounts of
the respective Clearing Agency, Participants shall be debited and credited and
such Debentures delivered by book entry as necessary to effect purchases and
sales of such Debentures. The Clearing Agency shall make payment in accordance
with its normal procedures.
(k) If any holder selling Debentures in the remarketing fails
to deliver such Debentures, the Participant of such selling holder and of any
other person that was to have purchased Debentures in the remarketing may
deliver to any such other person a number of Debentures that is less than the
number of Debentures that otherwise was to be purchased by such person. In such
event, the number of Debentures to be so delivered shall be determined by such
Clearing Agency Participant, and delivery of such lesser number of Debentures
shall constitute good delivery.
(l) The Remarketing Agent is not obligated to purchase any
Debentures that would otherwise remain unsold in a remarketing. Neither the
Trust, any Trustee, the Company nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of Debentures for
remarketing.
(m) The tender and settlement procedures set in this Section
10.02, including provisions for payment by purchasers of Securities in the
Remarketing, shall be subject to modification, notwithstanding any provision to
the contrary set forth herein, to the extent required by the Clearing Agency or
if the book-entry system is no longer available for the Debentures at the time
of the remarketing, to facilitate the tendering and remarketing of Debentures in
certificated form. In addition, the Remarketing Agent may, notwithstanding any
provision to the contrary set forth herein, modify the settlement procedures set
forth herein in order to facilitate the settlement process.
19
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed by their respective officers
thereunto duly authorized, on the date or dates indicated in the acknowledgments
and as of the day and year first above written.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.,
as Issuer
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By:__________________________________
Name:
Title:
<PAGE> 1
Exhibit 4.3
CERTIFICATE OF TRUST
The undersigned, the trustees of PCHC Financing I, desiring to
form a business trust pursuant to Delaware Business Trust Act, 12 Del. C.
Section 3810, hereby certify as follows:
(a) The name of the business trust being formed hereby
(the "Trust") is "PCHC Financing I."
(b) The name and business address of the trustee of the
Trust that has its principal place of business in the
State of Delaware is as follows:
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
(c) This Certificate of Trust shall be effective as of
the date of filing.
Dated: April 2, 1998
/s/Craig P. Keller
----------------------------------------
Craig P. Keller, as Trustee
/s/James J. Maguire, Jr.
----------------------------------------
James J. Maguire, Jr., as Trustee
/s/Jack T. Carballo
----------------------------------------
Jack T. Carballo, as Trustee
FIRST CHICAGO DELAWARE INC.
as Trustee
By: /s/Michael J. Majchrzak
----------------------------------------
Name: Michael J. Majchrzak
Title: Vice President
<PAGE> 1
Exhibit 4.4
DECLARATION OF TRUST
PCHC FINANCING I
Dated as of April 2, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1 Definitions...................................................1
ARTICLE II
ORGANIZATION
SECTION 1 Name..........................................................4
SECTION 2 Office........................................................4
SECTION 3 Purpose.......................................................4
SECTION 4 Authority.....................................................4
SECTION 5 Title to Property of the Trust................................4
SECTION 6 Powers of the Trustees........................................4
SECTION 7 Filing of Certificate of Trust................................6
SECTION 8 Duration of Trust.............................................6
SECTION 9 Responsibilities of the Sponsor...............................6
SECTION 10 Declaration Binding on Securities Holders.....................6
ARTICLE III
TRUSTEES
SECTION 1 Trustees......................................................7
SECTION 2 Regular Trustees..............................................7
SECTION 3 Delaware Trustee..............................................7
SECTION 4 Institutional Trustee.........................................8
SECTION 5 Not Responsible for Recitals or Sufficiency of Declaration....8
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 1 Exculpation................................................. 8
SECTION 2 Fiduciary Duty.............................................. 9
SECTION 3 Indemnification............................................. 10
SECTION 4 Outside Businesses.......................................... 12
ii
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
<S> <C>
SECTION 1 Amendments...................................................13
SECTION 2 Termination of Trust.........................................13
SECTION 3 Governing Law................................................14
SECTION 4 Headings.....................................................14
SECTION 5 Successors and Assigns.......................................14
SECTION 6 Partial Enforceability.......................................14
SECTION 7 Counterparts.................................................14
iii
</TABLE>
<PAGE> 4
DECLARATION OF TRUST
OF
PCHC FINANCING I
April 2, 1998
DECLARATION OF TRUST ("Declaration") dated and effective as of
April 2, 1998 by the undersigned Trustees (together with all other persons from
time to time duly appointed and serving as trustees in accordance with the
provisions of this Declaration, the "Trustees"), Philadelphia Consolidated
Holding Corp., a Pennsylvania corporation, as trust sponsor (the "Sponsor"), and
by the holders, from time to time, of undivided beneficial interests in the
Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor desire to establish a
trust (the "Trust") pursuant to the Delaware Business Trust Act for the sole
purpose of issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in certain Debentures of the Debenture Issuer (as hereinafter defined);
NOW, THEREFORE, it being the intention of the parties hereto
that the Trust constitute a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held for the
benefit of the holders, from time to time, of the securities representing
undivided beneficial interests in the assets of the Trust issued hereunder,
subject to the provisions of this Declaration.
ARTICLE I
DEFINITIONS
SECTION 1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to
them in this Article I Section 1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout; all references to "the Declaration" or
"this Declaration" are to this Declaration of Trust as
modified, supplemented or amended from time to time;
(c) all references to "the Declaration" or "this Declaration" are
to this Declaration of Trust as modified, supplemented or
amended from time to time;
<PAGE> 5
(d) all references in this Declaration to Articles and Sections
are to Articles and Sections of this Declaration unless
otherwise specified; and
(e) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or Chicago, Illinois are authorized or
required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time
to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Security" means a security representing a common
undivided beneficial interest in the assets of the Trust with such terms as may
be set out in any amendment to this Declaration.
"Company Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee; or (d) any employee or agent of the Trust or its Affiliates.
"Covered Person" means (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates and (b) any holder of Securities.
"Debenture Issuer" means Philadelphia Consolidated Holding
Corp. in its capacity as the issuer of the Debentures under the Indenture.
"Debentures" means the series of Debentures to be issued by
the Debenture Issuer and acquired by the Trust.
"Debenture Trustee" means The First National Bank of Chicago,
as trustee under the Indenture until a successor is appointed thereunder, and
thereafter means such successor trustee.
"Delaware Trustee" has the meaning set forth in Article III
Section 1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time or any successor legislation.
2
<PAGE> 6
"Fiduciary Indemnified Person" has the meaning set forth in
Article IV Section 3(b).
"Holder" means the person in whose name a certificate
representing a Security is registered.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the indenture to be entered into between
Philadelphia Consolidated Holding Corp. and The First National Bank of Chicago,
as trustee and any indenture supplemental thereto pursuant to which the
Debentures are to be issued.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Security " means a security representing an
undivided beneficial interest in the assets of the Trust with such terms as may
be set out in any amendment to this Declaration.
"Regular Trustee" has the meaning set forth in Article III
Section 1.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Sponsor" means Philadelphia Consolidated Holding Corp. in its
capacity as sponsor of the Trust.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
3
<PAGE> 7
ARTICLE II
ORGANIZATION
SECTION 1 Name.
The Trust created by this Declaration is named "PCHC Financing
I." The Trust's activities may be conducted under the name of the Trust or any
other name deemed advisable by the Regular Trustees.
SECTION 2 Office.
The address of the principal office of the Trust shall be at
such place or places within the State of Delaware as the Regular Trustees may
designate from time to time.
SECTION 3 Purpose.
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities and use the proceeds from such sale to acquire the
Debentures, and (b) except as otherwise limited herein, to engage in only those
other activities necessary, or incidental thereto. The Trust shall not borrow
money, issue debt or reinvest proceeds derived from investments, pledge any of
its assets, or otherwise undertake (or permit to be undertaken) any activity
that would cause the Trust not to be classified for United States federal income
tax purposes as a grantor trust.
SECTION 4 Authority.
Subject to the limitations provided in this Declaration, the
Regular Trustees shall have exclusive and complete authority to carry out the
purposes of the Trust. An action taken by the Regular Trustees in accordance
with their powers shall constitute the act of and serve to bind the Trust. In
dealing with the Regular Trustees acting on behalf of the Trust, no person shall
be required to inquire into the authority of the Regular Trustees to bind the
Trust. Persons dealing with the Trust are entitled to rely conclusively on the
power and authority of the Regular Trustees as set forth in this Declaration.
SECTION 5 Title to Property of the Trust.
Legal title to all assets of the Trust shall be vested in the
Trust.
SECTION 6 Powers of the Trustees.
The Regular Trustees shall have the exclusive power and
authority to cause the Trust to engage in the following activities:
4
<PAGE> 8
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that
the Trust may issue no more than one series of Preferred Securities and
no more than one series of Common Securities, and, provided further,
that there shall be no interests in the Trust other than the Securities
and the issuance of the Securities shall be limited to a one-time,
simultaneous issuance of both Preferred Securities and Common
Securities;
(b) in connection with the issue and sale of the Preferred
Securities, upon direction of the Sponsor, to:
(i) execute and file with the Commission a
registration statement on Form S-3 prepared by the Sponsor,
including any amendments thereto in relation to the Preferred
Securities;
(ii) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be
necessary in order to qualify or register all or part of the
Preferred Securities in any State in which the Sponsor has
determined to qualify or register such Preferred Securities
for sale;
(iii) execute and file an application, prepared by
the Sponsor, to the NASDAQ National Market (the "NNM"), or any
national stock exchange as the Sponsor shall designate, for
listing upon notice of issuance of any Preferred Securities;
(iv) execute and file with the Commission a
registration statement on Form 8-A, including any amendments
thereto, prepared by the Sponsor relating to the registration
of the Preferred Securities under Section 12(b) of the
Exchange Act; and
(v) execute and enter into an underwriting agreement
and pricing agreement providing for the sale of the Preferred
Securities;
(c) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors,
advisors, and consultants and provide for reasonable compensation for
such services;
(d) to incur expenses which are necessary or incidental to
carry out any of the purposes of this Declaration; and
(e) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in
all matters necessary or incidental to the foregoing.
5
<PAGE> 9
SECTION 7 Filing of Certificate of Trust.
On or after the date of execution of this Declaration, the
Trustees shall cause the filing of the Certificate of Trust for the Trust in the
form attached hereto as Exhibit A with the Secretary of State of the State of
Delaware.
SECTION 8 Duration of Trust.
The Trust, absent termination pursuant to the provisions of
Article V Section 2, shall have existence for seven (7) years from the date
hereof.
SECTION 9 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 in relation to the Preferred
Securities, including any amendments thereto;
(b) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions which
must be taken by the Trust, and advise the Trust of actions it must
take, and prepare for execution and filing any documents to be executed
and filed by the Trust, as the Sponsor deems necessary or advisable in
order to comply with the applicable laws of any such States;
(c) to prepare for filing by the Trust an application to the
NNM, or any national stock exchange as the Sponsor shall determine, for
listing upon notice of issuance of any Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the
class of Preferred Securities under Section 12(b) of the Exchange Act,
including any amendments thereto; and
(e) to negotiate the terms of an underwriting agreement and
pricing agreement providing for the sale of the Preferred Securities.
SECTION 10 Declaration Binding on Securities Holders.
Every Person by virtue of having become a Holder of a Security
or any interest therein in accordance with the terms of this Declaration, shall
be deemed to have expressly assented and agreed to the terms of, and shall be
bound by, this Declaration.
6
<PAGE> 10
ARTICLE III
TRUSTEES
SECTION 1 Trustees.
The number of Trustees initially shall be four (4), and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Sponsor. The Sponsor is
entitled to appoint or remove without cause any Trustee at any time; provided,
however that the number of Trustees shall in no event be less than two (2);
provided further that one Trustee, in the case of a natural person, shall be a
person who is a resident of the State of Delaware or that, if not a natural
person, is an entity which has its principal place of business in the State of
Delaware (the "Delaware Trustee"); provided further that there shall be at least
one trustee who is an employee or officer of, or is affiliated with the Sponsor
(a "Regular Trustee").
SECTION 2 Regular Trustees.
The initial Regular Trustees shall be:
Craig P. Keller
James J. Maguire, Jr.
Jack T. Carballo
(a) Except as expressly set forth in this Declaration, any
power of the Regular Trustees may be exercised by, or with the consent of, any
one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and
except as by the Business Trust Act, any Regular Trustee is authorized to
execute on behalf of the Trust any documents which the Regular Trustees have the
power and authority to cause the Trust to execute pursuant to Article II Section
6 provided, that, the registration statement referred to in Article II Section
6(b)(i), including any amendments thereto, shall be signed by a majority of the
Regular Trustees; and
(c) a Regular Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purposes of signing any documents which the Regular
Trustees have power and authority to cause the Trust to execute pursuant to
Article II Section 6.
SECTION 3 Delaware Trustee.
The initial Delaware Trustee shall be:
First Chicago Delaware Inc.
7
<PAGE> 11
Notwithstanding any other provision of this Declaration, the
Delaware Trustee shall not be entitled to exercise any of the powers, nor shall
the Delaware Trustee have any of the duties and responsibilities of the Trustees
described in this Declaration except as required under the Business Trust Act.
The Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Business Trust Act.
Notwithstanding anything herein to the contrary, the Delaware Trustee shall not
be liable for the acts or omissions to act of the Trust, of the Sponsor or of
the Regular Trustees except such acts as the Delaware Trustee is expressly
obligated or authorized to undertake under this Declaration or the Business
Trust Act and except for the gross negligence or willful misconduct of the
Delaware Trustee.
SECTION 4 Institutional Trustee.
Prior to the issuance of the Preferred Securities and Common
Securities, the Sponsor shall appoint a trustee (the "Institutional Trustee")
meeting the requirements of an eligible trustee of the Trust Indenture Act of
1939, as amended, by the execution of an amendment to this Declaration executed
by the Regular Trustees, the Sponsor, the Institutional Trustee and the Delaware
Trustee.
SECTION 5 Not Responsible for Recitals or Sufficiency of Declaration.
The recitals contained in this Declaration shall be taken as
the statements of the Sponsor, and the Trustees do not assume any responsibility
for their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration.
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omissions; and
(b) an Indemnified Person shall be fully protected in relying
in good faith upon the records of the Trust and upon such information, opinions,
reports or statements
8
<PAGE> 12
presented to the Trust by any Person as to matters the Indemnified Person
reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which distributions to
holders of Securities might properly be paid.
SECTION 2 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to any other Covered Person, an Indemnified Person acting under
this Declaration shall not be liable to the Trust or to any other Covered Person
for its good faith reliance on the provisions of this Declaration. The
provisions of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity, are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person;
(b) unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified
Person shall act in a manner that is, or provides terms that
are, fair and reasonable to the Trust or any holder of
Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise; and
(c) whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to
consider such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting
the Trust or any other Person; or
9
<PAGE> 13
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under such express
standard and shall not be subject to any other or different
standard imposed by this Declaration or by applicable law.
SECTION 3 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to the
full extent permitted by law, any Company Indemnified Person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or
in the right of the Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the Company Indemnified
Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a
judgment in its favor by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Trust and except that no such indemnification shall be
made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust
unless and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such Court of Chancery or
such other court shall deem proper.
(iii) Any indemnification under paragraphs (i) and (ii) of
this Article IV Section 3(a) (unless ordered by a court) shall be made
by the Debenture Issuer only as authorized in the specific case upon a
determination that indemnification of the Company Indemnified Person is
proper in the circumstances because he has met the applicable standard
of conduct set forth in paragraphs (i) and (ii). Such determination
shall be made
10
<PAGE> 14
(1) by the Regular Trustees by a majority vote of a quorum consisting
of such Regular Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs,
by independent legal counsel in a written opinion, or (3) by the Common
Security Holder of the Trust.
(iv) Expenses (including attorneys' fees) incurred by a
Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to
in paragraphs (i) and (ii) of this Article IV Section 3(a) shall be
paid by the Debenture Issuer in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Company Indemnified Person to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the Debenture Issuer as authorized in this Article IV
Section 3(a). Notwithstanding the foregoing, no advance shall be made
by the Debenture Issuer if a determination is reasonably and promptly
made (i) by the Regular Trustees by a majority vote of a quorum of
disinterested Regular Trustees, (ii) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested
Regular Trustees so directs, by independent legal counsel in a written
opinion or (iii) the Common Security Holder of the Trust, that, based
upon the facts known to the Regular Trustees, counsel or the Common
Security Holder at the time such determination is made, such Company
Indemnified Person acted in bad faith or in a manner that such person
did not believe to be in or not opposed to the best interests of the
Trust, or, with respect to any criminal proceeding, that such Company
Indemnified Person believed or had reasonable cause to believe his
conduct was unlawful. In no event shall any advance be made in
instances where the Regular Trustees, independent legal counsel or
Common Security Holder reasonably determine that such person
deliberately breached his duty to the Trust or its Common or Preferred
Security Holders.
(v) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Article IV
Section 3(a) shall not be deemed exclusive of any other rights to which
those seeking indemnification and advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested
directors of the Debenture Issuer or Preferred Security Holders of the
Trust or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office. All rights to
indemnification under this Article IV Section 3(a) shall be deemed to
be provided by a contract between the Debenture Issuer and each Company
Indemnified Person who serves in such capacity at any time while this
Article IV Section 3(a) is in effect. Any repeal or modification of
this Article IV Section 3(a) shall not affect any rights or obligations
then existing.
(vi) The Debenture Issuer or the Trust may purchase and
maintain insurance on behalf of any person who is or was a Company
Indemnified Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of
11
<PAGE> 15
his status as such, whether or not the Debenture Issuer would have the
power to indemnify him against such liability under the provisions of
this Article IV Section 3(a).
(vii) For purposes of this Article IV Section 3(a), references
to "the Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Article IV Section 3(a) with respect to the
resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(viii) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article IV Section 3(a)
shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a Company Indemnified Person and
shall inure to the benefit of the heirs, executors and administrators
of such a person.
(b) The Debenture Issuer agrees to indemnify the (i) the Delaware
Trustee, (ii) any Affiliate of the Delaware Trustee, and (iii) any officers,
directors, shareholders, members, partners, employees, representatives,
nominees, custodians or agents of the Delaware Trustee (each of the Persons in
(i) through (iii) being referred to as a "Fiduciary Indemnified Person") for,
and to hold each Fiduciary Indemnified Person harmless against, any loss,
liability or expense incurred without gross negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Article IV Section 3(b) shall survive the
termination of this Declaration or the resignation or removal of the Delaware
Trustee.
SECTION 4 Outside Businesses.
Any Covered Person, the Sponsor and the Delaware Trustee may
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Trust, and the Trust and the Holders of Securities shall have no rights
by virtue of this Declaration in and to such independent ventures or the income
or profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor or the Delaware Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, the Sponsor and the
Delaware Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Any Covered Person and the Delaware Trustee may
engage or be interested in any financial or other
12
<PAGE> 16
transaction with the Sponsor or any Affiliate of the Sponsor, or may act as
depositary for, trustee or agent for or may act on any committee or body of
holders of, securities or other obligations of the Sponsor or its Affiliates.
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 1 Amendments.
At any time before the issue of any Securities, this
Declaration may be amended by, and only by, a written instrument executed by all
of the Regular Trustees and the Sponsor; provided, however, if the amendment
effects the rights, powers, duties, obligation or immunities of the Delaware
Trustee, the amendment shall also be approved by the Delaware Trustee.
SECTION 2 Termination of Trust.
(a) The Trust shall terminate and be of no further force or
effect:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution
or its equivalent with respect to the Sponsor or the
revocation of the Sponsor's charter or of the Trust's
certificate of trust;
(iii) upon the entry of a decree of judicial
dissolution of the Sponsor, or the Trust; and
(iv) before the issue of any Securities, with the
consent of all of the Regular Trustees and the Sponsor; and
(b) as soon as is practicable after the occurrence of an event
referred to in Article V Section 2(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
13
<PAGE> 17
SECTION 3 Governing Law.
This Declaration and the rights of the parties hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Declaration by the
Sponsor and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 6 Partial Enforceability.
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Declaration, or the application of such provision to persons
or circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
14
<PAGE> 18
IN WITNESS WHEREOF, the undersigned has caused this
Declaration of Trust of PCHC Financing I to be executed as of the day and year
first above written.
/s/ Craig P. Keller
----------------------------------------
Name: Craig P. Keller
Title: Regular Trustee
/s/ James J. Maguire, Jr.
----------------------------------------
Name: James J. Maguire, Jr.
Title: Regular Trustee
/s/ Jack T. Carballo
----------------------------------------
Name: Jack T. Carballo
Title: Regular Trustee
FIRST CHICAGO DELAWARE INC.
as Delaware Trustee
By: /s/ Michael J. Majchrzak
----------------------------------------
Name: Michael J. Majchrzak
Title: Vice President
PHILADELPHIA CONSOLIDATED
HOLDING CORP., as Sponsor
By: /s/ Craig P. Keller
----------------------------------------
Name: Craig P. Keller
Title: V.P., Secretary and Treasurer
15
<PAGE> 19
EXHIBIT A
CERTIFICATE OF TRUST
The undersigned, the trustees of PCHC Financing I, desiring to
form a business trust pursuant to Delaware Business Trust Act, 12 Del. C.
Section 3810, hereby certify as follows:
(a) The name of the business trust being formed hereby (the
"Trust") is "PCHC Financing I."
(b) The name and business address of the trustee of the Trust that
has its principal place of business in the State of Delaware
is as follows:
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
(c) This Certificate of Trust shall be effective as of the date of
filing.
Dated: April , 1998
----------------------------------------
Craig P. Keller, as Trustee
----------------------------------------
James J. Maguire, Jr., as Trustee
----------------------------------------
Jack T. Carballo, as Trustee
FIRST CHICAGO DELAWARE INC.
as Trustee
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
16
<PAGE> 1
Exhibit 4.5
FORM OF AMENDED AND RESTATED DECLARATION
OF TRUST
PCHC Financing I
Dated as of April __, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS......................................................1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION................................10
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES..................................10
SECTION 2.3 REPORTS BY THE INSTITUTIONAL TRUSTEE............................11
SECTION 2.4 PERIODIC REPORTS TO INSTITUTIONAL TRUSTEE.......................11
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT................11
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.......................................11
SECTION 2.7 EVENT OF DEFAULT; NOTICE........................................13
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME............................................................13
SECTION 3.2 OFFICE..........................................................13
SECTION 3.3 PURPOSE.........................................................13
SECTION 3.4 AUTHORITY.......................................................14
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST..................................14
SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES.......................14
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND
THE TRUSTEES....................................................17
SECTION 3.8 POWERS AND DUTIES OF THE INSTITUTIONAL TRUSTEE..................17
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE
INSTITUTIONAL TRUSTEE...........................................19
SECTION 3.10 CERTAIN RIGHTS OF INSTITUTIONAL TRUSTEE.........................21
SECTION 3.11 DELAWARE TRUSTEE................................................22
SECTION 3.12 EXECUTION OF DOCUMENTS..........................................22
SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF SECURITIES...................................................23
SECTION 3.14 DURATION OF TRUST...............................................23
SECTION 3.15 MERGERS.........................................................23
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.........................24
SECTION 4.2 RIGHTS AND RESPONSIBILITIES OF THE SPONSOR......................25
i
<PAGE> 3
Page
----
SECTION 4.3 RIGHT TO PROCEED................................................25
SECTION 4.4 EXPENSES........................................................25
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES..............................................26
SECTION 5.2 DELAWARE TRUSTEE................................................26
SECTION 5.3 INSTITUTIONAL TRUSTEE; ELIGIBILITY..............................27
SECTION 5.4 CERTAIN QUALIFICATIONS OF REGULAR TRUSTEES AND
DELAWARE TRUSTEE GENERALLY......................................28
SECTION 5.5 REGULAR TRUSTEES................................................28
SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES................28
SECTION 5.7 VACANCIES AMONG TRUSTEES........................................30
SECTION 5.8 EFFECT OF VACANCIES.............................................30
SECTION 5.9 MEETINGS........................................................30
SECTION 5.10 DELEGATION OF POWER.............................................30
SECTION 5.11 MERGER, CONVERSION. CONSOLIDATION OR SUCCESSION TO
BUSINESS........................................................31
ARTICLE VI
THE SECURITIES
SECTION 6.1 DESIGNATION AND NUMBER..........................................31
SECTION 6.2 DISTRIBUTIONS...................................................31
SECTION 6.3 LIQUIDATION DISTRIBUTION UPON DISSOLUTION. .....................33
SECTION 6.4 REDEMPTION AND DISTRIBUTION.....................................33
SECTION 6.5 REDEMPTION OR DISTRIBUTION PROCEDURES...........................34
SECTION 6.6 REPAYMENT AT OPTION OF HOLDERS..................................35
SECTION 6.7 VOTING RIGHTS - TRUST PREFERRED SECURITIES......................36
SECTION 6.8 VOTING RIGHTS - COMMON SECURITIES...............................38
SECTION 6.9 AMENDMENTS TO DECLARATION AND INDENTURE. .......................39
SECTION 6.10 REFERENCE TO PRO RATA...........................................39
SECTION 6.11 RANKING.........................................................40
SECTION 6.12 ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE. ..............40
SECTION 6.13 NO PREEMPTIVE RIGHTS............................................40
SECTION 6.14 MISCELLANEOUS...................................................40
SECTION 6.15 PAYING AGENT....................................................41
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 TERMINATION OF TRUST............................................41
ii
<PAGE> 4
Page
----
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 TRANSFER OF SECURITIES..........................................42
SECTION 8.2 TRANSFER OF CERTIFICATES........................................42
SECTION 8.3 DEEMED SECURITY HOLDERS.........................................43
SECTION 8.4 BOOK ENTRY INTERESTS............................................43
SECTION 8.5 NOTICES TO CLEARING AGENCY......................................43
SECTION 8.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY........................44
SECTION 8.7 DEFINITIVE TRUST PREFERRED SECURITY CERTIFICATES................44
SECTION 8.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES...............44
ARTICLE IX
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 9.1 LIABILITY.......................................................45
SECTION 9.2 EXCULPATION.....................................................45
SECTION 9.3 FIDUCIARY DUTY..................................................46
SECTION 9.4 INDEMNIFICATION.................................................46
SECTION 9.5 OUTSIDE BUSINESSES..............................................49
ARTICLE X
ACCOUNTING
SECTION 10.1 FISCAL YEAR.....................................................49
SECTION 10.2 CERTAIN ACCOUNTING MATTERS......................................49
SECTION 10.3 BANKING.........................................................50
SECTION 10.4 WITHHOLDING.....................................................50
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 AMENDMENTS......................................................50
SECTION 11.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN
CONSENT.........................................................52
ARTICLE XII
PRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE
SECTION 12.1 REPRESENTATIONS AND WARRANTIES OF INSTITUTIONAL
TRUSTEE.........................................................53
SECTION 12.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE
TRUSTEE.........................................................54
iii
<PAGE> 5
Page
----
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 NOTICES.........................................................55
SECTION 13.2 GOVERNING LAW...................................................56
SECTION 13.3 INTENTION OF THE PARTIES........................................56
SECTION 13.4 HEADINGS........................................................56
SECTION 13.5 SUCCESSORS AND ASSIGNS..........................................56
SECTION 13.6 PARTIAL ENFORCEABILITY..........................................56
SECTION 13.7 COUNTERPARTS....................................................56
SECTION 13.8 REMARKETING.....................................................56
iv
<PAGE> 6
FORM OF AMENDED AND RESTATED
DECLARATION OF TRUST
OF
PCHC Financing I
April __, 1998
FORM OF AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration")
dated and effective as of April __, 1998, by the Trustees (as defined herein),
the Sponsor (as defined herein) and by the Holders (as defined herein), from
time to time, of the securities representing undivided beneficial interests in
the assets of the Trust to be issued pursuant to this Declaration;
WHEREAS, certain of the Trustees and the Sponsor established PCHC
Financing I (the "Trust"), a trust under the Business Trust Act (as defined
herein) pursuant to a trust agreement dated as of April 2, 1998 (the "Original
Declaration"), and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on April 2, 1998, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures of
the Debenture Issuer (as defined herein);
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the Trust and the Holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS
Unless the context otherwise requires:
(a) capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
<PAGE> 7
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent.
"Applicable Ownership Interest" means, with respect to an
Income PRIDES and the U.S. Treasury Securities in the Treasury Portfolio, (A) a
1/100, or 1%, undivided beneficial ownership interest in a $1,000 principal or
interest amount of a principal or interest strip in a U.S. Treasury Security
included in such Treasury Portfolio which matures on or prior to ___ 15, 2001
and (B) for each scheduled interest payment date on the Debentures that occurs
after the Tax Event Redemption Date, a __% undivided beneficial ownership
interest in a $1,000 face amount of such U.S. Treasury Security which is a
principal or interest strip maturing on such date.
"Applicable Principal Amount" means either (i) if the Tax
Event Redemption Date occurs prior to ___ 16, 2001, the aggregate principal
amount of the Debentures corresponding to the aggregate stated liquidation
amount of the Trust Preferred Securities which are components of Income PRIDES
on the Tax Event Redemption Date or (ii) if the Tax Event Redemption occurs on
or after ___ 16, 2001, the aggregate principal amount of the Debentures
corresponding to the aggregate stated liquidation amount of the Trust Preferred
Securities outstanding on such Tax Event Redemption Date.
"Authorized Newspaper" means a daily newspaper, in the English
language, customarily published on each day that is a Business Day in The City
of New York, whether or not published on days that are Legal Holidays, and of
general circulation in The City of New York. The Authorized Newspaper for the
purposes of the Reset Announcement Date, is currently anticipated to be The Wall
Street Journal.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than Saturday, Sunday or
any day on which banking institutions in New York City, in the State of New
York, are permitted or required by any applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time
to time, or any successor legislation.
"Trust Preferred Security" means the ___% Trust Originated
Preferred Securities.
2
<PAGE> 8
"Trust Preferred Security Beneficial Owner" means, with
respect to a Book Entry Interest, a Person who is the beneficial owner of such
Book Entry Interest, as reflected on the books of the Clearing Agency, or on the
books of a Person maintaining an account with such Clearing Agency (directly as
a Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Trust Preferred Security Certificate" means a certificate
representing a Trust Preferred Security substantially in the form of Exhibit
A-1.
"Certificate" means a Common Security Certificate or a Trust
Preferred Security Certificate.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Trust Preferred Securities and in whose name or in the name
of a nominee of that organization shall be registered a Global Certificate and
which shall undertake to effect book entry transfers and pledges of the Trust
Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time the
Clearing Agency effects book entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Date" means the "Closing Time" and each "Date of
Delivery" under the Underwriting Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Security" means the ___% Common Securities.
"Common Security Certificate" means a definitive certificate
in fully registered form representing a Common Security substantially in the
form of Exhibit A-2.
"Company Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee; or (d) any officer, employee or agent of the Trust or its
Affiliates.
"Corporate Trust Office" means the office of the Institutional
Trustee at which the corporate trust business of the Institutional Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Declaration is located at One First National Plaza,
Suite 0126, Chicago, IL 60670-0126.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the Trust
or (ii) the Trust's Affiliates; and (b) any Holder of Securities.
3
<PAGE> 9
"Debenture Issuer" means Philadelphia Consolidated Holding
Corp., a Pennsylvania corporation, in its capacity as issuer of the Debentures
under the Indenture.
"Debenture Trustee" means The First National Bank of Chicago,
as trustee under the Indenture until a successor is appointed thereunder, and
thereafter means such successor trustee.
"Debentures" means the series of ___% Debentures to be issued
by the Debenture Issuer under the Indenture.
"Debenture Repayment Price" means, with respect to any
Debentures put to the Sponsor on ____, 2001, an amount per Debenture equal to
$10, plus accumulated and unpaid interest (including deferred interest, if any).
"Definitive Trust Preferred Security Certificates" has the
meaning set forth in Section 8.4.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Direction" by a Person means a written direction signed:
(a) if the Person is a natural person, by that Person; or
(b) in any other case, in the name of such Person by one
or more Authorized Officers of that Person.
"Direct Action" has the meaning specified in Section 3.8(e).
"Distribution" means a distribution payable to Holders of
Securities in accordance with Section 6.2.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" in respect of the Securities means an Event
of Default (as defined in the Indenture) has occurred and is continuing in
respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Exchange Agent" shall mean the Person acting as Institutional
Trustee.
"Failed Remarketing" has the meaning specified in Section
5.4(b) of the Purchase Contract Agreement.
"FELINE PRIDES"(SM) means (A) ________ units referred to as
Income PRIDES(SM) with a Stated Amount, per Income PRIDES, of $10 and (B) at
least _______ units referred to as Growth PRIDES(SM) with a face amount, per
Growth PRIDES, of $10.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 9.4(b).
4
<PAGE> 10
"Global Certificate" has the meaning set forth in Section 8.4.
"Guarantee" means the guarantee agreement to be dated as of
April __, 1998 of the Sponsor in respect of the Common Securities and the Trust
Preferred Securities.
"Holder" or "holder" means a Person in whose name a
Certificate representing a Security is registered, such Person being a
beneficial owner within the meaning of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of April __, 1998,
among the Debenture Issuer and the Debenture Trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued.
"Institutional Trustee" means the Trustee meeting the
eligibility requirements set forth in Section 5.3.
"Institutional Trustee Account" has the meaning set forth in
Section 3.8(c).
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Investment Company Event" means that the Regular Trustees
shall have received an opinion of independent counsel experienced in practice
under the Investment Company Act (an "Investment Company Event Opinion") to the
effect that, as a result of the occurrence of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), which Change in 1940 Act Law becomes effective on or after
the date of the Prospectus, there is a more than an insubstantial risk that the
Trust is or will be considered an Investment Company which is required to be
registered under the Investment Company Act.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Majority in liquidation amount of the Securities" means,
except as provided in the terms and conditions of the Trust Preferred Securities
set forth in Article VI hereto or by the Trust Indenture Act, Holder(s) of
outstanding Securities voting together as a single class or, as the context may
require, Holders of outstanding Trust Preferred Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class.
5
<PAGE> 11
"Ministerial Action" means the taking of an action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure that will have no adverse effect on the Trust, the Debenture Issuer, the
Sponsor or the Holder of the Securities and will involve no material cost.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that the officers signing the Officers'
Certificate have read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by the officer in rendering the
Officers' Certificate;
(c) a statement that such officers have made such examination
or investigation as, in such officers' opinion, is necessary to enable such
officers to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of such
officers, such condition or covenant has been complied with.
"Paying Agent" has the meaning specified in Section 6.15.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Pledge Agreement" means the Pledge Agreement dated as of
April __, 1998 among the Sponsor, The Chase Manhattan Bank, as collateral agent
(the "Collateral Agent") and Custodial Agent (the "Custodial Agent") and
securities intermediary (the "Securities Intermediary"), and The First National
Bank of Chicago, as purchase contract agent (the "Purchase Contract Agent").
"Pricing Agreement" means the pricing agreement between the
Trust, the Debenture Issuer, and the underwriters designated by the Regular
Trustees with respect to the offer and sale of the Trust Preferred Securities.
"Primary Treasury Dealer" means a primary U.S. government
securities dealer in The City of New York.
"Purchase Contract Agreement" means the Purchase Contract
Agreement dated as of April __, 1998 among The First National Bank of Chicago,
as Purchase Contract Agent, and the Sponsor.
"Purchase Contract Settlement Date" means ___ 16, 2001.
"Put Option" has the meaning specified in Section 6.6.
6
<PAGE> 12
"Quorum" means a majority of the Regular Trustees or, if there
are only two Regular Trustees, both of them.
"Quotation Agent" means (i) Merrill Lynch Government
Securities, Inc. and its respective successors, provided, however, that if the
foregoing shall cease to be a Primary Treasury Dealer, the Sponsor shall
substitute therefor another Primary Treasury Dealer and (ii) any other Primary
Treasury Dealer selected by the Sponsor.
"Redemption Amount" means for each Debenture, the product of
(i) the principal amount of such Debenture and (ii) a fraction whose numerator
is the Treasury Portfolio Purchase Price and whose denominator is the Applicable
Principal Amount.
"Redemption Price" means the redemption price per security
equal to the Redemption Amount plus any accrued and unpaid distributions to the
date of redemption.
"Regular Trustee" has the meaning set forth in Section 5.1.
"Related Party" means, with respect to the Sponsor, any direct
or indirect wholly owned subsidiary of the Sponsor or any other Person that
owns, directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Remarketing Agent" means Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
"Remarketing Agreement" means the Remarketing Agreement among
the Debenture Issuer, the Trust and The First National Bank of Chicago as
Purchase Contract Agent.
"Remarketing Date" shall have the meaning set forth in the
Remarketing Agreement.
"Remarketing Underwriting Agreement" means the agreement to be
dated as of the third Business Day immediately preceding the Purchase Contract
Settlement Date among the Company, the Trust, The First National Bank of
Chicago, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Reset Agent" means a nationally recognized investment banking
firm chosen by the Sponsor to determine the Reset Rate. It is currently
anticipated that Merrill Lynch & Co. will act in such capacity.
"Reset Announcement Date" means the tenth (10) Business Day
immediately preceding the Purchase Contract Settlement Date.
"Reset Rate" means the distribution rate per annum (to be
determined by the Reset Agent), equal to the sum of (X) the Reset Spread and (Y)
the rate of interest on the Two-Year Benchmark Treasury in effect on the third
Business Day immediately preceding the Purchase Contract Settlement Date, that
the Trust Preferred Securities should bear in order for the Trust Preferred
Securities to have an approximate market value of 100.5% of their aggregate
liquidation amount on the third Business Day immediately preceding the Purchase
Contract Settlement Date; provided, that the Sponsor may limit such Reset Spread
to be no higher than 200 basis points (2%).
7
<PAGE> 13
"Reset Spread" means a spread amount to be determined by the
Reset Agent on the tenth (10) Business Day immediately preceding the Purchase
Contract Settlement Date.
"Responsible Officer" means, with respect to the Institutional
Trustee, any officer within the Corporate Trust Office of the Institutional
Trustee, including, without limitation, any vice-president, any assistant
vice-president, any assistant secretary, the treasurer, any assistant treasurer
or other officer of the Corporate Trust Office of the Institutional Trustee
assigned by the Institutional Trustee to administer its corporate trust matters
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Trust
Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Sponsor" means Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation, or any successor entity in a merger or consolidation,
in its capacity as sponsor of the Trust.
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
"Tax Event" means the receipt by the Regular Trustees of an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that, as a result of (a) any amendment to, or change
(including any announced proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (b) any amendment to or change
in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority or (c) any
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the generally accepted position on
the date the Securities are issued, which amendment or change is effective or
which interpretation or pronouncement is announced on or after the date of
issuance of the Securities under the Declaration, there is more than an
insubstantial risk that (i) interest payable by the Debenture Issuer on the
Debentures would not be deductible, in whole or in part, by the Debenture Issuer
for federal income tax purposes or (ii) the Trust would be subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
"Tax Event Redemption" means, if a Tax Event shall occur and
be continuing, the redemption of the Debentures, at the option of the Debenture
Issuer, in whole but not in part, on not less than 30 days nor more than 60 days
notice.
"Tax Event Redemption Date" means the date upon which a Tax
Event Redemption is to occur.
"10% in liquidation amount of the Securities" means, except as
provided in the terms of the Trust Preferred Securities or by the Trust
Indenture Act, Holder(s) of outstanding Securities voting together as a single
class or, as the context may require, Holders of outstanding Trust Preferred
Securities or Holders
8
<PAGE> 14
of outstanding Common Securities voting separately as a class, who are the
record owners of 10% or more of the aggregate liquidation amount (including the
stated amount that would be paid on repayment, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class.
"Termination Event" has the meaning set forth in Section 1 of
the Purchase Contract Agreement.
"Treasury Portfolio" means, with respect to the Applicable
Principal Amount of Debentures (a) if the Tax Event Redemption Date occurs prior
to ___ 16, 2001, a portfolio of zero-coupon U.S. Treasury Securities consisting
of (i) principal or interest strips of U.S. Treasury Securities which mature on
or prior to ___ 15, 2001 in an aggregate amount equal to the Applicable
Principal Amount and (ii) with respect to each scheduled interest payment date
on the Debentures that occurs after the Tax Event Redemption Date, principal or
interest strips of U.S. Treasury Securities which mature on or prior to such
date in an aggregate amount equal to the aggregate interest payment that would
be due on the Applicable Principal Amount of the Debentures on such date, and
(b) if the Tax Event Redemption Date occurs after ___ 16, 2001, a portfolio of
zero-coupon U.S. Treasury Securities consisting of (i) principal or interest
strips of U.S. Treasury Securities which mature on or prior to ___ 15, 2003 in
an aggregate amount equal to the Applicable Principal Amount and (ii) with
respect to each scheduled interest payment date on the Debentures that occurs
after the Tax Event Redemption Date, principal or interest strips of such U.S.
Treasury Securities which mature on or prior to such date in an aggregate amount
equal to the aggregate interest payment that would be due on the Applicable
Principal Amount of the Debentures on such date.
"Treasury Portfolio Purchase Price" means the lowest aggregate
price quoted by the Primary Treasury Dealer to the Quotation Agent on the third
Business Day immediately preceding the Tax Event Redemption Date for the
purchase of the Treasury Portfolio for settlement on the Tax Event Redemption
Date.
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Treasury Securities" has the meaning set forth in Section 1
of the Purchase Contract Agreement.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
"Two-Year Benchmark Treasury" means direct obligations of the
United States (which may be obligations traded on a when-issued basis only)
having a maturity comparable to the remaining term to maturity of the Trust
Securities, as agreed upon by the Sponsor and the Reset Agent. The rate for the
Two-
9
<PAGE> 15
Year Benchmark Treasury will be the bid side rate displayed at 10:00 A.M.,
New York City time, on the third Business Day immediately preceding the Purchase
Contract Settlement Date in the Telerate system (or if the Telerate system is
(a) no longer available on the third Business Day immediately preceding the
Purchase Contract Settlement Date or (b) in the opinion of the Reset Agent
(after consultation with the Sponsor) no longer an appropriate system from which
to obtain such rate, such other nationally recognized quotation system as, in
the opinion of the Reset Agent (after consultation with the Sponsor) is
appropriate). If such rate is not so displayed, the rate for the Two-Year
Benchmark Treasury shall be, as calculated by the Reset Agent, the yield to
maturity for the Two-Year Benchmark Treasury, expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis, and computed by taking the arithmetic mean of the secondary market bid
rates, as of 10:30 A.M., New York City time, on the third Business Day
immediately preceding the Purchase Contract Settlement Date of three leading
United States government securities dealers selected by the Reset Agent (after
consultation with the Sponsor) (which may include the Reset Agent or an
Affiliate thereof).
"Underwriting Agreement" means the Underwriting Agreement for
the offering and sale of Trust Preferred Securities.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Institutional Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall control.
(d) Any application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) Each of the Sponsor and the Regular Trustees, on behalf of the
Trust, shall provide the Institutional Trustee (i) within 14 days after each
record date for payment of Distributions, a list, in such form as the
Institutional Trustee may reasonably require, of the names and addresses of the
Holders of the Securities ("List of Holders") as of such record date, provided
that neither the Sponsor nor the Regular Trustees, on behalf of the Trust, shall
be obligated to provide such List of Holders at any time the List of Holders
does not differ from the most recent List of Holders given to the Institutional
Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii)
at any other time, within 30 days of receipt by the Trust of a written request
by the Institutional Trustee for a List of Holders as of a date no more than 14
days before such List of Holders is given to the Institutional Trustee. The
Institutional Trustee shall preserve, in
10
<PAGE> 16
as current a form as is reasonably practicable, all information contained in the
Lists of Holders given to it or which it receives in the capacity as Paying
Agent (if acting in such capacity), provided that the Institutional Trustee may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.
(b) The Institutional Trustee shall comply with its obligations under
Section 311(a), 310(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE INSTITUTIONAL TRUSTEE.
Within 60 days after ___ 15 of each year, commencing ___ 15, 1999, the
Institutional Trustee shall provide to the Holders of the Trust Securities such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Institutional Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO INSTITUTIONAL TRUSTEE.
Each of the Sponsor and the Regular Trustees, on behalf of the Trust,
shall provide to the Institutional Trustee such documents, reports and
information as required by Section 314 (if any) and the compliance certificate
required by Section 314 of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Regular Trustees, on behalf of the Trust,
shall provide to the Institutional Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c) (1) may be given in the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
(a) The Holders of a Majority in liquidation amount of Trust Preferred
Securities may, by vote, on behalf of the Holders of all of the Trust Preferred
Securities, waive any past Event of Default in respect of the Trust Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under this Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in principal amount of the holders of the Debentures (a "Super
Majority") to be waived under the Indenture, the Event of Default under
this Declaration may only be waived by the vote of the Holders of at
least the proportion in liquidation amount of the Trust Preferred
Securities that the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and
11
<PAGE> 17
the Trust Preferred Securities, as permitted by the Trust Indenture Act. Upon
such waiver, any such default shall cease to exist, and any Event of Default
with respect to the Trust Preferred Securities arising therefrom shall be deemed
to have been cured, for every purpose of this Declaration, but no such waiver
shall extend to any subsequent or other default or an Event of Default with
respect to the Trust Preferred Securities or impair any right consequent
thereon. Any waiver by the Holders of the Trust Preferred Securities of an Event
of Default with respect to the Trust Preferred Securities shall also be deemed
to constitute a waiver by the Holders of the Common Securities of any such Event
of Default with respect to the Common Securities for all purposes of this
Declaration without any further act, vote, or consent of the Holders of the
Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event
of Default under this Declaration as provided below in this Section
2.6(b), the Event of Default under this Declaration shall also not be
waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to
have waived such Event of Default under this Declaration as provided
below in this Section 2.6(b), the Event of Default under this
Declaration may only be waived by the vote of the Holders of at least
the proportion in liquidation amount of the Common Securities that the
relevant Super Majority represents of the aggregate principal amount of
the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences until all Events of Default with respect to the
Trust Preferred Securities have been cured, waived or otherwise eliminated, and
until such Events of Default have been so cured, waived or otherwise eliminated,
the Institutional Trustee will be deemed to be acting solely on behalf of the
Holders of the Trust Preferred Securities and only the Holders of the Trust
Preferred Securities will have the right to direct the Institutional Trustee in
accordance with the terms of the Securities. The foregoing provisions of this
Section 2.6(b) shall be in lieu of Section 316(a)(1)(A) and 316(a)(1)(B)
of the Trust Indenture Act and such Section 316(a)(1)(A) and 316(a)(1)(B)
of the Trust Indenture Act are hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act. Subject to the
foregoing provisions of this Section 2.6(b), upon such waiver, any such default
shall cease to exist and any Event of Default with respect to the Common
Securities arising therefrom shall be deemed to have been cured for every
purpose of this Declaration, but no such waiver shall extend to any subsequent
or other default or Event of Default with respect to the Common Securities or
impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Institutional Trustee at the direction of the Holders of the Trust Preferred
Securities constitutes a waiver of the corresponding Event of Default with
respect to the Trust Preferred Securities under this Declaration. Any waiver of
an Event of Default under the Indenture by the Institutional Trustee at the
direction of the Holders of the Trust Preferred Securities shall also be deemed
to constitute a waiver by the Holders of the Common Securities of the
corresponding Event
12
<PAGE> 18
of Default under this Declaration with respect to the Common Securities for all
purposes of this Declaration without further act, vote or consent of the Holders
of the Common Securities. The foregoing provisions of this Section 2.6(c) shall
be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Institutional Trustee shall, within 90 days after the
occurrence of an Event of Default, actually known to a Responsible Officer of
the Institutional Trustee, transmit by mail, first class postage prepaid, to the
Holders of the Securities, notices of all such defaults with respect to the
Securities, unless such defaults have been cured before the giving of such
notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Event of Default as defined in the Indenture, not including any
periods of grace provided for therein and irrespective of the giving of any
notice provided therein); provided that, except for a default in the payment of
principal of (or premium, if any) or interest on any of the Debentures, the
Institutional Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer of the Institutional Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Institutional Trustee shall not be deemed to have knowledge of
any default except:
(i) a default under Sections 501 and 503 of the Indenture; or
(ii) any default as to which the Institutional Trustee shall
have received written notice or of which a Responsible Officer of the
Institutional Trustee charged with the administration of this
Declaration shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME.
The Trust is named "PCHC Financing I," as such name may be modified
from time to time by the Regular Trustees following written notice to the
Holders of the Securities. The Trust's activities may be conducted under the
name of the Trust or any other name deemed advisable by the Regular Trustees.
SECTION 3.2 OFFICE.
The address of the principal office of the Trust is c/o Philadelphia
Consolidated Holding Corp., One Bala Plaza, Suite 100, Bala Cynwyd, PA 19004. On
ten Business Days written notice to the Institutional Trustee and Holders of the
Securities, the Regular Trustees may designate another principal office.
SECTION 3.3 PURPOSE.
13
<PAGE> 19
The exclusive purposes and functions of the Trust are (a) to issue and
sell the Securities and use the gross proceeds from such sale to acquire the
Debentures, and (b) except as otherwise set forth herein, to engage in only
those other activities necessary, appropriate, convenient or incidental thereto.
The Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, pledge any of its assets, or otherwise undertake (or permit to be
undertaken) any activity that would cause the Trust not to be classified for
United States federal income tax purposes as a grantor trust. It is the intent
of the parties to this Declaration for the Trust to be classified as a grantor
trust for United States federal income tax purposes under Subpart E of
Subchapter J of the Code, pursuant to which the beneficial owners of the Trust
Preferred Securities and the Common Securities will be the owners of the Trust
for United States federal income tax purposes, and such owners will include
directly in their gross income the income, gain, deduction or loss of the Trust
as if the Trust did not exist. By the acceptance of this Trust, neither the
Trustees, the Sponsor nor the Holders of the Trust Preferred Securities or
Common Securities will take any position for United States federal income tax
purposes which is contrary to the classification of the Trust as a grantor
trust.
SECTION 3.4 AUTHORITY.
Subject to the limitations provided in this Declaration and to the
specific duties of the Institutional Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Institutional Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no Person shall be required to inquire into the
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 3.8 with respect to the Debentures and
the Institutional Trustee Account or as otherwise provided in this Declaration,
legal title to all assets of the Trust shall be vested in the Trust. A Holder
shall not have legal title to any part of the assets of the Trust, but shall
have an undivided beneficial interest in the assets of the Trust.
SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES.
The Regular Trustees shall have the exclusive power, duty and authority
to cause the Trust to engage in the following activities:
(a) to issue and sell the Trust Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
Trust may issue no more than one series of Trust Preferred Securities and no
more than one series of Common Securities, and, provided further, that there
shall be no interests in the Trust other than the Securities, and the issuance
of Securities shall be limited to a simultaneous issuance of both Trust
Preferred Securities and Common Securities on the Closing Date;
(b) in connection with the issue and sale of the Trust Preferred
Securities to:
(i) assist and filing with the Commission the registration
statement and the prospectus relating to the registration statement on
Form S-3 prepared by the Sponsor, including any
14
<PAGE> 20
amendments or supplements, thereto, pertaining to the Trust Preferred
Securities and to take any other action relating to the registration
and sale of the Trust Preferred Securities under federal and state
securities laws;
(ii) execute and file any documents prepared by the Sponsor,
or take any acts as determined by the Sponsor to be necessary in order
to qualify or register all or part of the FELINE PRIDES in any State in
which the Sponsor has determined to qualify or register such FELINE
PRIDES for sale;
(iii) assist in filing an application, prepared by the
Sponsor, to the New York Stock Exchange, Inc. or any other national
stock exchange or the Nasdaq Stock National Market for listing upon
notice of issuance of any Trust Preferred Securities;
(iv) assist in filing with the Commission a registration
statement on Form 8-A, including any amendments thereto, prepared by
the Sponsor, relating to the registration of the Trust Preferred
Securities under Section 12(b) of the Exchange Act; and
(v) execute and enter into the Remarketing Agreement and
Remarketing Underwriting Agreement providing for the sale of the FELINE
PRIDES;
(c) to acquire the Debentures with the proceeds of the sale of the
Trust Preferred Securities and the Common Securities; provided, however, that
the Regular Trustees shall cause legal title to the Debentures to be held of
record in the name of the Institutional Trustee for the benefit of the Trust and
the Holders of the Trust Preferred Securities and the Holders of Common
Securities;
(d) to give the Sponsor and the Institutional Trustee prompt written
notice of the occurrence of a Tax Event or an Investment Company Event; provided
that the Regular Trustees shall consult with the Sponsor before taking or
refraining from taking any Ministerial Action in relation to a Tax Event or
Investment Company Event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, repayments, redemptions and exchanges, and to
issue relevant notices to the Holders of Trust Preferred Securities and Holders
of Common Securities as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required of
the Regular Trustees pursuant to the terms of the Securities and this
Declaration;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e) the Institutional Trustee
has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
15
<PAGE> 21
(i) to cause the Trust to comply with the Trust's obligations under the
Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of the Trust
Indenture Act to the Institutional Trustee, which certificate may be executed by
any Regular Trustee;
(k) to incur expenses that are necessary, appropriate, convenient or
incidental to carry out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of
any notice received from the Debenture Issuer of its election to defer payments
of interest on the Debentures by extending the interest payment period under the
Indenture;
(n) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Trust Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(o) to take any action, not inconsistent with this Declaration or with
applicable law, that the Regular Trustees determine in their discretion to be
necessary or desirable in carrying out the activities of the Trust, including,
but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes, provided that such action
relating to this clause (iii) does not adversely affect the interests
of Holders;
(p) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Regular Trustees, on behalf of the
Trust;
(q) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary, appropriate, convenient or incidental to the foregoing; and
(r) if applicable, to solicit holders of Securities which form a part
of the Income PRIDES to timely instruct the Purchase Contract Agent in order to
enable the Purchase Contract Agent to vote such Securities.
The Regular Trustees must exercise the powers set forth in this Section
3.6 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the Regular Trustees shall not take any action that
is inconsistent with the purposes and functions of the Trust set forth in
Section 3.3.
16
<PAGE> 22
Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Institutional Trustee set forth in Section
3.8. No permissive power or authority available to the Regular Trustees shall be
construed to be a duty.
Any expenses incurred by the Regular Trustees pursuant to this Section
3.6 shall be reimbursed by the Sponsor.
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Institutional
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Trustees (including the Institutional Trustee) shall cause the Trust not
to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of
Securities pursuant to the terms of this Declaration and of the
Securities;
(ii) acquire any assets other than the Debentures and any cash
proceeds received with respect thereto;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness for borrowed
money, other than loans represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the assets of the Trust or the terms of the Securities in any way
whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities; or
(vii) other than as provided in this Declaration, (A) direct
the time, method and place of exercising any trust or power conferred
upon the Debenture Trustee with respect to the Debentures, (B) waive
any past default that is waivable under the Indenture, (C) exercise any
right to rescind or annul any declaration that the principal of all the
Debentures shall be due and payable, or (D) consent to any amendment,
modification or termination of the Indenture or the Debentures unless
the Trust shall have received an opinion of counsel to the effect that
such modification will not cause the Trust to be classified as other
than a grantor trust for United States federal income tax purposes.
SECTION 3.8 POWERS AND DUTIES OF THE INSTITUTIONAL TRUSTEE.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Institutional Trustee in trust for the benefit of the
Trust and the Holders of the Securities. The right, title and interest of the
Institutional Trustee to the Debentures shall vest automatically in each Person
who may hereafter be appointed as Institutional Trustee in accordance with
Section 5.6. Such vesting and cessation of
17
<PAGE> 23
title shall be effective whether or not conveyancing documents with regard to
the Debentures have been executed and delivered.
(b) The Institutional Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Institutional Trustee does not also act as Delaware Trustee).
(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Institutional Trustee Account") in the name of and
under the exclusive control of the Institutional Trustee on behalf of
the Trust and the Holders of the Securities and, upon the receipt of
payments of funds made in respect of the Debentures held by the
Institutional Trustee, deposit such funds into the Institutional
Trustee Account and make payments to the Holders of the Trust Preferred
Securities and Holders of the Common Securities from the Institutional
Trustee Account in accordance with Section 6.1. Funds in the
Institutional Trustee Account shall be held uninvested until disbursed
in accordance with this Declaration. The Institutional Trustee Account
shall be an account that is maintained with a banking institution the
rating on whose long-term unsecured indebtedness is rated at least "A"
or above by a "nationally recognized statistical rating organization",
as that term is defined for purposes of Rule 436(g)(2) under the
Securities Act;
(ii) engage in such ministerial activities as shall be
necessary, appropriate, convenient or incidental to effect the
repayment of the Trust Preferred Securities and the Common Securities
to the extent the Debentures mature or are redeemed or the Put Option
is exercised; and
(iii) upon written notice of distribution issued by the
Regular Trustees in accordance with the terms of the Securities, engage
in such ministerial activities as shall be necessary, appropriate,
convenient or incidental to effect the distribution of the Debentures
to Holders of Securities upon the occurrence of certain special events
(as may be defined in the terms of the Securities) arising from a
change in law or a change in legal interpretation or other specified
circumstances pursuant to the terms of the Securities.
(d) The Institutional Trustee shall take all actions and perform such
duties as may be specifically required of the Institutional Trustee pursuant to
the terms of the Securities and this Declaration.
(e) The Institutional Trustee shall take any Legal Action which arises
out of or in connection with an Event of Default of which a Responsible Officer
of the Institutional Trustee has actual knowledge or the Institutional Trustee's
duties and obligations under this Declaration, the Business Trust Act or the
Trust Indenture Act; provided, however, that if the Institutional Trustee fails
to enforce its rights under the Debentures after a Holder of Trust Preferred
Securities has made a written request, such Holder of Trust Preferred Securities
may, to the fullest extent permitted by applicable law, institute a legal
proceeding against the Debenture Issuer without first instituting any legal
proceeding against the Institutional Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay interest on or principal of the Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then a Holder of Trust Preferred Securities may directly institute a
proceeding for enforcement of payment to such Holder of the principal of or
interest on the Debentures having a principal
18
<PAGE> 24
amount equal to the aggregate liquidation amount of the Trust Preferred
Securities of such holder (a "Direct Action") on or after the respective due
date specified in the Debentures. In connection with such Direct Action, the
rights of the Holders of Common Securities will be subrogated to the rights of
such Holders of Trust Preferred Securities. In connection with such Direct
Action, the Debenture Issuer shall be subrogated to the rights of such Holder of
Trust Preferred Securities with respect to payments on the Trust Preferred
Securities under this Declaration to the extent of any payment made by the
Debenture Issuer to such Holder of Trust Preferred Securities in such Direct
Action. Except as provided in the preceding sentences, the Holders of Trust
Preferred Securities will not be able to exercise directly any other remedy
available to the Holders of the Debentures.
(f) The Institutional Trustee shall continue to serve as a Trustee
until either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of Securities pursuant to
the terms of the Securities; or
(ii) a Successor Institutional Trustee has been appointed and
has accepted that appointment in accordance with Section 5.6.
(g) The Institutional Trustee shall have the legal power to exercise
all of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Institutional Trustee occurs and is continuing, the Institutional Trustee
shall, for the benefit of Holders of the Securities, enforce its rights as
holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities and this Declaration.
(h) Subject to this Section 3.8, the Institutional Trustee shall have
none of the duties, liabilities, powers or the authority of the Regular Trustees
set forth in Section 3.6.
The Institutional Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Institutional Trustee shall not take
any action that is inconsistent with the purposes and functions of the Trust set
out in Section 3.3.
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE INSTITUTIONAL TRUSTEE.
(a) The Institutional Trustee, before the occurrence of any Event of
Default and after the curing or waiver of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Declaration and no implied covenants shall be read into this
Declaration against the Institutional Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Institutional Trustee has actual knowledge, the
Institutional Trustee shall exercise such of the rights and powers vested in it
by this Declaration, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Institutional Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
19
<PAGE> 25
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Institutional
Trustee shall be determined solely by the express provisions
of this Declaration and the Institutional Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this Declaration,
and no implied covenants or obligations shall be read into
this Declaration against the Institutional Trustee; and
(B) in the absence of bad faith on the part of the
Institutional Trustee, the Institutional Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Institutional
Trustee and conforming to the requirements of this
Declaration; but in the case of any such certificates or
opinions that by any provision hereof are specifically
required to be furnished to the Institutional Trustee, the
Institutional Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Declaration;
(ii) the Institutional Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Institutional Trustee, unless it shall be proved that the Institutional
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Institutional Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Institutional Trustee, or exercising any trust or power
conferred upon the Institutional Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Institutional Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if it shall
have reasonable grounds for believing that the repayment of such funds
or liability is not reasonably assured to it under the terms of this
Declaration or indemnity reasonably satisfactory to the Institutional
Trustee against such risk or liability is not reasonably assured to it;
(v) the Institutional Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and
the Institutional Trustee Account shall be to deal with such property
in a similar manner as the Institutional Trustee deals with similar
property for its fiduciary accounts generally, subject to the
protections and limitations on liability afforded to the Institutional
Trustee under this Declaration, the Business Trust Act and the Trust
Indenture Act;
(vi) the Institutional Trustee shall have no duty or liability
for or with respect to the value, genuineness, existence or sufficiency
of the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
(vii) the Institutional Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree
with the Sponsor. Money held by the Institutional Trustee need
20
<PAGE> 26
not be segregated from other funds held by it except in relation to the
Institutional Trustee Account maintained by the Institutional Trustee
pursuant to Section 3.8(c)(i) and except to the extent otherwise
required by law; and
(viii) the Institutional Trustee shall not be responsible for
monitoring the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the
Institutional Trustee be liable for any default or misconduct of the
Regular Trustees or the Sponsor.
SECTION 3.10 CERTAIN RIGHTS OF INSTITUTIONAL TRUSTEE.
(a) Subject to the provisions of Section 3.9:
(i) the Institutional Trustee may conclusively rely and shall
be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the Regular
Trustees contemplated by this Declaration shall be sufficiently
evidenced by a Direction or an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Institutional Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting any action
hereunder, the Institutional Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which, upon
receipt of such request, shall be promptly delivered by the Sponsor or
the Regular Trustees;
(iv) the Institutional Trustee shall have no duty to see to
any recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof;
(v) the Institutional Trustee may consult with counsel or
other experts and the advice or opinion of such counsel and experts
with respect to legal matters or advice within the scope of such
experts' area of expertise shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion.
Such counsel may be counsel to the Sponsor or any of its Affiliates,
and may include any of its employees. The Institutional Trustee shall
have the right at any time to seek instructions concerning the
administration of this Declaration from any court of competent
jurisdiction;
(vi) the Institutional Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration
at the request or direction of any Holder, unless such Holder shall
have provided to the Institutional Trustee security and indemnity,
reasonably satisfactory to the Institutional Trustee, against the
costs, expenses (including attorneys' fees and expenses and the
expenses of the Institutional Trustee's agents, nominees or custodians)
and
21
<PAGE> 27
liabilities that might be incurred by it in complying with such request
or direction, including such reasonable advances as may be requested by
the Institutional Trustee provided, that, nothing contained in this
Section 3.10(a)(vi) shall be taken to relieve the Institutional
Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Declaration;
(vii) the Institutional Trustee shall be under no obligation
to conduct an investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Institutional Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit;
(viii) the Institutional Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or
by or through agents, custodians, nominees or attorneys and the
Institutional Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder;
(ix) any action taken by the Institutional Trustee or its
agents hereunder shall bind the Trust and the Holders of the
Securities, and the signature of the Institutional Trustee or its
agents alone shall be sufficient and effective to perform any such
action and no third party shall be required to inquire as to the
authority of the Institutional Trustee to so act or as to its
compliance with any of the terms and provisions of this Declaration,
both of which shall be conclusively evidenced by the Institutional
Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Institutional Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other
action hereunder, the Institutional Trustee (i) may request
instructions from the Holders of the Securities which instructions may
only be given by the Holders of the same proportion in liquidation
amount of the Securities as would be entitled to direct the
Institutional Trustee under the terms of the Securities in respect of
such remedy, right or action, (ii) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received, and (iii) shall be protected in conclusively relying on or
acting in accordance with such instructions; and
(xi) except as otherwise expressly provided by this
Declaration, the Institutional Trustee shall not be under any
obligation to take any action that is discretionary under the
provisions of this Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty
or obligation on the Institutional Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Institutional Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Institutional
Trustee shall be construed to be a duty.
SECTION 3.11 DELAWARE TRUSTEE.
22
<PAGE> 28
Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Trustees (except as required under the Business Trust Act) described in this
Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Business Trust Act.
SECTION 3.12 EXECUTION OF DOCUMENTS.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, a majority of or, if there are
only two, any Regular Trustee or, if there is only one, such Regular Trustee is
authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to execute pursuant to Section 3.6.
SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained in this Declaration shall be taken as the
statements of the Sponsor, and the Trustees do not assume any responsibility for
their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration or the
Securities.
SECTION 3.14 DURATION OF TRUST.
The Trust, unless dissolved pursuant to the provisions of Article VIII
hereof, shall dissolve on ____, 2005.
SECTION 3.15 MERGERS.
(a) The Trust may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described in Section 3.15(b) and (c) or Section 6.3
(b) The Trust may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees and without the
consent of the Holders of the Securities, the Delaware Trustee or the
Institutional Trustee, consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any State; provided that
if the Trust is not the surviving entity:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities;
or
(B) substitutes for the Trust Preferred Securities
other securities having substantially the same terms as the
Trust Preferred Securities (the "Successor Securities"), so
long as the Successor Securities rank the same as the Trust
Preferred Securities rank with respect to Distributions and
payments upon liquidation, redemption, repayment and otherwise
and substitutes for the Common Securities other securities
having substantially the same terms as the Common Securities
(the "Successor Common Securities"), so long
23
<PAGE> 29
as the Successor Common Securities rank the same as the
Common Securities rank with respect to Distributions and
payments upon liquidation, redemption, repayment and
otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee of
the Successor Entity that possesses the same powers and duties as the
Institutional Trustee as the holder of the Debentures;
(iii) if necessary, the Trust Preferred Securities or any
Successor Securities will be listed, or any Successor Securities will
be listed upon notification of issuance, on any national securities
exchange or with another organization on which the Trust Preferred
Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation or replacement
does not cause the Trust Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical
rating organization;
(v) such merger, consolidation, amalgamation or replacement
does not adversely affect the rights, preferences and privileges of the
Holders of the Securities (including any Successor Securities and any
Successor Common Securities) in any material respect (other than with
respect to any dilution of such Holders' interests in the successor
entity);
(vi) such Successor Entity has a purpose substantially
identical to that of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally
recognized independent counsel to the Trust experienced in such matters
to the effect that:
(A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences
and privileges of the Holders of the Securities (including any
Successor Securities and Successor Common Securities) in any
material respect (other than with respect to any dilution of
the Holders' interest in the successor entity);
(B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor the
Successor Entity will be required to register as an Investment
Company; and
(C) following such merger, consolidation,
amalgamation or replacement, the Trust (or the Successor
Entity) will continue to be classified as a grantor trust for
United States federal income tax purposes; and
(viii) the Sponsor guarantees the obligations of such
Successor Entity under the Successor Securities and Successor Common
Securities at least to the extent provided by the Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the Securities,
consolidate, amalgamate, merge with or into, or be replaced by any
24
<PAGE> 30
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or Successor Entity to be classified as other
than a grantor trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
On the Closing Date the Sponsor will purchase all of the Common
Securities issued by the Trust, in an amount at least equal to 3.0% of the total
capital of the Trust, at the same time as the Trust Preferred Securities are
sold.
SECTION 4.2 RIGHTS AND RESPONSIBILITIES OF THE SPONSOR.
In connection with the issue, sale and, if necessary, the remarketing
of the Trust Preferred Securities, the Sponsor shall have the exclusive right
and responsibility to engage in the following activities:
(a) to prepare, execute and file with the Commission a registration
statement on Form S-3 in relation to the Trust Preferred Securities, including
any amendments thereto;
(b) if necessary, to determine the States in which to take appropriate
action to qualify or register for sale all or part of the FELINE PRIDES and to
do any and all such acts, other than actions which must be taken by the Trust,
and advise the Trust of actions it must take, and prepare for execution and
filing any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
States;
(c) if necessary, to prepare, execute and file an application to the
New York Stock Exchange or any other national stock exchange or the Nasdaq
National Market for listing upon notice of issuance of any Trust Preferred
Securities;
(d) if necessary, to prepare, execute and file with the Commission of a
registration statement on Form 8-A relating to the registration of the Trust
Preferred Securities under Section 12(b) of the Exchange Act, including any
amendments thereto;
(e) to negotiate the terms of the Remarketing Agreement, the
Remarketing Underwriting Agreement, the Underwriting Agreement and the Pricing
Agreement providing for the sale of the FELINE PRIDES; and
(f) execute and enter into the Underwriting Agreement and Pricing
Agreement.
SECTION 4.3 RIGHT TO PROCEED.
The Sponsor acknowledges the rights of Holders to institute a Direct
Action as set forth in Section 3.8(e) hereto.
25
<PAGE> 31
SECTION 4.4 EXPENSES.
In connection with the offering, sale and issuance of the Debentures to
the Institutional Trustee and in connection with the sale of the Securities by
the Trust, the Debenture Issuer, in its capacity as borrower with respect to the
Debentures, is required under Section 5.1 of the First Supplemental Indenture
to:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Debentures, including commissions to the underwriters payable
pursuant to the Underwriting Agreement and Pricing Agreement and compensation of
the Debenture Trustee under the Indenture in accordance with the provisions of
the Indenture;
(b) be responsible for and shall pay all debts and obligations (other
than with respect to the Securities) and all costs and expenses of the Trust
(including, but not limited to, costs and expenses relating to the organization,
maintenance and dissolution of the Trust, the offering, sale and issuance of the
Securities (including commissions to the underwriters in connection therewith),
the fees and expenses (including reasonable counsel fees and expenses) of the
Institutional Trustee, the Delaware Trustee and the Regular Trustees (including
any amounts payable under Article IX of this Declaration), the costs and
expenses relating to the operation of the Trust, including, without limitation,
costs and expenses of accountants, attorneys, statistical or bookkeeping
services, expenses for printing and engraving and computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel
and telephone and other telecommunications expenses and costs and expenses
incurred in connection with the acquisition, financing, and disposition of Trust
assets and the enforcement by the Institutional Trustee of the rights of the
Holders of the Securities;
(c) be primarily liable for any indemnification obligations arising
under Section 9.4 with respect to this Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
The Sponsor's obligations under this Section 4.4 shall be for the
benefit of, and shall be enforceable by, any person to whom such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice hereof. Any such Creditor may enforce the
Sponsor's obligations under this Section 4.4 directly against the Sponsor and
the Sponsor irrevocably waives any right or remedy to require that any such
Creditor take any action against the Trust or any other Person before proceeding
against the Sponsor. The Debenture Issuer agrees to execute such additional
agreements as may be necessary or desirable in order to give full effect to the
provisions of this Section 4.4.
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES.
The number of Trustees initially shall be five (5), and:
26
<PAGE> 32
(a) at any time before the issuance of any Securities, the Sponsor may,
by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities; provided, however, that, the number of Trustees shall in
no event be less than two (2), provided further that (1) one Trustee, shall meet
the requirements of Section 5.2 (a) or (b); (2) there shall be at least one
Trustee who is an employee or officer of, or is affiliated with the Sponsor (a
"Regular Trustee"); and (3) one Trustee shall be the Institutional Trustee for
so long as this Declaration is required to qualify as an indenture under the
Trust Indenture Act, and such Institutional Trustee may also serve as Delaware
Trustee if it meets the applicable requirements.
SECTION 5.2 DELAWARE TRUSTEE.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law, provided that, if the Institutional Trustee has its principal
place of business in the State of Delaware and otherwise meets the requirements
of applicable law, then the Institutional Trustee shall also be the Delaware
Trustee and Section 3.11 shall have no application.
(c) The initial Delaware Trustee shall be:
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
SECTION 5.3 INSTITUTIONAL TRUSTEE; ELIGIBILITY.
(a) There shall at all times be one Trustee which shall act as
Institutional Trustee for so long as this Declaration is required to qualify as
an indenture under the Trust Indenture Act, which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a Person permitted by the Commission
to act as an institutional trustee under the Trust Indenture Act,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least 750 million U.S. dollars
($750,000,000), and subject to supervision or examination by Federal,
State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority
referred to above, then for the purposes of this Section 5.3(a)(ii),
the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
27
<PAGE> 33
(b) If at any time the Institutional Trustee shall cease to be eligible
to so act under Section 5.3(a), the Institutional Trustee shall immediately
resign in the manner and with the effect set forth in Section 5.6(c).
(c) If the Institutional Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Institutional Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Guarantee and the Indenture shall be deemed to be specifically
described in this Declaration and the Indenture for purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Institutional Trustee shall be:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
SECTION 5.4 CERTAIN QUALIFICATIONS OF REGULAR TRUSTEES AND DELAWARE TRUSTEE
GENERALLY.
Each Regular Trustee and the Delaware Trustee (unless the Institutional
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.5 REGULAR TRUSTEES.
The initial Regular Trustees shall be:
(a) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6; and
(c) a Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purposes of signing any documents that the Regular Trustees
have power and authority to cause the Trust to execute pursuant to Section 3.6.
28
<PAGE> 34
SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
and
(ii) after the issuance of any Securities, by vote of the
Holders of a Majority in liquidation amount of the Common Securities
voting as a class at a meeting of the Holders of the Common Securities.
(b) (i) The Trustee that acts as Institutional Trustee shall not
be removed in accordance with Section 5.6(a) until a successor
Institutional Trustee possessing the qualifications to act as
Institutional Trustee under Sections 5.2 and 5.3 (a "Successor
Institutional Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor
Institutional Trustee and delivered to the Regular Trustees and the
Sponsor; and
(ii) The Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 5.6(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections
5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has
accepted such appointment by written instrument executed by such
Successor Delaware Trustee and delivered to the Regular Trustees and
the Sponsor.
(c) A Trustee appointed to office shall hold office until such
Trustee's successor shall have been appointed or until such Trustee's death,
bankruptcy, dissolution, termination, removal or resignation. Any Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing signed by the Trustee and delivered to the Sponsor and the
Trust, which resignation shall take effect upon such delivery or upon such later
date as is specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the
Institutional Trustee shall be effective:
(A) until a Successor Institutional Trustee has been
appointed and has accepted such appointment by instrument
executed by such Successor Institutional Trustee and delivered
to the Trust, the Sponsor and the resigning Institutional
Trustee; or
(B) until the assets of the Trust have been
completely liquidated and the proceeds thereof distributed to
the holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the Trust,
the Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use all reasonable
efforts to promptly appoint a Successor Delaware Trustee or Successor
Institutional Trustee, as the case may be, if the Institutional Trustee or the
Delaware Trustee delivers an instrument of resignation in accordance with this
Section 5.6.
29
<PAGE> 35
(e) If no Successor Institutional Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument
of resignation, the resigning Institutional Trustee or Delaware Trustee, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Institutional Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Institutional Trustee or Successor Delaware
Trustee, as the case may be.
(f) No Institutional Trustee or Delaware Trustee shall be liable for
the acts or omissions to act of any Successor Institutional Trustee or Successor
Delaware Trustee, as the case may be.
SECTION 5.7 VACANCIES AMONG TRUSTEES.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two Regular Trustees, a majority of the Regular Trustees shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.6.
SECTION 5.8 EFFECT OF VACANCIES.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul, dissolve or terminate the Trust or terminate this
Declaration. Whenever a vacancy among the Regular Trustees shall occur, until
such vacancy is filled by the appointment of a Regular Trustee in accordance
with Section 5.6, the Regular Trustees in office, regardless of their number,
shall have all the powers granted to the Regular Trustees and shall discharge
all the duties imposed upon the Regular Trustees by this Declaration.
SECTION 5.9 MEETINGS.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise delivered
in writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The presence (whether
in person or by telephone) of a Regular Trustee at a meeting shall constitute a
waiver of notice of such meeting except where a Regular Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Regular Trustees may
be taken at (i) a meeting by vote of a majority of the Regular Trustees present
(whether in person or by telephone) and eligible to vote with respect to such
matter, provided that a Quorum is present, or (ii) without a meeting by the
unanimous written consent of the Regular Trustees. In the event there is only
one Regular Trustee, any and all action of such Regular Trustee shall be
evidenced by a written consent of such Regular Trustee.
30
<PAGE> 36
SECTION 5.10 DELEGATION OF POWER.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
3.6; and
(b) the Regular Trustees shall have power to delegate from time to time
to such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
SECTION 5.11 MERGER, CONVERSION. CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Institutional Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Institutional Trustee or the Delaware Trustee, as the
case may be, shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Institutional Trustee or
the Delaware Trustee, as the case may be, shall be the successor of the
Institutional Trustee or the Delaware Trustee, as the case may be, hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
ARTICLE VI
THE SECURITIES
SECTION 6.1 DESIGNATION AND NUMBER.
(a) Trust Preferred Securities. Trust Preferred Securities, with an
aggregate liquidation amount with respect to the assets of the Trust of $______
and a liquidation amount with respect to the assets of the Trust of $10 per
Trust Preferred Security will be issued by the Trust. The Trust Preferred
Security Certificates evidencing the Trust Preferred Securities shall be
substantially in the form of Exhibit A-1 to the Declaration, with such changes
and additions thereto or deletions therefrom as may be required by applicable
law or the rules of any stock exchange on which the Trust Preferred Securities
are listed or to conform to ordinary usage, custom or practice.
(b) Common Securities. Common Securities with an aggregate liquidation
amount with respect to the assets of the Trust of $______ and a liquidation
amount with respect to the assets of the Trust of $10 per common security will
be issued by the Trust. The Common Security Certificates evidencing the Common
Securities shall be substantially in the form of Exhibit A-2 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by applicable law or to conform to ordinary usage, custom or practice.
SECTION 6.2 DISTRIBUTIONS.
31
<PAGE> 37
(a) Distributions payable on each Security will be fixed initially at a
rate per annum of ___% (the "Coupon Rate") of the stated liquidation amount of
$10 per Security until ___ 15, 2001, and at the Reset Rate thereafter, such
rates being the rates of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one quarter will
accumulate and compound quarterly at the rate of ___% until ___ 15, 2001, and at
the Reset Rate thereafter (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
accumulated distribution that are payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Institutional Trustee and to the extent the
Institutional Trustee has funds available therefor. The amount of Distributions
payable for any period will be computed for any full quarterly Distribution
period on the basis of a 360-day year consisting of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
(b) Distributions on the Securities will be cumulative, will accrue
from April __, 1998, and will be payable quarterly in arrears, on February 16,
May 16, August 16 and November 16 of each year, commencing on ___ 16, 1998,
except as otherwise described below. The Debenture Issuer has the right under
the Indenture to defer payments of interest by extending the interest payment
period from time to time on the Debentures for a period not extending, in the
aggregate, beyond the maturity date of the Debentures (each an "Extension
Period"). During such Extension Period no interest shall be due and payable on
the Debentures. As a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to
accumulate at the rate of __% until ___ 15, 2001, and at the Reset Rate
thereafter, compounded quarterly during any such Extension Period (to the extent
permitted by applicable law). Payments of accrued Distributions will be payable
to Holders as they appear on the books and records of the Trust on the first
record date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed
beyond the maturity date of the Debentures.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust at the close of
business on the Business Day immediately preceding each of the relevant payment
dates on the Securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment in respect of the Trust
Preferred Securities will be made as described under the heading "Description of
the Trust Preferred Securities -- Book Entry Only Issuance -The Depository Trust
Company" in the Prospectus Supplement dated April __, 1998 to the Prospectus
dated April __, 1998 (collectively, the "Prospectus") of the Trust relating to
the Registration Statement on Form S-3 (file no. 333-_____) of the Sponsor and
the Trust. The relevant record dates for the Common Securities shall be the same
record date as for the Trust Preferred Securities. If the Trust Preferred
Securities shall not continue to remain in book-entry only form or are not in
book-entry only form at issuance, the relevant record dates for the Trust
Preferred Securities, shall conform to the rules of any securities exchange on
which the securities are listed and, if none, as shall be selected by the
Regular Trustees, which dates shall be at least more than one, but less than 60
Business Days before the relevant payment dates, which payment dates correspond
to the interest payment dates on the Debentures. Distributions payable on any
Securities that are not punctually paid on any Distribution payment date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Person in whose name such Securities
are registered on the relevant record date, and such defaulted Distribution will
instead be payable to the Person in whose name such Securities are registered on
the special record date or other specified date
32
<PAGE> 38
determined in accordance with the Indenture. If any date on which Distributions
are payable on the Securities is not a Business Day, then payment of the
Distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. So long as the
Holder of any Trust Preferred Securities is the Collateral Agent, the payment of
Distributions on such Trust Preferred Securities held by the Collateral Agent
will be made at such place and to such account as may be designated by the
Collateral Agent.
(d) The Coupon Rate on the Securities (as well as the interest rate on
the Debentures) will be reset on the third Business Day immediately preceding
the Purchase Contract Settlement Date to the Reset Rate (which Reset Rate will
be in effect on and after the Purchase Contract Settlement Date). On the Reset
Announcement Date, the Reset Spread and the Two-Year Benchmark Treasury to be
used to determine the Reset Rate will be announced by the Sponsor. On the
Business Day immediately following the Reset Announcement Date, the Holders of
Securities will be notified of such Reset Spread and Two-Year Benchmark Treasury
by the Sponsor. Such notice shall be sufficiently given to Holders of Securities
if published in an Authorized Newspaper.
(e) Not later than seven calendar days nor more than 15 calendar days
prior to the Reset Announcement Date, the Sponsor will notify DTC or its nominee
(or any successor Clearing Agency or its nominee) by first-class mail, postage
prepaid, to notify the Trust Preferred Security Beneficial Owners or Clearing
Agency Participants holding Trust Preferred Securities, Income PRIDES or Growth
PRIDES, of such Reset Announcement Date and the procedures to be followed by
such Holders of Income PRIDES who intend to settle their obligation under the
Purchase Contract with separate cash.
(f) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined in Section 6.10 of this Agreement) among the
Holders of the Securities.
SECTION 6.3 LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), the Holders of the Securities on
the date of the dissolution will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, Debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount of
such Securities, with an interest rate equal to the rate of ___%, if on or prior
to ___ 15, 2001, and the Reset Rate thereafter, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on such
Securities and which shall be distributed on a Pro Rata basis to the Holders of
the Securities in exchange for such Securities (such amount being a "Liquidation
Distribution").
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, except as otherwise provided in
Section 6.11 hereof, the amounts payable directly by the Trust on the Securities
shall be paid on a Pro Rata basis.
33
<PAGE> 39
SECTION 6.4 REDEMPTION AND DISTRIBUTION.
(a) Upon the redemption of the Debentures in whole (but not in part),
at maturity, the proceeds from such redemption shall, after satisfaction of
liabilities to creditors, be simultaneously applied to redeem Securities (on a
Pro Rata basis) having an aggregate liquidation amount equal to the aggregate
principal amount of the Debentures so redeemed at a redemption price of $10 per
Security plus an amount equal to accrued and unpaid Distributions thereon at the
date of the repayment, payable in cash.
(b) If an Investment Company Event shall occur and be continuing the
Regular Trustees shall dissolve the Trust and, after satisfaction of liabilities
to creditors, cause Debentures held by the Institutional Trustee, having an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate the rate of __%, if on or prior to ___ 15, 2001, and the
Reset Rate thereafter, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, and having the same record date for payment as the
Securities, to be distributed to the Holders of the Securities in liquidation of
such Holders' interests in the Trust on a Pro Rata basis, within 90 days
following the occurrence of such Investment Company Event (the "90 Day Period");
provided, however, that, if at the time there is available to the Trust the
opportunity to eliminate, within the 90 Day Period, the Investment Company Event
by taking some Ministerial Action, the Regular Trustees will pursue such
Ministerial Action in lieu of dissolution.
(c) If a Tax Event shall occur and be continuing, the Debentures are,
at the option of the Debenture Issuer, redeemable pursuant to a Tax Event
Redemption. If the Debenture Issuer redeems the Debentures upon the occurrence
and continuance of a Tax Event, the proceeds from such redemption shall
simultaneously be applied by the Institutional Trustee to redeem the Securities
(on a Pro Rata basis) having an aggregate stated liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed at the Redemption
Price. If, following the occurrence of a Tax Event, the Debenture Issuer
exercises its option to redeem the Debentures prior to ___ 15, 2001, the
Debenture Issuer shall appoint the Quotation Agent to assemble the Treasury
Portfolio in consultation with the Company. The Institutional Trustee will
distribute, to the record Holder of the Securities the Redemption Price payable
in liquidation of such Holder's interests in the Trust.
On and from the date fixed by the Regular Trustees for a Tax Event
Redemption or any distribution of Debentures and dissolution of the Trust: (i)
the Securities will no longer be deemed to be outstanding and (ii) DTC or its
nominee (or any successor Clearing Agency or its nominee) or the record Holder
of the Trust Preferred Securities, will receive a registered global certificate
or certificates representing the Debentures to be delivered upon such
distribution and any certificates representing Securities, except for
certificates representing Trust Preferred Securities held by DTC or its nominee
(or any successor Clearing Agency or its nominee), will be deemed to represent
beneficial interests in the Debentures having an aggregate principal amount
equal to the aggregate stated liquidation amount of $10, with an interest rate
of ___% if on or prior to ___ 15, 2001, and at the Reset Rate thereafter, and
accrued and unpaid interest equal to accrued and unpaid Distributions on such
Securities until such certificates are presented to the Debenture Issuer or its
agent for transfer or reissue.
SECTION 6.5 REDEMPTION OR DISTRIBUTION PROCEDURES.
(a) Notice of any redemption (other than in connection with the
maturity of the Debentures) of, or notice of distribution of Debentures in
exchange for, the Securities (a "Redemption/Distribution Notice") will
34
<PAGE> 40
be given by the Trust by mail to each Holder of Securities to be redeemed or
exchanged not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will be the
Tax Event Redemption Date. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given pursuant to this
Section 6.5(a), a Redemption/Distribution Notice shall be deemed to be given on
the day such notice is first mailed by first-class mail, postage prepaid, to
Holders of Securities. Each Redemption/Distribution Notice shall be addressed to
the Holders of Securities at the address of each such Holder appearing in the
books and records of the Trust. No defect in the Redemption/Distribution Notice
or in the mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any other
Holder.
(b) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued if the
Debentures are redeemed as set out in this Section 6.5(a) (such notice will be
irrevocable), then (A) while the Trust Preferred Securities are in book-entry
only form, with respect to the Trust Preferred Securities, by 12:00 noon, New
York City time, on the redemption date, provided that the Debenture Issuer has
paid the Institutional Trustee a sufficient amount of cash in connection with
the related redemption or maturity of the Debentures, the Institutional Trustee
will deposit irrevocably with DTC or its nominee (or any successor Clearing
Agency or its nominee) funds sufficient to pay the applicable Redemption Price
with respect to the Trust Preferred Securities and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the Holders of the
Trust Preferred Securities so called for redemption, and (B) with respect to
Trust Preferred Securities issued in definitive form and Common Securities,
provided that the Debenture Issuer has paid the Institutional Trustee a
sufficient amount of cash in connection with the related redemption or maturity
of the Debentures, the Institutional Trustee will pay the relevant Redemption
Price to the Holders of such Securities by check mailed to the address of the
relevant Holder appearing on the books and records of the Trust. Notwithstanding
the foregoing, so long as the Holder of any Trust Preferred Securities is the
Collateral Agent or the Purchase Contract Agent, the payment of the Redemption
Price in respect of such Trust Preferred Securities held by the Collateral Agent
or the Purchase Contract Agent shall be made no later than 12:00 noon, New York
City time, on the Tax Event Redemption Date by check or wire transfer in
immediately available funds at such place and to such account as may be
designated by the Collateral Agent or the Purchase Contract Agent. If a
Redemption/Distribution Notice shall have been given and funds deposited as
required, if applicable, then immediately prior to the close of business on the
date of such deposit, or on the redemption date, as applicable, distributions
will cease to accrue on the Securities so redeemed and all rights of Holders of
such Securities so called for redemption will cease, except the right of the
Holders of such Securities to receive the Redemption Price, but without interest
on such Redemption Price. Neither the Regular Trustees nor the Trust shall be
required to register or cause to be registered the transfer of any Securities
that have been so called for redemption. If any date fixed for redemption of
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such delay) except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date fixed for repayment. If payment of the
Redemption Price in respect of any Securities is improperly withheld or refused
and not paid either by the Institutional Trustee or by the Sponsor as guarantor
pursuant to the relevant Securities Guarantee, Distributions on such Securities
will continue to accrue from the original redemption date to the actual date of
payment, in which case the actual payment date will be considered the date fixed
for repayment for purposes of calculating the Redemption Price.
35
<PAGE> 41
(c) Redemption/Distribution Notices shall be sent by the Trust to (A)
in respect of the Trust Preferred Securities, DTC or its nominee (or any
successor Clearing Agency or its nominee) if the Global Certificates have been
issued or, if Definitive Trust Preferred Security Certificates have been issued,
to the Holders thereof, and (B) in respect of the Common Securities, to the
Holder thereof.
(d) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws) the Sponsor or any of its
subsidiaries may at any time and from time to time purchase outstanding Trust
Preferred Securities by tender, in the open market or by private agreement.
SECTION 6.6 REPAYMENT AT OPTION OF HOLDERS.
(a) If a Failed Remarketing (as described in Section 5.4(b) of the
Purchase Contract Agreement and incorporated herein by reference) has occurred,
each holder of Securities who holds such Securities on the day immediately
following the Purchase Contract Settlement Date, shall have the right on the
Business Day immediately following ___ 16, 2001 to require the Trust to
distribute their pro rata share of the Debentures to the Exchange Agent and to
require the Exchange Agent to put such Debentures to the Company on behalf of
such holders on ____ 1, 2001, upon at least three Business Days' prior notice
(the "Put Option Exercise Date"), at a repayment price of $10 per Security plus
an amount equal to the accrued and unpaid Distributions (including deferred
distributions if any) thereon to the date of payment (the "Put Option Repayment
Price"). Pursuant to such Put Option.
(b) The Exchange Agent shall obtain funds to pay the Put Option
Repayment Price of Securities being repaid under the Put Option through
presentation by it to the Debenture Issuer of Debentures in an aggregate
principal amount equal to the aggregate stated liquidation amount of such
Securities for repayment on the Put Option Exercise Date at the Debenture
Repayment Price.
(c) In order for the Securities to be repaid on the Put Option Exercise
Date, the Trust must receive on or prior to 4:00 p.m. on the third Business Day
immediately preceding the Put Option Exercise Date, at the Corporate Trust
Office of the Institutional Trustee (who will in turn notify the Exchange
Agent), the Securities to be repaid with the form entitled "Option to Elect
Repayment" on the reverse thereof or otherwise accompanying such Security duly
completed. Any such notice received by the Trust shall be irrevocable. All
questions as to the validity, eligibility (including time of receipt) and
acceptance of the Securities for repayment shall be determined by the Trust,
whose determination shall be final and binding.
(d) Payment of the Put Option Repayment Price to Holders of Securities
shall be made at the Corporate Trust Office of the Exchange Agent, provided that
the Debenture Issuer has paid the Exchange Agent a sufficient amount of cash in
connection with the related repayment of the Debenture no later than 1:00 p.m.,
New York City time, on the Put Option Exercise Date by check or wire transfer in
immediately available funds at such place and to such account as may be
designated by such Holders. If the Exchange Agent holds immediately available
funds sufficient to pay the Put Option Repayment Price of such Securities, then,
immediately prior to the close of business on the Put Option Exercise Date, such
Securities will cease to be outstanding and distributions thereon will cease to
accrue, whether or not Securities are delivered to the Institutional Trustee,
and all other rights of the Holder in respect of the Securities, including the
Holder's right to require the Trust to repay such Securities, shall terminate
and lapse (other than the right to receive the Put Option Repayment Price but
without interest on such Put Option Repayment Price). Neither the Regular
Trustees nor the Trust shall be required to register or cause to be registered
the transfer of any Securities for which repayment has been elected. If payment
of the Put Option Repayment Price in respect of Securities
36
<PAGE> 42
is (i) improperly withheld or refused and not paid either by the Exchange Agent
or by the Sponsor as guarantor pursuant to the Securities Guarantee, or (ii) not
paid by the Exchange Agent as the result of an Event of Default with respect to
the Debentures presented for repayment as described in Section 6.6(b),
Distributions on such Securities will continue to accrue, from the original Put
Option Exercise Date to the actual date of payment, in which case the actual
payment date will be considered the Put Option Exercise Date for purposes of
calculating the Put Option Repayment Price.
(e) The Debenture Issuer will request, not later than seven nor more
than 15 calendar days prior to ___16, 2001 (the date on which some or all of the
Trust Preferred Securities could be remarketed in the manner described in
Section 5.4(b) of the Purchase Contract Agreement and incorporated herein by
reference) that DTC notify the Trust Preferred Securities Beneficial Owner as
well as the Income PRIDES and Growth PRIDES holders of such remarketing and of
the procedures that must be followed if a Trust Preferred Securities Beneficial
Owner wishes to exercise such holder's rights with respect to the Put Option.
SECTION 6.7 VOTING RIGHTS - Trust Preferred Securities.
(a) Except as provided under Sections 6.7(b) and 6.8 and as otherwise
required by law and the Declaration, the Holders of the Trust Preferred
Securities will have no voting rights.
(b) Subject to the requirements set forth in this paragraph, the
Holders of a Majority in liquidation amount of the Trust Preferred Securities,
voting separately as a class may direct the time, method, and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or the exercise of any trust or power conferred upon the Institutional Trustee
under the Declaration, including (i) directing the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
exercising any trust or power conferred on the Debenture Trustee with respect to
the Debentures, (ii) waiving any past default and its consequences that is
waivable under the Indenture, (iii) exercising any right to rescind or annul a
declaration that the principal of all the Debentures shall be due and payable,
or (iv) consenting to any amendment, modification or termination of the
Indenture or the Debentures where such consent shall be required, provided,
however, that, where a consent under the Indenture would require the consent or
act of the Holders of greater than a Super Majority, the Institutional Trustee
may only give such consent or take such action at the written direction of the
Holders of at least the proportion in liquidation amount of the Trust Preferred
Securities which the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding. The Institutional Trustee shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Trust Preferred Securities. Other than with respect to directing the
time, method and place of conducting any remedy available to the Institutional
Trustee or the Debenture Trustee as set forth above, the Institutional Trustee
shall not take any action in accordance with the directions of the Holders of
the Trust Preferred Securities under this paragraph unless the Institutional
Trustee has obtained an opinion of tax counsel to the effect that for the
purposes of United States federal income tax the Trust will not be classified as
other than a grantor trust on account of such action. If the Institutional
Trustee fails to enforce its rights under the Debentures after a Holder of Trust
Preferred Securities has made a written request, such Holder of Trust Preferred
Securities may, to the fullest extent permitted by applicable law, institute a
legal proceeding directly against the Debenture Issuer to enforce the
Institutional Trustee's rights under the Debentures without first instituting a
legal proceeding against the Institutional Trustee or any other Person.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay interest or principal on the Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then a Holder of Trust Preferred Securities may directly institute a
proceeding for enforcement of payment to such
37
<PAGE> 43
Holder of the principal of or interest on the Debentures having a principal
amount equal to the aggregate liquidation amount of the Trust Preferred
Securities of such Holder on or after the respective due date specified in the
Debentures. Except as provided in the preceding sentence, the Holders of Trust
Preferred Securities shall not exercise directly any other remedy available to
the holders of the Debentures.
Any approval or direction of Holders of Trust Preferred Securities may
be given at a separate meeting of Holders of Trust Preferred Securities convened
for such purpose, at a meeting of all of the Holders of Securities in the Trust
or pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Trust Preferred Securities are entitled to vote, or
of any matter upon which action by written consent of such Holders is to be
taken, to be mailed to each Holder of record of Trust Preferred Securities. Each
such notice will include a statement setting forth (i) the date of such meeting
or the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Trust Preferred Securities
will be required for the Trust to repay and cancel Trust Preferred Securities or
to distribute the Debentures in accordance with the Declaration and the terms of
the Securities. Notwithstanding that Holders of Trust Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Trust Preferred Securities that are owned by the Sponsor or any Affiliate
of the Sponsor shall not be entitled to vote or consent and shall, for purposes
of such vote or consent, be treated as if they were not outstanding.
SECTION 6.8 VOTING RIGHTS - COMMON SECURITIES.
(a) Except as provided under Sections 6.8(b) and (c) and Section 6.9
and as otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V hereof, to vote to appoint, remove or replace any Trustee or to
increase or decrease the number of Trustees.
(c) Subject to Section 2.6 hereof and only after any Event of Default
with respect to the Trust Preferred Securities has been cured, waived, or
otherwise eliminated and subject to the requirements of the second to last
sentence of this paragraph, the Holders of a Majority in liquidation amount of
the Common Securities, voting separately as a class, may direct the time,
method, and place of conducting any proceeding for any remedy available to the
Institutional Trustee, or exercising any trust or power conferred upon the
Institutional Trustee under the Declaration, including (i) directing the time,
method, and place of conducting any proceeding for any remedy available to the
Debenture Trustee, or exercising any trust or power conferred on the Debenture
Trustee with respect to the Debentures, (ii) waive any past default and its
consequences that is waivable under the Indenture, or (iii) exercise any right
to rescind or annul a declaration that the principal of all the Debentures shall
be due and payable, provided that, where a consent or action under the Indenture
would require the consent or act of the Holders of a Super Majority, the
Institutional Trustee may only give such consent or take such action at the
written direction of the Holders of at least the proportion in liquidation
amount of the Common Securities which the relevant Super Majority represents of
the aggregate principal amount of the Debentures outstanding. Pursuant to this
Section 6.8(c), the Institutional Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of the Trust Preferred
Securities. Other than with respect to directing the time, method and place of
conducting any remedy available to the Institutional Trustee or the Debenture
Trustee as set forth above, the Institutional Trustee shall
38
<PAGE> 44
not take any action in accordance with the directions of the Holders of the
Common Securities under this paragraph unless the Institutional Trustee has
obtained an opinion of tax counsel to the effect that for United States federal
income tax purposes the Trust will not be classified as other than a grantor
trust on account of such action. If the Institutional Trustee fails to enforce
its rights under the Declaration, any Holder of Common Securities may institute
a legal proceeding directly against any Person to enforce the Institutional
Trustee's rights under the Declaration, without first instituting a legal
proceeding against the Institutional Trustee or any other Person.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which Holders of Common Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to be mailed to
each Holder of record of Common Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
SECTION 6.9 AMENDMENTS TO DECLARATION AND INDENTURE.
(a) In addition to any requirements under Section 11.1 hereof, if any
proposed amendment to the Declaration provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would materially adversely
affect the powers, preferences or special rights of the Securities, whether by
way of amendment to the Declaration or otherwise, or (ii) the dissolution of the
Trust, other than as described in Section 7.1 or Section 3.14 hereof, then the
Holders of outstanding Securities as a class will be entitled to vote on such
amendment or proposal (but not on any other amendment or proposal) and such
amendment or proposal shall not be effective except with the approval of the
Holders of at least a Majority in liquidation amount of the Securities, voting
together as a single class; provided, however, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Trust Preferred
Securities or only the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a Majority in liquidation
amount of such class of Securities.
(b) In the event the consent of the Institutional Trustee as the holder
of the Debentures is required under the Indenture with respect to any amendment,
modification or termination on the Indenture or the Debentures, the
Institutional Trustee shall request the written direction of the Holders of the
Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification or termination as directed by
a Majority in liquidation amount of the Securities voting together as a single
class; provided, however, that where a consent under the Indenture would require
a Super Majority, the Institutional Trustee may only give such consent at the
direction of the Holders of at least the proportion in liquidation amount of the
Securities which the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding; provided, further, that the
Institutional Trustee shall not take any action in accordance with the
directions of the Holders of the Securities under this Section
39
<PAGE> 45
6.9(b) unless (i) the Institutional Trustee has obtained an opinion of tax
counsel to the effect that for United States federal income tax purposes, the
Trust will not be classified as other than a grantor trust on account of such
action or (ii) such action would not reduce or otherwise adversely affect powers
of the Institutional Trustee or cause the Trust to be deemed an "investment
company" which is required to be registered under the Investment Company Act of
1940.
SECTION 6.10 REFERENCE TO PRO RATA.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Indenture has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Trust
Preferred Securities pro rata according to the aggregate liquidation amount of
Trust Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Trust Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Trust Preferred
Securities, to each Holder of Common Securities pro rata according to the
aggregate liquidation amount of Common Securities held by the relevant Holder
relative to the aggregate liquidation amount of all Common Securities
outstanding.
SECTION 6.11 RANKING.
The Trust Preferred Securities rank pari passu and payment thereon
shall be made Pro Rata with the Common Securities except that, where an Event of
Default occurs and is continuing under the Indenture in respect of the
Debentures held by the Institutional Trustee, the rights of Holders of the
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to payment
of the Holders of the Trust Preferred Securities.
SECTION 6.12 ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Trust Preferred Securities and Common Securities by the
acceptance thereof, agrees to the provisions of the Indenture and the Guarantee,
respectively.
SECTION 6.13 NO PREEMPTIVE RIGHTS.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
SECTION 6.14 MISCELLANEOUS.
(a) The Sponsor will provide a copy of the Declaration, the
Guarantee and the Indenture to a Holder without charge on written request to the
Sponsor at its principal place of business.
(b) The Trust shall issue no securities or other interests in
the assets of the Trust other than the Trust Preferred Securities and the Common
Securities.
40
<PAGE> 46
(c) The Certificates shall be signed on behalf of the Trust
by a Regular Trustee. Such signature shall be the manual or facsimile signature
of any present or any future Regular Trustee. In case any Regular Trustee who
shall have signed any of the Securities shall cease to be such Regular Trustee
before the Certificates so signed shall be delivered by the Trust, such
Certificates nevertheless may be delivered as though the person who signed such
Certificates had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Certificate, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation of
any stock exchange on which Securities may be listed, or to conform to usage.
(d) The consideration received by the Trust for the issuance
of the Securities shall constitute a contribution to the capital of the Trust
and shall not constitute a loan to the Trust.
(e) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable.
Every Person, by virtue of having become a Holder or a Trust Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 6.15 PAYING AGENT.
In the event that the Trust Preferred Securities are not in book-entry
only form, the Trust shall maintain in the Borough of Manhattan, City of New
York, State of New York, an office or agency where the Trust Preferred
Securities may be presented for payment ("Paying Agent"), and any such Paying
Agent shall comply with Section 317(b) of the Trust Indenture Act. The Trust may
appoint the Paying Agent and may appoint one or more additional paying agents in
such other locations as it shall determine. The term "Paying Agent" includes any
additional paying agent. The Trust may change any Paying Agent without prior
notice to any Holder. The Trust shall notify the Institutional Trustee of the
name and address of any Paying Agent not a party to this Declaration. If the
Trust fails to appoint or maintain another entity as Paying Agent, the
Institutional Trustee shall act as such. The Trust or any of its Affiliates
(including the Sponsor) may act as Paying Agent. The First National Bank of
Chicago shall initially act as Paying Agent for the Trust Preferred Securities
and the Common Securities.
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 TERMINATION OF TRUST.
(a) The Trust shall dissolve:
41
<PAGE> 47
(i) upon a Termination Event;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor; or the revocation of the
Sponsor's charter and the expiration of 90 days after the date of
revocation without a reinstatement thereof;
(iii) upon the entry of a decree of judicial dissolution of
the Holder of the Common Securities, the Sponsor or the Trust;
(iv) upon the occurrence and continuation of an Investment
Company Event pursuant to which the Trust shall have been dissolved in
accordance with the terms of the Securities and all of the Debentures
endorsed thereon shall have been distributed to the Holders of
Securities in exchange for all of the Securities;
(v) when all the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have
been paid to the Holders in accordance with the terms of the
Securities; or
(vi) with the consent of all of the Regular Trustees and the
Sponsor.
(b) As soon as is practicable after the occurrence of an event referred
to in Section 7.1(a) or a dissolution pursuant to Section 3.14 and upon
completion of the winding-up of the Trust, the Trustees shall file a certificate
of cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 4.4 and Article IX shall survive the
termination of the Trust.
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 TRANSFER OF SECURITIES.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article VIII, Trust Preferred Securities shall be
freely transferable.
(c) Subject to this Article VIII, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of nationally recognized
independent counsel experienced in such matters that such transfer would not
cause more than an insubstantial risk that:
(i) the Trust would be classified for United States federal
income tax purposes as other than a grantor trust; and
42
<PAGE> 48
(ii) the Trust would be an Investment Company or the
transferee to be an Investment Company.
SECTION 8.2 TRANSFER OF CERTIFICATES.
The Regular Trustees shall provide for the registration of Certificates
and of transfers of Certificates, which will be effected without charge but only
upon payment (with such indemnity as the Regular Trustees may require) in
respect of any tax or other government charges that may be imposed in relation
to it. Upon surrender for registration of transfer of any Certificate, the
Regular Trustees shall cause one or more new Certificates to be issued in the
name of the designated transferee or transferees. Every Certificate surrendered
for registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Regular Trustees duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer shall be canceled by the Regular
Trustees. A transferee of a Certificate shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Certificate. By acceptance of a Certificate, each transferee
shall be deemed to have agreed to be bound by this Declaration.
SECTION 8.3 DEEMED SECURITY HOLDERS.
The Trustees may treat the Person in whose name any Certificate shall
be registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
SECTION 8.4 BOOK ENTRY INTERESTS.
The Trust Preferred Securities Certificates, on original issuance, in
addition to being issued in the form of one or more definitive, fully registered
Trust Preferred Securities Certificate (each a "Definitive Trust Preferred
Securities Certificate") will be issued in the form of one or more, fully
registered, global Trust Preferred Security Certificates (each a "Global
Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on
behalf of, the Trust. Such Global Certificate(s) shall initially be registered
on the books and records of the Trust in the name of Cede & Co., the nominee of
DTC, and no Trust Preferred Security Beneficial Owner will receive a definitive
Trust Preferred Security Certificate representing such Trust Preferred Security
Beneficial Owner's interests in such Global Certificate(s), except as provided
in Section 8.7. Except for the Definitive Trust Preferred Security Certificates
as specified herein and the definitive, fully registered Trust Preferred
Securities Certificates that have been issued to the Trust Preferred Security
Beneficial Owners pursuant to Section 8.7:
(a) the provisions of this Section 8.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Certificate(s) and receiving approvals, votes or
consents hereunder) as the Holder of the Trust Preferred Securities and the sole
holder of the Global Certificate(s) and shall have no obligation to the Trust
Preferred Security Beneficial Owners;
43
<PAGE> 49
(c) to the extent that the provisions of this Section 8.4 conflict with
any other provisions of this Declaration, the provisions of this Section 8.4
shall control; and
(d) the rights of the Trust Preferred Security Beneficial Owners shall
be exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Trust Preferred Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants to receive and transmit payments of Distributions on the Global
Certificates to such Clearing Agency Participants. DTC will make book entry
transfers among the Clearing Agency Participants; provided, that, solely for the
purposes of determining whether the Holders of the requisite amount of Trust
Preferred Securities have voted on any matter provided for in this Declaration,
so long as Definitive Trust Preferred Security Certificates have not been
issued, the Trustees may conclusively rely on, and shall be protected in relying
on, any written instrument (including a proxy) delivered to the Trustees by the
Clearing Agency setting forth the Trust Preferred Security Beneficial Owners'
votes or assigning the right to vote on any matter to any other Persons either
in whole or in part.
SECTION 8.5 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Trust Preferred
Security Holders is required under this Declaration, unless and until definitive
fully registered Trust Preferred Security Certificates shall have been issued to
the Trust Preferred Security Beneficial Owners pursuant to Section 8.7 or
otherwise, the Regular Trustees shall give all such notices and communications
specified herein to be given to the Trust Preferred Security Holders to the
Clearing Agency, and shall have no notice obligations to the Trust Preferred
Security Beneficial Owners.
SECTION 8.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Trust Preferred Securities, the Regular Trustees
may, in their sole discretion, appoint a successor Clearing Agency with respect
to such Trust Preferred Securities.
SECTION 8.7 DEFINITIVE Trust Preferred Security CERTIFICATES.
If:
(a) a Clearing Agency elects to discontinue its services as securities
depositary with respect to the Trust Preferred Securities and a successor
Clearing Agency is not appointed within 90 days after such discontinuance
pursuant to Section 8.6; or
(b) the Regular Trustees elect after consultation with the Sponsor to
terminate the book entry system through the Clearing Agency with respect to the
Trust Preferred Securities, then:
(c) definitive fully registered Trust Preferred Security Certificates
shall be prepared by the Regular Trustees on behalf of the Trust with respect to
such Trust Preferred Securities; and
(d) upon surrender of the Global Certificate(s) by the Clearing Agency,
accompanied by registration instructions, the Regular Trustees shall cause
definitive fully registered Trust Preferred Securities Certificates to be
delivered to Trust Preferred Security Beneficial Owners in accordance with the
instructions of the
44
<PAGE> 50
Clearing Agency. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such instructions and each of them may conclusively rely on
and shall be protected in relying on, said instructions of the Clearing Agency.
The definitive fully registered Trust Preferred Security Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Regular Trustees, as evidenced by their execution
thereof, and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements as the Regular Trustees may deem
appropriate, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which Trust Preferred Securities may be listed, or to conform to
usage.
SECTION 8.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.
If:
(a) any mutilated Certificate should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees and Institutional
Trustee such security or indemnity as may be required by them to keep each of
them and the Trust harmless,
then, in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like denomination. In connection
with the issuance of any new Certificate under this Section 8.8, the Regular
Trustees may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an ownership interest in the relevant Securities, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
ARTICLE IX
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 9.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the Debentures,
the Guarantee and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities, which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
45
<PAGE> 51
(b) Under Section 5.1 of the First Supplemental Indenture, the
Debenture Issuer, in its capacity as Borrower, shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of the Trust Preferred Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 9.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 9.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Institutional Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
any Covered Person or any Indemnified Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict,
46
<PAGE> 52
agreement, transaction or situation and the benefits and burdens relating to
such interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own interests, and
shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall
not be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 9.4 INDEMNIFICATION.
(a)
(i) Under Section 5.1 of the First Supplemental Indenture,
the Debenture Issuer shall be required to indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Trust) by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(ii) Under Section 5.1 of the First Supplemental Indenture,
the Debenture Issuer shall be required to indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a
judgment in its favor by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Trust and except that no such indemnification shall be
made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust
unless and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
47
<PAGE> 53
entitled to indemnity for such expenses which such Court of Chancery or
such other court shall deem proper.
(iii) Any indemnification under paragraphs (i) and (ii) of
this Section 10.4(a) (unless ordered by a court) shall be made by the
Debenture Issuer only as authorized in the specific case upon a
determination that indemnification of the Company Indemnified Person is
proper in the circumstances because he has met the applicable standard
of conduct set forth in paragraphs (i) and (ii). Such determination
shall be made (1) by the Regular Trustees by a majority vote of a
quorum consisting of such Regular Trustees who were not parties to such
action, suit or proceeding, (2) if such a quorum is not obtainable, or,
even if obtainable, if a quorum of disinterested Regular Trustees so
directs, by independent legal counsel in a written opinion, or (3) by
the Common Security Holders of the Trust.
(iv) Expenses (including attorneys' fees) incurred by a
Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to
in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the
Debenture Issuer in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of
such Company Indemnified Person to repay such amount if it shall
ultimately be determined that such person is not entitled to be
indemnified by the Debenture Issuer as authorized in this Section
10.4(a). Notwithstanding the foregoing, no advance shall be made by the
Debenture Issuer if a determination is reasonably and promptly made (i)
by the Regular Trustees by a majority vote of a quorum of disinterested
Regular Trustees, (ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs,
by independent legal counsel in a written opinion or (iii) by the
Common Security Holders of the Trust, that, based upon the facts known
to the Regular Trustees, independent legal counsel or Common Security
Holder at the time such determination is made, such person acted in bad
faith or in a manner that such person did not believe to be in or not
opposed to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Company Indemnified Person believed or
had reasonable cause to believe his conduct was unlawful. In no event
shall any advance be made in instances where the Regular Trustees,
independent legal counsel or Common Security Holders reasonably
determine that such person deliberately breached such person's duty to
the Trust or its Common or Trust Preferred Security Holders.
(v) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section 9.4(a)
shall not be deemed exclusive of any other rights to which those
seeking indemnification and advancement of expenses may be entitled
under any agreement, vote of shareholders or disinterested directors of
the Sponsor or Trust Preferred Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office. All rights to
indemnification under this Section 9.4(a) shall be deemed to be
provided by a contract between the Debenture Issuer and each Company
Indemnified Person who serves in such capacity at any time while this
Section 9.4(a) is in effect. Any repeal or modification of this Section
9.4(a) shall not affect any rights or obligations then existing.
(vi) The Debenture Issuer or the Trust may purchase and
maintain insurance on behalf of any person who is or was a Company
Indemnified Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the
48
<PAGE> 54
Debenture Issuer would have the power to indemnify him against such
liability under the provisions of this Section 9.4(a).
(vii) For purposes of this Section 9.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any person who is or was
a director, trustee, officer or employee of such constituent entity, or
is or was serving at the request of such constituent entity as a
director, trustee, officer, employee or agent of another entity, shall
stand in the same position under the provisions of this Section 9.4(a)
with respect to the resulting or surviving entity as such person would
have with respect to such constituent entity if its separate existence
had continued.
(viii) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 9.4(a) shall, unless
otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a Company Indemnified Person and shall inure to
the benefit of the successors, heirs, executors and administrators of
such a person.
(b) Under Section 5.1 of the First Supplemental Indenture, the
Debenture Issuer also shall be required to indemnify the (i) Institutional
Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Institutional
Trustee or the Delaware Trustee, and (iv) any officers, directors, shareholders,
members, partners, employees, representatives, custodians, nominees or agents of
the Institutional Trustee or the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without gross negligence and, in the case of the Institutional
Trustee, pursuant to Section 3.9, negligence or bad faith on its part, arising
out of or in connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses (including reasonable legal
fees and expenses) of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. The provisions of this Section 10.4(b) shall survive the
satisfaction and discharge of this Declaration or the resignation or removal of
the Institutional Trustee or the Delaware Trustee, as the case may be.
SECTION 9.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Institutional Trustee may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee or the Institutional Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and any Covered Person, the Sponsor, the Delaware Trustee and the Institutional
Trustee shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Covered Person, the Delaware Trustee and the
Institutional Trustee may engage or be interested in any financial or other
transaction with the Sponsor or any Affiliate of the Sponsor, or may act as
depositary for, trustee or agent for, or act on any committee or body of holders
of, securities or other obligations of the Sponsor or its Affiliates.
49
<PAGE> 55
ARTICLE X
ACCOUNTING
SECTION 10.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 10.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the Trust shall
keep, or cause to be kept, full books of account, records and supporting
documents, which shall reflect in reasonable detail, each transaction of the
Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The books of account and the records of the Trust shall be
examined by and reported upon as of the end of each Fiscal Year of the Trust by
a firm of independent certified public accountants selected by the Regular
Trustees.
(b) The Trust shall cause to be duly prepared and delivered to each of
the Holders of Securities, any annual United States federal income tax
information statement required by the Code, containing such information with
regard to the Securities held by each Holder as is required by the Code and the
Treasury Regulations. Notwithstanding any right under the Code to deliver any
such statement at a later date, the Trust shall endeavor to deliver all such
statements within 30 days after the end of each Fiscal Year of the Trust.
(c) The Trust shall cause to be duly prepared and filed with the
appropriate taxing authority an annual United States federal income tax return,
on a Form 1041 or such other form or statement as may be required under United
States federal income tax law, and any other annual income tax returns required
to be filed by the Trust on behalf of the Trust with any state or local taxing
authority. A copy of such returns as filed will be delivered to the
Institutional Trustee promptly after filing.
SECTION 10.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided however, that all payments of funds in
respect of the Debentures held by the Institutional Trustee shall be made
directly to the Institutional Trustee Account and no other funds of the Trust
shall be deposited in the Institutional Trustee Account. The sole signatories
for such accounts shall be designated by the Regular Trustees; provided,
however, that the Institutional Trustee shall designate the signatories for the
Institutional Trustee Account.
SECTION 10.4 WITHHOLDING.
The Trust shall comply with all withholding requirements under United
States federal, state and local law. The Trust shall request, and the Holders
shall provide to the Trust, such forms or certificates as are necessary to
establish an exemption from withholding with respect to each Holder, and any
representations and forms as shall reasonably be requested by the Trust to
assist it in determining the extent of, and in fulfilling, its withholding
obligations. The Trust shall file required forms with applicable jurisdictions
and,
50
<PAGE> 56
unless an exemption from withholding is properly established by a Holder, shall
remit amounts withheld with respect to the Holder to applicable jurisdictions.
To the extent that the Trust is required to withhold and pay over any amounts to
any authority with respect to distributions or allocations to any Holder, the
amount withheld shall be deemed to be a distribution in the amount of the
withholding to the Holder. In the event of any claimed over withholding, Holders
shall be limited to an action against the applicable jurisdiction. If the amount
required to be withheld was not withheld from actual Distributions made, the
Trust may reduce subsequent Distributions by the amount of such withholding.
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by the Regular Trustees (or, if there
are more than two Regular Trustees, a majority of the Regular Trustees); and
(i) if the amendment affects the rights, powers, duties,
obligations or immunities of the Institutional Trustee, also by the
Institutional Trustee; and
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, also by the Delaware
Trustee;
(b) no amendment shall be made:
(i) unless, in the case of any proposed amendment, the
Institutional Trustee shall have first received an Officers'
Certificate from each of the Trust and the Sponsor that such amendment
is permitted by, and conforms to, the terms of this Declaration
(including the terms of the Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Institutional Trustee, the Institutional Trustee shall have first
received:
(A) an Officers' Certificate from each of the Trust
and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the
terms of the Securities); and
(B) an opinion of counsel (who may be counsel to
the Sponsor or the Trust) that such amendment is permitted
by, and conforms to, the terms of this Declaration (including
the terms of the Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income
taxation as a grantor trust;
51
<PAGE> 57
(B) reduce or otherwise adversely affect the powers
of the Institutional Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an
Investment Company required to be registered under the
Investment Company Act;
(c) at such time after the Trust has issued any Securities that remain
outstanding, any amendment that would materially and adversely affect the
rights, privileges or preferences of any Holder of Securities may be effected
only with such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 8.1(c) and this Section 11.1 shall not be amended without
the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the Holders
of a Majority in liquidation amount of the Common Securities;
(f) the rights of the Holders of the Common Securities under Article V
to increase or decrease the number of, and appoint and remove Trustees shall not
be amended without the consent of the Holders of a Majority in liquidation
amount of the Common Securities; and
(g) notwithstanding Section 11.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration
that may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) to conform to any change in Rule 3a-5 or written change
in interpretation or application of Rule 3a-5 by any legislative body,
court, government agency or regulatory authority which amendment does
not have a material adverse effect on the right, preferences or
privileges of the Holders;
(v) to modify, eliminate and add to any provision of the
Declaration to such extent as may be necessary; and
(vi) cause the Trust to continue to be classified for United
States federal income tax purposes as a grantor trust.
SECTION 11.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN
CONSENT.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the Securities)
to consider and act on any matter on which Holders of such class of Securities
are entitled to act under the terms of this Declaration, the terms of the
Securities or the rules of any stock exchange on which the Trust Preferred
Securities are listed or admitted for trading.
52
<PAGE> 58
The Regular Trustees shall call a meeting of the Holders of such class if
directed to do so by the Holders of at least 10% in liquidation amount of such
class of Securities. Such direction shall be given by delivering to the Regular
Trustees one or more calls in a writing stating that the signing Holders of
Securities wish to call a meeting and indicating the general or specific purpose
for which the meeting is to be called. Any Holders of Securities calling a
meeting shall specify in writing the Security Certificates held by the Holders
of Securities exercising the right to call a meeting and only those Securities
specified shall be counted for purposes of determining whether the required
percentage set forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at least 7 days
and not more than 60 days before the date of such meeting. Whenever a
vote, consent or approval of the Holders of Securities is permitted or
required under this Declaration, the terms of the Securities or the
rules of any stock exchange on which the Trust Preferred Securities are
listed or admitted for trading, such vote, consent or approval may be
given at a meeting of the Holders of Securities. Any action that may be
taken at a meeting of the Holders of Securities may be taken without a
meeting if a consent in writing setting forth the action so taken is
signed by the Holders of Securities owning not less than the minimum
amount of Securities in liquidation amount that would be necessary to
authorize or take such action at a meeting at which all Holders of
Securities having a right to vote thereon were present and voting.
Prompt notice of the taking of action without a meeting shall be given
to the Holders of Securities entitled to vote who have not consented in
writing. The Regular Trustees may specify that any written ballot
submitted to the Security Holder for the purpose of taking any action
without a meeting shall be returned to the Trust within the time
specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to
act for it by proxy on all matters in which a Holder of Securities is
entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
Holder of Securities executing it. Except as otherwise provided herein,
all matters relating to the giving, voting or validity of proxies shall
be governed by the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder, as if the
Trust were a Delaware corporation and the Holders of the Securities
were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the
Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Securities, the Trust Indenture Act or the listing rules
of any stock exchange on which the Trust Preferred Securities are then
listed or trading otherwise provides, the Regular Trustees, in their
sole discretion, shall establish all other provisions relating to
meetings of Holders of Securities, including notice of the time, place
or purpose of any meeting at which any matter is to be voted on by any
Holders of Securities, waiver of any such notice, action by consent
without a meeting, the establishment of a
53
<PAGE> 59
record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE
SECTION 12.1 REPRESENTATIONS AND WARRANTIES OF INSTITUTIONAL TRUSTEE.
The Trustee that acts as initial Institutional Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Institutional Trustee represents and warrants to the Trust and
the Sponsor at the time of the Successor Institutional Trustee's acceptance of
its appointment as Institutional Trustee, that:
(a) the Institutional Trustee is a national banking association with
trust powers, duly organized, validly existing and in good standing under the
laws of the United States of America, with trust power and authority to execute
and deliver, and to carry out and perform its obligations under the terms of,
the Declaration;
(b) the Institutional Trustee satisfies the requirements set forth in
Section 5.3(a);
(c) the execution, delivery and performance by the Institutional
Trustee of the Declaration has been duly authorized by all necessary corporate
action on the part of the Institutional Trustee. The Declaration has been duly
executed and delivered by the Institutional Trustee, and it constitutes a legal,
valid and binding obligation of the Institutional Trustee, enforceable against
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such remedies
is considered in a proceeding in equity or at law);
(d) the execution, delivery and performance of the Declaration by the
Institutional Trustee does not conflict with or constitute a breach of the
Articles of Organization or By-laws of the Institutional Trustee; and
(e) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the execution,
delivery or performance by the Institutional Trustee, of the Declaration.
SECTION 12.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee, that:
54
<PAGE> 60
(a) The Delaware Trustee is a Delaware corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with power and authority to execute and deliver, and to carry out and perform
its obligations under the terms of, the Declaration;
(b) the execution, delivery and performance by the Delaware Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee. The Declaration has been duly executed and
delivered by the Delaware Trustee, and it constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) No consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee of the Declaration; and
(d) the execution, delivery and performance of the Declaration by the
Delaware Trustee does not conflict with or constitute a breach of the Articles
of Organization or By-laws of the Delaware Trustee; and
(e) The Delaware Trustee is a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has its principal
place of business in the State of Delaware.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 NOTICES.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Holders of the Securities):
PCHC Financing I
c/o Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
Attn: Secretary
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):
55
<PAGE> 61
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
Attention: Corporate Trust Services
(c) if given to the Institutional Trustee, at its Corporate Trust
Office to the attention of Corporate Trust Administration (or such other address
as the Institutional Trustee may give notice of to the Holders of the
Securities):
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
Attn: Secretary
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 13.2 GOVERNING LAW.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 13.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The provisions
of this Declaration shall be interpreted to further this intention of the
parties.
SECTION 13.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
56
<PAGE> 62
SECTION 13.5 SUCCESSORS AND ASSIGNS.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 13.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 13.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
SECTION 13.8 REMARKETING
(a) The Debenture Issuer will request, not later than 15 nor
more than 30 calendar days prior to the Remarketing Date that the Clearing
Agency notify the Holders of Trust Preferred Securities and the Holders of
Income PRIDES and Growth PRIDES of the Remarketing and of the procedures that
must be followed if a Holder of Trust Preferred Securities wishes to exercise
such Holder's rights with respect to the Put Option if there is a Failed
Remarketing.
(b) Not later than 5:00 P.M., New York City time, on the
fifth Business Day immediately preceding the Purchase Contract Settlement Date,
each Holder of the Trust Preferred Securities may elect to have Trust Preferred
Securities held by such Holder remarketed. Under Section 5.4 of the Purchase
Contract Agreement, Holders of Income PRIDES that do not give notice of
intention to make a Cash Settlement of their related Purchase Contract shall be
deemed to have consented to the disposition of the Trust Preferred Securities
comprising a component of such Income PRIDES. Holders of Trust Preferred
Securities that are not a component Income PRIDES shall give notice of their
election to have such Trust Preferred Securities remarketed to the Custodial
Agent pursuant to the Pledge Agreement. Any such notice shall be irrevocable
after 5:00 p.m. New York City time on the fifth Business Day immediately
preceding the Purchase Contract Settlement Date and may not be conditioned upon
the level at which the Reset Rate is established. Promptly after 5:30 P.M., New
York City time, on such fifth Business Day, the Institutional Trustee, based on
the notices received by it prior to such time (including notices from the
Purchase Contract Agent as to Purchase Contracts for which cash settlement has
been elected), shall notify the Trust, the Sponsor and the Remarketing Agent of
the number of Trust Preferred Securities to be tendered for purchase.
(c) If any Holder of Income PRIDES, does not give a notice of
its intention to make a Cash Settlement or gives a notice of election to tender
Trust Preferred Securities, as described in Section 13.8(b), the Trust Preferred
Securities of such Holder shall be deemed tendered, notwithstanding any failure
by such Holder to deliver or properly deliver such Trust Preferred Securities to
the Remarketing Agent for purchase.
57
<PAGE> 63
(d) The right of each Holder to have Trust Preferred
Securities tendered for purchase shall be limited to the extent that (i) the
Remarketing Agent conducts a remarketing pursuant to the terms of the
Remarketing Agreement, (ii) Trust Preferred Securities tendered have not been
called for redemption, (iii) the Remarketing Agent is able to find a purchaser
or purchasers for tendered Trust Preferred Securities and (iv) such purchaser or
purchasers deliver the purchase price therefor to the Remarketing Agent.
(e) On the Remarketing Date, the Remarketing Agent shall use
commercially reasonable efforts to remarket at a price equal to 100.5% of the
aggregate liquidation amount thereof, Trust Preferred Securities tendered or
deemed tendered for purchase.
(f) If none of the Holders elect to have Trust Preferred
Securities held by them remarketed, the Reset Rate shall be the rate determined
by the Remarketing Agent, subject to the terms of the Remarketing Agreement, as
the rate that would have been established had a remarketing been held on the
Remarketing Date.
(g) If the Remarketing Agent has determined that it will be
able to remarket all Trust Preferred Securities, tendered or deemed tendered
prior to 4:00 P.M., New York City time, on the Remarketing Date, the Remarketing
Agent shall determine the Reset Rate, which shall be the rate per annum (rounded
to the nearest one-thousandth (0.001) of one percent per annum) which the
Remarketing Agent determines, subject to the term of the Remarketing Agreement,
to be the lowest rate per annum that will enable it to remarket all Trust
Preferred Securities tendered or deemed tendered for remarketing.
(h) If, by 4:00 P.M., New York City time, on the Remarketing
Date, the Remarketing Agent is unable to remarket all Trust Preferred Securities
tendered or deemed tendered for purchase, a failed remarketing ("Failed
Remarketing") shall be deemed to have occurred and the Remarketing Agent shall
so advise by telephone the Collateral Agent, Debenture Issuer, Institutional
Trustee, Delaware Trustee and Clearing Agency.
(i) By approximately 4:30 P.M., New York City time, on the
Remarketing Date, provided that there has not been a Failed Remarketing, the
Remarketing Agent shall advise, by telephone (i) the Collateral Agent, Debenture
Issuer, Institutional Trustee, Delaware Trustee and Clearing Agency of the Reset
Rate determined in the Remarketing and the number of Trust Preferred Securities
sold in the remarketing, (ii) each purchaser (or the Clearing Agency Participant
thereof) of the Reset Rate and the number of Trust Preferred Securities such
purchaser is to purchase and (iii) each purchaser to give instructions to its
Clearing Agency Participant to pay the purchase price on the Purchase Contract
Settlement Date in same day funds against delivery of the Trust Preferred
Securities purchased through the facilities of the Clearing Agency.
(j) In accordance with the Clearing Agency's normal
procedures, on the Purchase Contract Settlement Date, the transactions described
above with respect to each Trust Preferred Security tendered for purchase and
sold in the remarketing shall be executed through the Clearing Agency, and the
accounts of the respective Clearing Agency Participants shall be debited and
credited and such Trust Preferred Securities delivered by book entry as
necessary to effect purchases and sales of such Trust Preferred Securities. The
Clearing Agency shall make payment in accordance with its normal procedures.
(k) If any Holder selling Trust Preferred Securities in the
remarketing fails to deliver such Trust Preferred Securities, the Clearing
Agency Participant of such selling Holder and of any other person that was to
have purchased Trust Preferred Securities in the remarketing may deliver to any
such other person
58
<PAGE> 64
a number of Trust Preferred Securities that is less than the number of Trust
Preferred Securities that otherwise was to be purchased by such person. In such
event, the number of Trust Preferred Securities to be so delivered shall be
determined by such Clearing Agency Participant, and delivery of such lesser
number of Trust Preferred Securities shall constitute good delivery.
(l) The Remarketing Agent is not obligated to purchase any
Trust Preferred Securities that would otherwise remain unsold in a remarketing.
Neither the Trust, any Trustee, the Sponsor nor the Remarketing Agent shall be
obligated in any case to provide funds to make payment upon tender of Trust
Preferred Securities for remarketing.
(m) The tender and settlement procedures set forth in this
Section 13.8, including provisions for payment by purchasers of Trust Preferred
Securities in the remarketing, shall be subject to modification, notwithstanding
any provision to the contrary set forth in Article 11, to the extent required by
the Clearing Agency or if the book-entry system is no longer available for the
Trust Preferred Securities at the time of the remarketing, to facilitate the
tendering and remarketing of Trust Preferred Securities in certificated form. In
addition, the Remarketing Agent may, notwithstanding any provision to the
contrary set forth in Article 11, modify the settlement procedures set forth
herein in order to facilitate the settlement process.
59
<PAGE> 65
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
as Regular Trustee
as Regular Trustee
as Regular Trustee
FIRST CHICAGO DELAWARE INC.,
as Delaware Trustee
By
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Institutional Trustee
By
Name:
Title:
PHILADELPHIA CONSOLIDATED HOLDING CORP.,
as Sponsor
By
Name:
Title:
<PAGE> 66
EXHIBIT A-1
FORM OF Trust Preferred Security CERTIFICATE
[IF THE Trust Preferred Security IS TO BE A GLOBAL CERTIFICATE INSERT -
This Trust Preferred Security is a Global Certificate within the meaning of the
Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depositary") or a nominee of the Depositary. This
Trust Preferred Security is exchangeable for Trust Preferred Securities
registered in the name of a person other than the Depositary or its nominee only
in the limited circumstances described in the Declaration and no transfer of
this Trust Preferred Security (other than a transfer of this Trust Preferred
Security as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary) may be registered except in limited circumstances.
Unless this Trust Preferred Security is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) to the Trust or its agent for registration of transfer, exchange or
payment, and any Trust Preferred Security issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative of
The Depository Trust Company and any payment hereon is made to Cede & Co., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.]
Certificate Number __________ Number of Trust Preferred Securities ___________
CUSIP NO. ___________
Certificate Evidencing Trust Preferred Securities
of
PCHC Financing I
____% Trust Originated Preferred Securities
(liquidation amount $10 per Trust Preferred Security)
PCHC Financing I, a statutory business trust created under the laws of
the State of Delaware (the "Trust"), hereby certifies that __________ (the
"Holder") is the registered owner of Trust Preferred Securities of the Trust
representing undivided beneficial ownership interests in the assets of the Trust
designated as the ___% Trust Originated Preferred Securities (liquidation amount
$10 per Trust Preferred Security) (the "Trust Preferred Securities"). The Trust
Preferred Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Trust Preferred
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of April __, 1998, as the same may be amended from time to time (the
"Declaration"). Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder is entitled to the benefits of
the Guarantee to the extent provided therein. The Sponsor will provide a copy of
the Declaration, the Guarantee and the Indenture to a Holder without charge upon
written request to the Trust at its principal place of business.
<PAGE> 67
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Trust Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
<PAGE> 68
IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of
April, 1998.
PCHC FINANCING I
By:
Name:
Title: Regular Trustee
<PAGE> 69
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Trust Preferred Security will be fixed at
a rate per annum of __% until ___ 15, 2001, and at the Reset Rate thereafter
(the "Coupon Rate") of the stated liquidation amount of $10 per Trust Preferred
Security, such rate being the rate of interest payable on the Debentures to be
held by the Institutional Trustee. Distributions in arrears for more than one
quarter will bear interest thereon compounded quarterly at the rate of __% until
___ 15, 2001, and at the Reset Rate thereafter (to the extent permitted by
applicable law). The term "Distributions" as used herein includes such cash
distributions and any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Institutional Trustee and to the extent the
Institutional Trustee has funds available therefor. The amount of Distributions
payable for any period will be computed for any full quarterly Distribution
period on the basis of a 360-day year consisting of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
Except as otherwise described below, Distributions on the Trust
Preferred Securities will be cumulative, will accrue from the date of original
issuance and will be payable quarterly in arrears, on February 16, May 16,
August 16 and November 16 of each year, commencing on __ 16, 1998, to holders of
record, if in book-entry only form, one Business Day prior to such payment date,
which payment dates shall correspond to the interest payment dates on the
Debentures. In the event that the Trust Preferred Securities are not in
book-entry form, the Regular Trustees will have the right to select relevant
record dates, which will be more than one Business Day but less than 60 Business
Days prior to the relevant payment dates. The Debenture Issuer has the right
under the Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for a period not exceeding
beyond the date of maturity of the Debentures (each an "Extension Period") and,
as a consequence of such deferral, Distributions will also be deferred. Despite
such deferral, quarterly Distributions will continue to accrue with interest
thereon at the rate of ___% until ____ 15, 2001, and at the Reset Rate
thereafter, compounded quarterly during any such Extension Period (to the extent
permitted by applicable law). Payments of accrued Distributions will be payable
to Holders as they appear on the books and records of the Trust on the first
record date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed
beyond the maturity date of the Debenture.
The Trust Preferred Securities shall be redeemable as provided in the
Declaration.
<PAGE> 70
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Trust to
repay $_____ stated liquidation amount of the within Trust Preferred Security,
pursuant to its terms, on the "Put Option Exercise Date," together with
distributions thereon accrued but unpaid to the date of repayment, to the
undersigned at:
(Please print or type Name and Address of the Undersigned)
and to issue to the undersigned, pursuant to the terms of the Declaration, a new
Trust Preferred Security or Trust Preferred Securities representing the
remaining stated liquidation amount of this Trust Preferred Security.
For this Option to Elect Repayment to be effective, the within Trust Preferred
Security with this Option to Elect Repayment duly completed must be received by
the Trust at the Corporate Trust Office of the Institutional Trustee at The
First National Bank of Chicago, One First National Plaza, Suite 0126, Chicago,
IL 60670-0126, Attention: Corporate Trust Administration.
Dated: Signature:
Signature Guarantee:
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Trust Preferred Security in every
particular without alternation or enlargement or any change whatsoever.
<PAGE> 71
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust Preferred
Security Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Trust Preferred Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:
Signature:
Signature Guarantee:
(Sign exactly as your name appears on the other side of this Trust
Preferred Security Certificate)
<PAGE> 72
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THE COMMON SECURITIES MAY ONLY BE TRANSFERRED BY THE
DEBENTURE ISSUER AND ANY RELATED PARTY TO THE DEBENTURE ISSUER OR A RELATED
PARTY OF THE DEBENTURE ISSUER; PROVIDED THAT, ANY SUCH TRANSFER IS SUBJECT TO
THE CONDITION PRECEDENT THAT THE TRANSFEROR OBTAIN THE WRITTEN OPINION OF
NATIONALLY RECOGNIZED INDEPENDENT COUNSEL EXPERIENCED IN SUCH MATTERS THAT SUCH
TRANSFER WOULD NOT CAUSE:
(I) THE TRUST TO BE CLASSIFIED FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES AS OTHER THAN A GRANTOR TRUST; AND
(II) THE TRUST TO BE AN INVESTMENT COMPANY OR THE TRANSFEREE
TO BECOME AN INVESTMENT COMPANY.
Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
PCHC Financing I
___% Common Securities
(liquidation amount $10 per Common Security)
PCHC Financing I, a statutory business trust created under the laws of
the State of Delaware (the "Trust"), hereby certifies that Philadelphia
Consolidated Holding Corp. (the "Holder") is the registered owner of _____
common securities of the Trust representing undivided beneficial ownership
interests in the assets of the Trust designated as the ___% Common Securities
(liquidation amount $10 per common security) (the "Common Securities"). The
Common Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of April __, 1998, as the same may be amended from time to time (the
"Declaration"). Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder is entitled to the benefits of
the Guarantee to the extent provided therein. The Sponsor will provide a copy of
the Declaration, the Guarantee and the Indenture to a Holder without charge upon
written request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
<PAGE> 73
IN WITNESS WHEREOF, the Trust has executed this certificate this __ day
of April, 1998.
PCHC FINANCING I
By:
Name:
Title: Regular Trustee
<PAGE> 74
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of __% until ________, 2001, and at the Reset Rate thereafter (the
"Coupon Rate") of the stated liquidation amount of $10 per Common Security, such
rate being the rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one quarter will
bear interest thereon compounded quarterly at the rate of __% until __ 15, 2001,
and at the Reset Rate thereafter (to the extent permitted by applicable law).
The term "Distributions" as used herein includes such cash distributions and any
such interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 30-day month.
Except as otherwise described below, distributions on the Common
Securities will be cumulative, will accrue from the date of original issuance
and will be payable quarterly in arrears, on February 16, May 16, August 16 and
November 16, of each year, commencing on __ 16, 1998, to Holders of record one
Business Day prior to such payment dates, which payment dates shall correspond
to the interest payment dates on the Debentures. The Debenture Issuer has the
right under the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a period not
exceeding beyond the date of maturity of the Debentures (each an "Extension
Period") and, as a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the rate of
__% until __ 15, 2001, and at the Reset Rate thereafter, compounded quarterly
during any such Extension Period. Payments of accrued Distributions will be
payable to Holders as they appear on the books and records of the Trust on the
first record date after the end of the Extension Period. Upon the termination of
any Extension Period and the payment of all amounts then due, the Debenture
Issuer may commence a new Extension Period; provided, that such Extension Period
together with all such previous and further extensions thereof may not exceed
beyond the maturity date of the Debentures.
The Common Securities shall be redeemable as provided in the
Declaration.
<PAGE> 75
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Trust to
repay $_____ stated liquidation amount of the within Common Security, pursuant
to its terms, on the "Put Option Exercise Date," together with distributions
thereon accrued and unpaid to the date of repayment, to the undersigned at:
__________________________________________________________
(Please print or type Name and Address of the Undersigned)
and to issue to the undersigned, pursuant to the terms of the Declaration, a new
Common Security or Common Securities representing the remaining stated
liquidation amount of this Common Security.
For this Option to Elect Repayment to be effective, the within Common Security
with this Option to Elect Repayment duly completed must be received by the Trust
at the Corporate Trust Office of the Institutional Trustee at The First National
Bank of Chicago, One First National Plaza, Suite 0126, Chicago, IL 60670- 0126,
Attention: Corporate Trust Administration.
Dated: Signature:
Signature Guarantee:
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Common Security in every particular
without alternation or enlargement or any change whatsoever.
<PAGE> 76
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Common Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date:
Signature:
Signature Guarantee:
(Sign exactly as your name appears on the other side of this Common
Security Certificate)
<PAGE> 77
EXHIBIT B
SPECIMEN OF DEBENTURE
<PAGE> 78
EXHIBIT C
UNDERWRITING AGREEMENT
<PAGE> 1
Exhibit 4.6
-------------------------------------------
FORM OF GUARANTEE AGREEMENT
PCHC FINANCING I
Dated as of April __, 1998
-------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
SECTION 1.1 Definitions and Interpretation............................. 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act: Application........................... 4
SECTION 2.2 List of Holders of Securities.............................. 4
SECTION 2.3 Reports by the Guarantee Trustee.......................... 4
SECTION 2.4 Periodic Reports to Guarantee Trustee..................... 4
SECTION 2.5 Evidence of Compliance with Conditions Precedent........... 5
SECTION 2.6 Events of Default; Waiver.................................. 5
SECTION 2.7 Event of Default; Notice................................... 5
SECTION 2.8 Conflicting Interests...................................... 5
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Guarantee Trustee................ 5
SECTION 3.2 Certain Rights of the Guarantee Trustee.................... 7
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee...... 8
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 4.1 Guarantee Trustee; Eligibility............................ 8
SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustees 9
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee.................................................. 9
SECTION 5.2 Waiver of Notice and Demand............................... 10
SECTION 5.3 Obligations Not Affected.................................. 10
SECTION 5.4 Rights of Holders......................................... 10
SECTION 5.5 Guarantee of Payment...................................... 11
SECTION 5.6 Subrogation............................................... 11
SECTION 5.7 Independent Obligations................................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1 Limitation of Transactions................................ 11
SECTION 6.2 Ranking................................................... 12
ARTICLE VII
TERMINATION
SECTION 7.1 Termination............................................... 12
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation............................................... 12
SECTION 8.2 Indemnification........................................... 13
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns.................................... 13
SECTION 9.2 Amendments................................................ 13
SECTION 9.3 Notices................................................... 14
SECTION 9.4 Benefit................................................... 14
SECTION 9.5 Governing Law............................................. 14
</TABLE>
ii
<PAGE> 4
GUARANTEE AGREEMENT
This FORM OF GUARANTEE AGREEMENT (the "Guarantee"), dated as of April __,
1998, is executed and delivered by Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation (the "Guarantor"), and "The First National Bank of
Chicago", as trustee (the "Guarantee Trustee"), for the benefit of the Holders
(as defined herein) from time to time of the Securities (as defined herein) of
PCHC Financing I, a Delaware business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of April __, 1998, among the trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial ownership interests in the assets of the Issuer, the Issuer
is issuing on the date hereof _______ Trust Preferred Securities, liquidation
amount $10 per Trust Preferred Security, having an aggregate liquidation amount
of $_________ designated the % Trust Originated Preferred Securities (the "Trust
Preferred Securities") and _______ common securities, liquidation amount $10 per
common security, having an aggregate liquidation amount $________, designated
the ___% Common Securities (the "Common Securities" and, together with the
FELINE PRIDES, the "Securities");
WHEREAS, as incentive for the Holders to purchase the Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth in this Guarantee, to pay to the Holders the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein; and
WHEREAS, if an Event of Default (as defined in the Declaration), has
occurred and is continuing, the rights of holders of the Common Securities to
receive Guarantee Payments under this Guarantee are subordinated to the rights
of the holders of the Trust Preferred Securities to receive Guarantee Payments
under this Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder, which
purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor
executes and delivers this Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
SECTION 1.1 Definitions and Interpretation
In this Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee but not defined in the
preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Guarantee has the same meaning
throughout;
(c) all reference to "the Guarantee" or "this Guarantee" are to this
Guarantee as modified, supplemented or amended from time to time;
(d) all references in this Guarantee to Articles and Sections are to
Articles and Sections of this Guarantee, unless otherwise specified;
<PAGE> 5
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee, unless otherwise defined in this Guarantee
or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Business Day" means any day other than Saturday, Sunday or any day on
which banking institutions in the City of New York, New York are authorized or
required by any applicable law to close.
"Corporate Trust Office" means the office of the Guarantee Trustee at
which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at The First National Bank of Chicago,
One First National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention:
Corporate Services Division.
"Covered Person" means any Holder or beneficial owner of Securities.
"Debentures" means the series of debt securities of the Guarantor
designated the % Debentures due , 2003 held by the Institutional Trustee
(as defined in the Declaration) of the Issuer.
"Direction" by a person means a written direction signed: (a) if the
Person is a natural person, by that Person; or (b) in any other case in the name
of such Person by one or more Authorized Officers of that Person.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Securities, to the extent not paid or
made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the
Declaration) that are required to be paid on such Securities to the extent the
Issuer shall have funds available therefor, (ii) the redemption price, including
all accrued and unpaid distributions to the date of redemption (the "Redemption
Price") with respect to Securities in respect of which the related Debentures
have been redeemed by the Company upon the occurrence of a Tax Event Redemption,
to the extent the Issuer has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Issuer
(other than in connection with the distribution of Debentures to the Holders in
exchange for the Securities as provided in the Declaration), the lesser of (a)
the aggregate of the liquidation amount and all accrued and unpaid Distributions
on the Securities to the date of payment, to the extent the Issuer shall have
funds available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution"). If an event of default under the
Indenture has occurred and is continuing, the rights of holders of the Common
Securities to receive payments under this Guarantee Agreement are subordinated
to the rights of holders of Trust Preferred Securities to receive Guarantee
Payments under this Guarantee.
"Holder" shall mean any holder, as registered on the books and records of
the Issuer, of any Securities; provided, however, that, in determining whether
the holders of the requisite percentage of
2
<PAGE> 6
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Guarantee
Trustee.
"Indenture" means the Indenture dated as of April __, 1998, among the
Guarantor (the "Debenture Issuer") and The First National Bank of Chicago, as
trustee, and any indenture supplemental thereto pursuant to which certain debt
securities of the Debenture Issuer are to be issued to the Institutional Trustee
of the Issuer.
"Majority in liquidation amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by Holder(s) of Securities, voting
separately as a class, of more than 50% of the aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association or government or any agency
or political subdivision thereof, or any other entity of whatever nature.
"Guarantee Trustee" means The First National Bank of Chicago, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee and thereafter means each such Successor
Guarantee Trustee.
"Responsible Officer" means, with respect to the Guarantee Trustee, any
officer within the Corporate Trust office of the Guarantee Trustee, including
any vice-president, any assistant vice-president, any assistant secretary, the
treasurer, any assistant treasurer or other officer of the Corporate Trust
Office of the Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
3
<PAGE> 7
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Tax Event Redemption" has the same meaning as defined in Annex I to the
Declaration.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act: Application
(a) This Guarantee is subject to the provisions of the Trust Indenture Act
that are required to be part of this Guarantee and shall, to the extent
applicable, be governed by such provisions; and
(b) If and to the extent that any provision of this Guarantee limits,
qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall control.
SECTION 2.2 List of Holders of Securities
(a) The Guarantor shall provide the Guarantee Trustee with a list, in such
form as the Guarantee Trustee may reasonably require, of the names and addresses
of the Holders ("List of Holders") as of such date, (i) within 1 Business Day
after January 1 and July 1 of each year, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders as
of a date no more than 14 days before such List of Holders is given to the
Guarantee Trustee provided, that the Guarantor shall not be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Guarantee Trustee by the Guarantor. The
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Guarantee Trustee
Within 60 days after ____ 15 of each year, the Guarantee Trustee shall
provide to the Holders such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Guarantee Trustee
The Guarantor shall provide to the Guarantee Trustee such documents,
reports and information as required by Section 314 (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
4
<PAGE> 8
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with any conditions precedent, if any, provided for in this
Securities Guarantee that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Securities may, by
vote, on behalf of all Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 2.7 Event of Default; Notice
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, actually known to a Responsible Officer of the Guarantee
Trustee transmit by mail, first class postage prepaid, to the Holders, notices
of all such Events of Default, unless such defaults have been cured or waived
before the giving of such notice, provided, that, the Guarantee Trustee shall be
protected in withholding such notice if and so long as a Responsible Officer of
the Guarantee Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written notice
thereof, or a Responsible Officer of the Guarantee Trustee charged with the
administration of the Declaration shall have obtained actual knowledge thereof.
SECTION 2.8 Conflicting Interests
The Declaration and the Indenture shall be deemed to be specifically
described in this Guarantee for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Guarantee Trustee
(a) This Guarantee shall be held by the Guarantee Trustee for the benefit
of the Holders, and the Guarantee Trustee shall not transfer this Guarantee to
any Person except a Holder exercising his or her rights pursuant to Section
5.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The
right, title and interest of the Guarantee Trustee shall automatically vest in
any Successor Guarantee Trustee, and such vesting and cessation of title shall
be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.
5
<PAGE> 9
(b) If an Event of Default actually known to a Responsible Officer of the
Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall
enforce this Guarantee for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing or waiver of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee, and no implied covenants shall be read into this Guarantee
against the Guarantee Trustee. In case an Event of Default has occurred (that
has not been cured or waived pursuant to Section 2.6) and is actually known to a
Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Guarantee, and use
the same degree of care and skill in its exercise thereof, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee shall be construed to relieve the
Guarantee Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee, and the
Guarantee Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Guarantee,
and no implied covenants or obligations shall be read into this Guarantee
against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee; but in the case of any
such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Guarantee;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation
amount of the Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee; and
(iv) no provision of this Guarantee shall require the Guarantee
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if the Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Guarantee or indemnity, reasonably satisfactory to the Guarantee Trustee,
against such risk or liability is not reasonably assured to it.
6
<PAGE> 10
SECTION 3.2 Certain Rights of the Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may conclusively rely, and shall be fully
protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee shall be sufficiently evidenced by a Direction or an Officers'
Certificate.
(iii) Whenever, in the administration of this Guarantee, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon receipt of
such request, shall be promptly delivered by the Guarantor.
(iv) The Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiling or reregistration thereof).
(v) The Guarantee Trustee may consult with competent legal counsel,
and the written advice or opinion of such counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may be counsel to
the Guarantor or any of its Affiliates and may include any of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee from any
court of competent jurisdiction.
(vi) The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Guarantee at the request
or direction of any Holder, unless such Holder shall have provided to the
Guarantee Trustee such security and indemnity, reasonably satisfactory to
the Guarantee Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Guarantee Trustees, agents,
nominees or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable
advances as may be requested by the Guarantee Trustee; provided that,
nothing contained in this Section 3.2 (a) (vi) shall be taken to relieve
the Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Guarantee.
(vii) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(viii)The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents, nominees, custodians or
7
<PAGE> 11
attorneys, and the Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
(ix) Any action taken by the Guarantee Trustee or its agents
hereunder shall bind the Holders, and the signature of the Guarantee
Trustee or its agents alone shall be sufficient and effective to perform
any such action. No third party shall be required to inquire as to the
authority of the Guarantee Trustee to so act or as to its compliance with
any of the terms and provisions of this Guarantee, both of which shall be
conclusively evidenced by the Guarantee Trustee's or its agent's taking
such action.
(x) Whenever in the administration of this Guarantee the Guarantee
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the
Guarantee Trustee (i) may request instructions from the Holders of a
Majority in liquidation amount of the Securities, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in conclusively
relying on or acting in accordance with such instructions.
(b) No provision of this Guarantee shall be deemed to impose any duty or
obligation on the Guarantee Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it in any jurisdiction
in which it shall be illegal, or in which the Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Guarantee Trustee shall be
construed to be a duty.
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee
The recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Guarantee Trustee does not assume any responsibility
for their correctness. The Guarantee Trustee makes no representation as to the
validity or sufficiency of this Guarantee.
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 4.1 Guarantee Trustee; Eligibility
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
750 million U.S. dollars ($750,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1
8
<PAGE> 12
(a)(ii), the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustees
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed in accordance with Section
4.2(a) until a Successor Guarantee Trustee has been appointed and has accepted
such appointment by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor.
(c) The Guarantee Trustee appointed to office shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.
(e) No Guarantee Trustee shall be liable for the acts or omissions to act
of any Successor Guarantee Trustee.
(f) Upon termination of this Guarantee or removal or resignation of the
Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the
Guarantee Trustee all amounts accrued to the date of such termination, removal
or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Issuer), as and when due, regardless of any defense, right of set-off or
counterclaim that the Issuer may have or assert. The Guarantor's obligation to
9
<PAGE> 13
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Guarantee and of
any liability to which it applies or may apply, presentment, demand for payment,
any right to require a proceeding first against the Issuer or any other Person
before proceeding against the Guarantor, protest, notice of nonpayment, notice
of dishonor, notice of redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the to be performed or observed by the
Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Securities or the extension of time
for the performance of any other obligation under, arising out of, or in
connection with, the Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum payable
that results from the extension of any interest payment period on the Debentures
or any extension of the maturity date of the Debentures permitted by the
Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Securities, or any action
on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
the consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 Rights of Holders
(a) The Holders of a Majority in liquidation amount of the Securities have
the right to direct the time, method and place of conducting of any proceeding
for any remedy available to the Guarantee Trustee
10
<PAGE> 14
in respect of this Guarantee or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee.
(b) If the Guarantee Trustee fails to enforce this Guarantee, any Holder
may institute a legal proceeding directly against the Guarantor to enforce its
rights under this Guarantee, without first instituting a legal proceeding
against the Issuer, the Guarantee Trustee or any other Person. Notwithstanding
the foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder
may directly institute a proceeding against the Guarantor for enforcement of the
Guarantee for such payment. The Guarantor waives any right or remedy to require
that any action on this Guarantee be brought first against the Issuer or any
other person or entity before proceeding directly against the Guarantor.
SECTION 5.5 Guarantee of Payment
This Guarantee creates a guarantee of payment and not of collection.
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all rights, if any, of the Holders
against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Guarantee; provided, however, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any right that it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of payment
under this Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such amount in
trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Securities, and that the
Guarantor shall be liable as principal and as debtor hereunder to make Guarantee
Payments pursuant to the terms of this Guarantee notwithstanding the occurrence
of any event referred to in subsections (a) through (g), inclusive, of Section
5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1 Limitation of Transactions
So long as any Securities remain outstanding, if there shall have occurred
an Event of Default or an Event of Default under the Declaration and written
notice of such Event of Default has been given to the Guarantor, then (a) the
Guarantor shall not declare or pay any dividend on, make any distribution with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of capital stock of the Guarantor in connection with the satisfaction by the
Guarantor of its obligations under any employee or agent benefit plans or the
satisfaction by the Guarantor of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Guarantor to
purchase capital stock of the Guarantor, (ii) as a result of a reclassification
of the Guarantor's capital stock or the exchange or conversion of one class or
series of the Guarantor's capital stock for another class or series of the
Guarantor's capital stock, (iii) the purchase of fractional interests in shares
of the
11
<PAGE> 15
Guarantor's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (iv) dividends
or distributions in capital stock of the Guarantor (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the issuance
or exchange of capital stock or (v) redemptions or purchases of any rights
outstanding under a shareholder rights plan (or the declaration thereunder of a
dividend of rights in the future), (b) the Guarantor shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Guarantor that rank junior to the Debentures, and
(c) the Guarantor shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Guarantee).
SECTION 6.2 Ranking
This Guarantee will constitute a subordinated obligation of the Guarantor
and, at all times when an Event of Default has occurred and is continuing under
the Declaration, will rank subordinate to all of the Guarantor's senior
unsecured obligations except those made subordinate hereto or pari passu
herewith by their terms.
If an event of default under the Indenture has occurred and is continuing,
the rights of the holders of the Common Securities will be subordinate and
junior in right of payment and shall not be paid until the prior payment in full
of, all amounts due and owing to the holders of the Trust Preferred Securities.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Guarantee shall terminate upon (i) full payment of the Repayment
Price of all Securities, (ii) upon the distribution of the Debentures to all
Holders or (iii) upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid under the
Securities or under this Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Guarantee and in a
manner that such Indemnified Person reasonably believed to be within the scope
of the authority conferred on such Indemnified Person by this Guarantee or by
law, except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional
12
<PAGE> 16
or expert competence and who has been selected with reasonable care by or on
behalf of the Guarantor, including information, opinions, reports or statements
as to the value and amount of the assets, liabilities, profits, losses, or any
other facts pertinent to the existence and amount of assets from which
Distributions to Holders might properly be paid.
SECTION 8.2 Indemnification
(a) To the fullest extent permitted by applicable law, the Guarantor shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith in
accordance with this Guarantee and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee, except that no Indemnified Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Indemnified Person by reason of negligence or willful misconduct with
respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, reasonable
out-of-pocket expenses (including legal fees) incurred by an Indemnified Person
in defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Guarantor prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Guarantor of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be determined that the Indemnified Person is not entitled to be
indemnified as authorized in Section 8.2(a).
(c) The provisions set forth in this Section 8.2 shall survive the
termination of the Guarantee or the resignation or removal of the Guarantee
Trustee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Guarantor
and shall inure to the benefit of the Holders of the Securities then
outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not adversely affect the rights
of Holders (in which case no consent of Holders will be required), this
Guarantee may only be amended with the prior approval of the Holders of at least
a Majority in liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined) of all the
outstanding Securities. The provisions of Section 12.2 of the Declaration with
respect to meetings of Holders apply to the giving of such approval.
SECTION 9.3 Notices
All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
13
<PAGE> 17
(a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing
address set forth below (or such other address as the Guarantee Trustee may give
notice of to the Holders of the Securities):
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust
Services Division
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders):
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
Attn: Secretary
(c) If given to any Holder, at the address set forth on the books and
records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.4 Benefit
This Guarantee is solely for the benefit of the Holders and, subject to
Section 3.1(a), is not separately transferable from the Securities.
SECTION 9.5 Governing Law.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
14
<PAGE> 18
THIS GUARANTEE is executed as of the day and year first above written.
PHILADELPHIA CONSOLIDATED HOLDING CORP.,
as Guarantor
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Guarantee Trustee
By:____________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4.11
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PHILADELPHIA CONSOLIDATED HOLDING CORP.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS PURCHASE CONTRACT AGENT
--------------------------
FORM OF PURCHASE CONTRACT AGREEMENT
--------------------------
DATED AS OF APRIL , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
RECITALS............................................................................................1
ARTICLE I
Definitions and Other Provisions
of General Application.......................................1
Section 1.1. Definitions.......................................................................1
Section 1.2. Compliance Certificates and Opinions.............................................11
Section 1.3. Form of Documents Delivered to Agent.............................................12
Section 1.4. Acts of Holders; Record Dates....................................................13
Section 1.5. Notices..........................................................................14
Section 1.6. Notice to Holders; Waiver........................................................16
Section 1.7. Effect of Headings and Table of Contents.........................................16
Section 1.8. Successors and Assigns...........................................................16
Section 1.9. Separability Clause..............................................................16
Section 1.10. Benefits of Agreement............................................................17
Section 1.11. Governing Law....................................................................17
Section 1.12. Legal Holidays...................................................................17
Section 1.13. Counterparts.....................................................................18
Section 1.14. Inspection of Agreement..........................................................18
ARTICLE II
Certificate Forms........................................18
Section 2.1. Forms of Certificates Generally..................................................18
Section 2.2. Form of Agent's Certificate of Authentication....................................19
ARTICLE III
The Securities..........................................20
Section 3.1. Title and Terms; Denominations...................................................20
Section 3.2. Rights and Obligations Evidenced by the Certificates.............................20
Section 3.3. Execution, Authentication, Delivery and Dating...................................21
Section 3.4. Temporary Certificates...........................................................22
Section 3.5. Registration; Registration of Transfer and Exchange..............................22
Section 3.6. Book-Entry Interests.............................................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.7. Notices to Holders...............................................................25
Section 3.8. Appointment of Successor Clearing Agency.........................................25
Section 3.9. Definitive Certificates..........................................................25
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates...............................25
Section 3.11. Persons Deemed Owners............................................................27
Section 3.12. Cancellation.....................................................................27
Section 3.14. Establishment or Reestablishment of Income PRIDES................................30
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event......................31
Section 3.16. No Consent to Assumption.........................................................32
ARTICLE IV
The Trust Preferred Securities..................................32
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice..................................................32
Section 4.2. Notice and Voting................................................................34
Section 4.3. Distribution of Debentures; Tax Event Redemption.................................35
ARTICLE V
The Purchase Contracts......................................36
Section 5.1. Purchase of Shares of Common Stock...............................................36
Section 5.2. Contract Adjustment Payments.....................................................38
Section 5.3. Deferral of Payment Dates For Contract Adjustment Payments.......................39
Section 5.4. Payment of Purchase Price........................................................40
Section 5.5. Issuance of Shares of Common Stock...............................................45
Section 5.6. Adjustment of Settlement Rate....................................................46
Section 5.7. Notice of Adjustments and Certain Other Events...................................52
Section 5.8. Termination Event; Notice........................................................53
Section 5.9. Early Settlement.................................................................53
Section 5.10. No Fractional Shares.............................................................55
Section 5.11. Charges and Taxes................................................................56
ARTICLE VI
Remedies.............................................56
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment
Payments and to Purchase Common Stock............................................56
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.2. Restoration of Rights and Remedies...............................................57
Section 6.3. Rights and Remedies Cumulative...................................................57
Section 6.4. Delay or Omission Not Waiver.....................................................57
Section 6.5. Undertaking for Costs............................................................57
Section 6.6. Waiver of Stay or Extension Laws.................................................58
ARTICLE VII
The Agent............................................58
Section 7.1. Certain Duties and Responsibilities..............................................58
Section 7.2. Notice of Default................................................................59
Section 7.3. Certain Rights of Agent..........................................................59
Section 7.4. Not Responsible for Recitals or Issuance of Securities...........................60
Section 7.5. May Hold Securities..............................................................61
Section 7.6. Money Held in Custody............................................................61
Section 7.7. Compensation and Reimbursement...................................................61
Section 7.8. Corporate Agent Required; Eligibility............................................62
Section 7.9. Resignation and Removal; Appointment of Successor................................62
Section 7.10. Acceptance of Appointment by Successor...........................................64
Section 7.11. Merger, Conversion, Consolidation or Succession to Business......................64
Section 7.12. Preservation of Information; Communications to Holders...........................65
Section 7.13. No Obligations of Agent..........................................................65
Section 7.14. Tax Compliance...................................................................65
ARTICLE VIII
Supplemental Agreements.....................................66
Section 8.1. Supplemental Agreements Without Consent of Holders...............................66
Section 8.2. Supplemental Agreements with Consent of Holders..................................67
Section 8.3. Execution of Supplemental Agreements.............................................68
Section 8.4. Effect of Supplemental Agreements................................................68
Section 8.5. Reference to Supplemental Agreements.............................................68
ARTICLE IX
Consolidation, Merger, Sale or Conveyance............................69
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property Except
Under Certain Conditions.........................................................69
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 9.2. Rights and Duties of Successor Corporation.......................................69
Section 9.3. Opinion of Counsel Given to Agent................................................70
ARTICLE X
Covenants............................................70
Section 10.1. Performance Under Purchase Contracts.............................................70
Section 10.2. Maintenance of Office or Agency..................................................70
Section 10.3. Company to Reserve Common Stock..................................................71
Section 10.4. Covenants as to Common Stock.....................................................71
</TABLE>
EXHIBIT A Form of Income PRIDES Certificate
EXHIBIT B Form of Growth PRIDES Certificate
EXHIBIT C Instruction to Collateral Agent
EXHIBIT D Instruction to Purchase Contract Agent
EXHIBIT E Notice to Settle with Separate Cash
iv
<PAGE> 6
FORM OF PURCHASE CONTRACT AGREEMENT, dated as of April , 1998, between
Philadelphia Consolidated Holding Corp., a Pennsylvania corporation (the
"Company"), and The First National Bank of Chicago, a national banking
association, acting as purchase contract agent for the Holders of Securities
from time to time (the "Agent").
RECITALS
The Company has duly authorized the execution and delivery of this
Agreement and the Certificates evidencing the Securities.
All things necessary to make the Purchase Contracts, when the
Certificates are executed by the Company and authenticated, executed on behalf
of the Holders and delivered by the Agent, as provided in this Agreement, the
valid obligations of the Company, and to constitute these presents a valid
agreement of the Company, in accordance with its terms, have been done.
WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed as follows:
ARTICLE I
Definitions and Other Provisions
of General Applications
Section 1.1. Definitions.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular; and nouns
and pronouns of the masculine gender include the feminine and neuter genders;
<PAGE> 7
(b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(d) the following terms have the meanings given to them in the
Declaration: (i) Applicable Ownership Interest; (ii) Applicable Principal
Amount; (iii) Authorized Newspaper; (iv) Indenture, (v) Investment Company
Event; (vi) Liquidation Distribution; (vii) Guarantee; (viii) Primary Treasury
Dealer; (ix) Quotation Agent; (x) Redemption Amount; (xi) Redemption Price;
(xii) Reset Agent; (xiii) Reset Announcement Date; (xiv) Reset Rate; (xv) Reset
Spread; (xvi) Tax Event; (xvii) Tax Event Redemption; (xviii) Tax Event
Redemption Date; (xix) Two-Year Benchmark Treasury; (xx) Treasury Portfolio; and
(xxi) Treasury Portfolio Purchase Price; and
(e) the following terms have the meanings given to them in this Section
1.1(e).
"Act" when used with respect to any Holder, has the meaning specified
in Section 1.4.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Agent" means the Person named as the "Agent" in the first paragraph of
this instrument until a successor Agent shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter "Agent" shall mean such
Person.
"Agreement" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more agreements
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Applicable Market Value" has the meaning specified in Section 5.1.
2
<PAGE> 8
"Bankruptcy Code" means title 11 of the United States Code, or any
other law of the United States that from time to time provides a uniform system
of bankruptcy laws.
"Beneficial Owner" means, with respect to a Book-Entry Interest, a
Person who is the beneficial owner of such Book-Entry Interest as reflected on
the books of the Clearing Agency or on the books of a Person maintaining an
account with such Clearing Agency (directly as a Clearing Agency Participant or
as an indirect participant, in each case in accordance with the rules of such
Clearing Agency).
"Board of Directors" means the board of directors of the Company or a
duly authorized committee of that board.
"Board Resolution" means one or more resolutions of the Board of
Directors, a copy of which has been certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification and delivered
to the Agent.
"Book-Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 3.6.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which banking institutions in New York City (in the State of New York)
are permitted or required by any applicable law to close.
"Cash Settlement" has the meaning set forth in Section 5.4(a)(i).
"Certificate" means an Income PRIDES Certificate or a Growth PRIDES
Certificate.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as a
depositary for the Securities and in whose name, or in the name of a nominee of
that organization, shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Securities.
3
<PAGE> 9
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Price" has the meaning specified in Section 5.1.
"Collateral" has the meaning specified in Section 2.1 of the Pledge
Agreement.
"Collateral Agent" means The Chase Manhattan Bank, as Collateral Agent
under the Pledge Agreement until a successor Collateral Agent shall have become
such pursuant to the applicable provisions of the Pledge Agreement, and
thereafter "Collateral Agent" shall mean the Person who is then the Collateral
Agent thereunder.
"Collateral Substitution" has the meaning specified in Section 3.13.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor shall have become such pursuant
to the applicable provision of this Agreement, and thereafter "Company" shall
mean such successor.
"Contract Adjustment Payments" means the fee payable by the Company in
respect of each Purchase Contract, equal to % per annum of the Stated Amount
in the case of Income PRIDES and % per annum of the Stated Amount in the case
of Growth PRIDES, computed on the basis of a 360 day year of twelve 30 day
months, plus any Deferred Contract Adjustment Payments accrued pursuant to
Section 5.2.
"Corporate Trust Office" means the principal corporate trust office of
the Agent at which, at any particular time, its corporate trust business shall
be administered, which office at the date hereof is located at One First
National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust
Services Division.
"Coupon Rate" means the percentage rate per annum at which each
Debenture will bear interest initially.
"Current Market Price" has the meaning specified in Section 5.6(a)(8).
4
<PAGE> 10
"Debentures" means the series of debentures of the Company designated
the % Debentures due , 2003, to be issued under the Indenture as of the
date hereof.
"Declaration" means the Amended and Restated Declaration of Trust of
PCHC Financing I, dated April , 1998, among the Company, as the sponsor, the
trustees named therein and the holders from time to time of individual
beneficial interests in the assets of the Trust.
"Deferred Contract Adjustment Payments" has the meaning specified in
Section 5.3.
"Depositary" means, initially, DTC until another Clearing Agency
becomes its successor.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Early Settlement" has the meaning specified in Section 5.9(a).
"Early Settlement Amount" has the meaning specified in Section 5.9(a).
"Early Settlement Date" has the meaning specified in Section 5.9(a).
"Early Settlement Rate" has the meaning specified in Section 5.9(b).
"Exchange Act" means the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time, and the
rules and regulations promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4.
"Expiration Time" has the meaning specified in Section 5.6(a)(6).
"Global Trust Preferred Security Certificate" means a certificate
evidencing the rights and obligations of a Holder in respect of the number of
Trust Preferred Securities specified on such certificate and which is registered
in the name of a Clearing Agency or a nominee thereof.
5
<PAGE> 11
"Global Certificate" means a Certificate that evidences all or part of
the Securities and is registered in the name of a Depositary or a nominee
thereof.
"Growth PRIDES" means, following the substitution of one or more
Treasury Securities for Trust Preferred Securities or for the Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, as collateral
to secure a holder's obligations under a Purchase Contract, the collective
rights and obligations of a holder of a Growth PRIDES Certificate in respect of
such Treasury Securities, subject in each case to the Pledge thereof, and the
related Purchase Contract.
"Growth PRIDES Certificate" means a certificate evidencing the rights
and obligations of a Holder in respect of the number of Growth PRIDES specified
on such certificate.
"Growth PRIDES Register" and "Growth PRIDES Registrar" have the
respective meanings specified in Section 3.5.
"Holder," when used with respect to a Security, means the Person in
whose name the Security evidenced by an Income PRIDES Certificate and/or a
Growth PRIDES Certificate is registered in the related Income PRIDES Register
and/or the Growth PRIDES Register, as the case may be.
"Income PRIDES" means the collective rights and obligations of a Holder
of an Income PRIDES Certificate in respect of a Trust Preferred Security or an
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, subject in each case to the Pledge thereof, and the related
Purchase Contract.
"Income PRIDES Certificate" means a certificate evidencing the rights
and obligations of a Holder in respect of the number of Income PRIDES specified
on such certificate.
"Income PRIDES Register" and "Income PRIDES Registrar" have the
respective meanings specified in Section 3.5.
"Indenture" has the meaning set forth in Section 1.1 of the
Declaration.
"Indenture Trustee" means The First National Bank of Chicago, a
national banking association, as trustee under the Indenture, or any successor
thereto.
6
<PAGE> 12
"Institutional Trustee" means The First National Bank of Chicago, as
institutional trustee under the Declaration, or any successor thereto that is a
financial institution unaffiliated with the Company.
"Issuer Order" or "Issuer Request" means a written order or request
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Agent.
"NNM" has the meaning specified in Section 5.1.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary of the Company and delivered
to the Agent.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company or an Affiliate and
who shall be reasonably acceptable to the Agent.
"Outstanding Securities," with respect to any Income PRIDES or Growth
PRIDES, means, as of the date of determination, all Income PRIDES or Growth
PRIDES evidenced by Certificates theretofore authenticated, executed and
delivered under this Agreement, except:
(i) If a Termination Event has occurred, (A) Growth PRIDES and
(B) Income PRIDES for which the Stated Amount of the related Trust
Preferred Security or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, or a Liquidation Distribution in respect of
such Trust Preferred Security, as the case may be, has been theretofore
deposited with the Agent in trust for the Holders of such Income
PRIDES;
(ii) Income PRIDES and Growth PRIDES evidenced by Certificates
theretofore cancelled by the Agent or delivered to the Agent for
cancellation or deemed cancelled pursuant to the provisions of this
Agreement; and
(iii) Income PRIDES and Growth PRIDES evidenced by
Certificates in exchange for or in lieu of which other Certificates
have been authenticated, executed on behalf of the Holder and delivered
pursuant to this Agreement, other than any such Certificate in respect
of which there shall
7
<PAGE> 13
have been presented to the Agent proof satisfactory to it that such
Certificate is held by a bona fide purchaser in whose hands the Income
PRIDES or Growth PRIDES evidenced by such Certificate are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
number of the Income PRIDES or Growth PRIDES have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Income PRIDES or
Growth PRIDES owned by the Company or any Affiliate of the Company shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Agent shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Income PRIDES or
Growth PRIDES which a Responsible Officer of the Agent knows to be so owned
shall be so disregarded. Income PRIDES or Growth PRIDES so owned which have been
pledged in good faith may be regarded as Outstanding Securities if the pledgee
establishes to the satisfaction of the Agent the pledgee's right so to act with
respect to such Income PRIDES or Growth PRIDES and that the pledgee is not the
Company or any Affiliate of the Company.
"Payment Date" means each February 16, May 16, August 16 and November
16, commencing 16, 1998.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, limited
liability company, trust, unincorporated association or government or any
agency or political subdivision thereof or any other entity of whatever nature.
"Permitted Investments" has the meaning set forth in Section 1 of the
Pledge Agreement.
"Pledge" means the pledge under the Pledge Agreement of the Trust
Preferred Securities, the Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, in each case constituting a part
of the Securities.
"Pledge Agreement" means the Pledge Agreement, dated as of the date
hereof, by and among the Company, the Collateral Agent and the Agent, on its own
behalf and as attorney-in-fact for the Holders from time to time of the
Securities.
8
<PAGE> 14
"Predecessor Certificate" means a Predecessor Income PRIDES Certificate
or a Predecessor Growth PRIDES Certificate.
"Predecessor Growth PRIDES Certificate" of any particular Growth PRIDES
Certificate means every previous Growth PRIDES Certificate evidencing all or a
portion of the rights and obligations of the Company and the Holder under the
Growth PRIDES evidenced thereby; and, for the purposes of this definition, any
Growth PRIDES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Growth PRIDES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Growth PRIDES
Certificate.
"Predecessor Income PRIDES Certificate" of any particular Income PRIDES
Certificate means every previous Income PRIDES Certificate evidencing all or a
portion of the rights and obligations of the Company and the Holder under the
Income PRIDES evidenced thereby; and, for the purposes of this definition, any
Income PRIDES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Income PRIDES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Income PRIDES
Certificate.
"Proceeds" has the meaning set forth in Section 1 of the Pledge
Agreement.
"Purchase Contract," when used with respect to any Security, means the
contract forming a part of such Security and obligating the Company to (i) sell
and the Holder of such Security to purchase Common Stock and (ii) pay the Holder
Contract Adjustment Payments, if any, on the terms and subject to the conditions
set forth in Article Five hereof.
"Purchase Contract Settlement Date" means 16, 2001.
"Purchase Contract Settlement Fund" has the meaning specified in
Section 5.5.
"Purchase Price" has the meaning specified in Section 5.1.
"Purchased Shares" has the meaning specified in Section 5.6(a)(6).
9
<PAGE> 15
"Record Date" for the distribution and Contract Adjustment Payments
payable on any Payment Date means, as to any Global Certificate, the Business
Day next preceding such Payment Date, and as to any other Certificate, a day
selected by the Company which shall be more than one Business Day but less than
60 Business Days prior to such Payment Date.
"Register" means the Income PRIDES Register and the Growth PRIDES
Register.
"Registrar" means the Income PRIDES Registrar and the Growth PRIDES
Registrar.
"Remarketing Agent" has the meaning specified in Section 5.4.
"Remarketing Agreement" means the Remarketing Agreement dated 16,
1998 by and between the Company, the Trust, the Remarketing Agent and the
Purchase Contract Agent.
"Remarketing Fee" has the meaning specified in Section 5.4.
"Remarketing Purchase Agreement" has the meaning specified in the
Remarketing Agreement.
"Reorganization Event" has the meaning specified in Section 5.6(b).
"Responsible Officer," when used with respect to the Agent, means any
officer of the Agent assigned by the Agent to administer its corporate trust
matters.
"Security" means an Income PRIDES or a Growth PRIDES.
"Senior Indebtedness" means indebtedness of any kind of the Company
unless the instrument under which such indebtedness is incurred expressly
provides that it is on parity with or subordinated in right of payment to the
Contract Adjustment Payments.
"Settlement Rate" has the meaning specified in Section 5.1.
"Stated Amount" means $10.
10
<PAGE> 16
"Termination Date" means the date, if any, on which a Termination Event
occurs.
"Termination Event" means the occurrence of any of the following
events: (i) at any time on or prior to the Purchase Contract Settlement Date, a
judgment, decree or court order shall have been entered granting relief under
the Bankruptcy Code, adjudicating the Company to be insolvent, or approving as
properly filed a petition seeking reorganization or liquidation of the Company
or any other similar applicable Federal or State law, and, unless such judgment,
decree or order shall have been entered within 60 days prior to the Purchase
Contract Settlement Date, such decree or order shall have continued undischarged
and unstayed for a period of 60 days; or (ii) at any time on or prior to the
Purchase Contract Settlement Date, a judgment, decree or court order for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company or of its property, or for the winding up or
liquidation of its affairs, shall have been entered, and, unless such judgment,
decree or order shall have been entered within 60 days prior to the Purchase
Contract Settlement Date, such judgment, decree or order shall have continued
undischarged and unstayed for a period of 60 days, or (iii) at any time on or
prior to the Purchase Contract Settlement Date the Company shall file a petition
for relief under the Bankruptcy Code, or shall consent to the filing of a
bankruptcy proceeding against it, or shall file a petition or answer or consent
seeking reorganization or liquidation under the Bankruptcy Code or any other
similar applicable Federal or State law, or shall consent to the filing of any
such petition, or shall consent to the appointment of a receiver or liquidator
or trustee or assignee in bankruptcy or insolvency of it or of its property, or
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due.
"Threshold Appreciation Price" has the meaning specified in Section
5.1.
"TIA" means the Trust Indenture Act of 1939, as amended, or any
successor statute.
"Trading Day" has the meaning specified in Section 5.1.
"Treasury Security" means zero-coupon U.S. Treasury Securities (CUSIP
Number ) which are the principal strip of the U.S. Treasury Securities which
mature on 15, 2001.
11
<PAGE> 17
"Trust" means PCHC Financing I, a statutory business trust formed under
the laws of the State of Delaware, or any successor thereto by merger or
consolidation.
"Trust Preferred Securities" means the % Trust Preferred Securities
of the Trust, each having a stated liquidation amount of $10, representing
undivided beneficial interests in the assets of the Trust.
"Underwriting Agreement" means the Underwriting Agreement dated ,
1998 among the Company, the Trust, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Vice President" means any vice president, whether or not designated by
a number or a word or words added before or after the title "vice president."
Section 1.2. Compliance Certificates and Opinions.
Except as otherwise expressly provided by this Agreement, upon any
application or request by the Company to the Agent to take any action under any
provision of this Agreement, the Company shall furnish to the Agent an Officer's
Certificate stating that all conditions precedent, if any, provided for in this
Agreement relating to the proposed action have been complied with and, if
requested by the Agent, an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Agreement relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
12
<PAGE> 18
(3) a statement that, in the opinion of each such individual,
he or she has made such examination or investigation as is necessary to
enable such individual to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Agent.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor
13
<PAGE> 19
signed by such Holders in person or by agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Agent and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
and (subject to Section 7.1) conclusive in favor of the Agent and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Agent deems
sufficient.
(c) The ownership of Securities shall be proved by the Income PRIDES
Register or the Growth PRIDES Register, as the case may be.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Certificate shall bind every future
Holder of the same Certificate and the Holder of every Certificate issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Agent or the
Company in reliance thereon, whether or not notation of such action is made upon
such Certificate.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Agreement to be given, made or taken by
Holders of Securities. If any record date is set pursuant to this paragraph, the
Holders of the Outstanding Income PRIDES and the Outstanding Growth PRIDES, as
the case may be, on such record date, and no other Holders, shall be entitled to
take the relevant action with respect to the Income PRIDES or the Growth PRIDES,
as the case may be, whether or not such Holders remain Holders after such record
date; provided that no such action shall be effective hereunder unless taken on
or prior to the applicable Expiration Date by Holders of the requisite number of
Outstanding Securities on such record date. Nothing in this paragraph shall be
construed to prevent the Company from setting a new record date for any action
for which a record date has previously been set pursuant to this paragraph
(whereupon the record date previously set shall automatically and with no action
by any Person be cancelled and of no effect), and nothing in this paragraph
shall be construed to render ineffective any
14
<PAGE> 20
action taken by Holders of the requisite number of Outstanding Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this paragraph, the Company, at its own expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the Agent in writing and to each Holder of Securities in the
manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the
Company may designate any date as the "Expiration Date" and from time to time
may change the Expiration Date to any earlier or later day; provided that no
such change shall be effective unless notice of the proposed new Expiration Date
is given to the Agent in writing, and to each Holder of Securities in the manner
set forth in Section 1.6, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section, the Company shall be deemed to have initially designated the
180th day after such record date as the Expiration Date with respect thereto,
subject to its right to change the Expiration Date as provided in this
paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than
the 180th day after the applicable record date.
Section 1.5. Notices.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with,
(1) the Agent by any Holder or by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, first-class postage prepaid, to the
Agent at The First National Bank of Chicago, One First National Plaza,
Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust
Services Division, or at any other address previously furnished in
writing by the Agent to the Holders and the Company; or
(2) the Company by the Agent or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, first-class postage prepaid, to the
Company at Philadelphia Consolidated Holding Corp., One Bala Plaza,
Suite 100, Bala Cynwyd, PA 19004, Attention: Secretary, or at any
other address previously furnished in writing to the Agent by the
Company; or
15
<PAGE> 21
(3) the Collateral Agent by the Agent, the Company or any
Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if made, given, furnished or filed
in writing and personally delivered or mailed, first-class postage
prepaid, addressed to the Collateral Agent at The Chase Manhattan
Bank, 450 West 33rd Street, 15th Floor, New York, NY 10001, Attention:
Corporate Trust Administration, or at any other address previously
furnished in writing by the Collateral Agent to the Agent, the Company
and the Holders; or
(4) the Institutional Trustee by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, first-class postage prepaid, addressed
to the Institutional Trustee at The First National Bank of Chicago, One
First National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention:
Corporate Trust Services Division, or at any other address previously
furnished in writing by the Institutional Trustee to the Company; or
(5) the Indenture Trustee by the Company shall be sufficient
for every purpose hereunder (unless otherwise herein expressly
provided) if made, given, furnished or filed in writing and personally
delivered or mailed, first-class postage prepaid, addressed to the
Indenture Trustee at The First National Bank of Chicago, One First
National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention:
Corporate Trust Services Division, or at any other address previously
furnished in writing by the Indenture Trustee to the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Agreement provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at its address as it appears in the applicable Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such
16
<PAGE> 22
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Agent, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Agent shall
constitute a sufficient notification for every purpose hereunder.
Section 1.7. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.8. Successors and Assigns.
All covenants and agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.9. Separability Clause.
In case any provision in this Agreement or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof and thereof shall not in any way be affected or
impaired thereby.
Section 1.10. Benefits of Agreement.
Nothing in this Agreement or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and, to the extent provided hereby, the Holders, any benefits or any
legal or equitable right, remedy or claim under this Agreement. The Holders from
time to time shall be beneficiaries of this Agreement and shall be bound by all
of the terms and conditions hereof and of the Securities evidenced by their
Certificates by their acceptance of delivery of such Certificates.
Section 1.11. Governing Law.
17
<PAGE> 23
THIS AGREEMENT AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 1.12. Legal Holidays.
In any case where any Payment Date shall not be a Business Day, then
(notwithstanding any other provision of this Agreement or the Income PRIDES
Certificates or the Growth PRIDES Certificates) payment of the Contract
Adjustment Payments, if any, shall not be made on such date, but such payments
shall be made on the next succeeding Business Day with the same force and effect
as if made on such Payment Date, provided that no interest shall accrue or be
payable by the Company or any Holder for the period from and after any such
Payment Date, except that, if such next succeeding Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day with the same force and effect as if made on such Payment
Date.
In any case where any Purchase Contract Settlement Date shall not be a
Business Day, then (notwithstanding any other provision of this Agreement, the
Income PRIDES Certificates or the Growth PRIDES Certificates), the Purchase
Contracts shall not be performed on such date, but the Purchase Contracts shall
be performed on the immediately following Business Day with the same force and
effect as if performed on the Purchase Contract Settlement Date.
Section 1.13. Counterparts.
This Agreement may be executed in any number of counterparts by the
parties hereto on separate counterparts, each of which, when so executed and
delivered, shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
Section 1.14. Inspection of Agreement.
A copy of this Agreement shall be available at all reasonable times
during normal business hours at the Corporate Trust Office for inspection by any
Holder.
18
<PAGE> 24
ARTICLE II
Certificate Forms
Section 2.1. Forms of Certificates Generally.
The Income PRIDES Certificates (including the form of Purchase Contract
forming part of the Income PRIDES evidenced thereby) shall be in substantially
the form set forth in Exhibit A hereto, with such letters, numbers or other
marks of identification or designation and such legends or endorsements printed,
lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Income PRIDES are listed or any depositary
therefor, or as may, consistently herewith, be determined by the officers of
the Company executing such Income PRIDES Certificates, as evidenced by their
execution of the Income PRIDES Certificates.
The definitive Income PRIDES Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing the
Income PRIDES evidenced by such Income PRIDES Certificates, consistent with the
provisions of this Agreement, as evidenced by their execution thereof.
The Growth PRIDES Certificates (including the form of Purchase
Contracts forming part of the Growth PRIDES evidenced thereby) shall be in
substantially the form set forth in Exhibit B hereto, with such letters, numbers
or other marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Growth PRIDES may be listed or any depositary
therefor, or as may, consistently herewith, be determined by the officers of the
Company executing such Growth PRIDES Certificates, as evidenced by their
execution of the Growth PRIDES Certificates.
The definitive Growth PRIDES Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing the
Growth PRIDES evidenced by such Growth PRIDES Certificates, consistent with the
provisions of this Agreement, as evidenced by their execution thereof.
19
<PAGE> 25
Every Global Certificate authenticated, executed on behalf of the
Holders and delivered hereunder shall bear a legend in substantially the
following form:
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED
IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS
CERTIFICATE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE
REGISTERED, AND NO TRANSFER OF THIS CERTIFICATE IN WHOLE OR IN PART MAY
BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH CLEARING
AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
Section 2.2. Form of Agent's Certificate of Authentication.
The form of the Agent's certificate of authentication of the Income
PRIDES shall be in substantially the form set forth on the form of the Income
PRIDES Certificates.
The form of the Agent's certificate of authentication of the Growth
PRIDES shall be in substantially the form set forth on the form of the Growth
PRIDES Certificates.
ARTICLE III
The Securities
Section 3.1. Title and Terms; Denominations.
The aggregate number of Income PRIDES and Growth PRIDES evidenced by
Certificates authenticated, executed on behalf of the Holders and delivered
hereunder is limited to 10,350,000 except for Certificates authenticated,
executed and delivered upon registration of transfer of, in exchange for, or in
lieu of, other Certificates pursuant to Section 3.4, 3.5, 3.10, 3.13, 3.14, 5.9
or 8.5.
20
<PAGE> 26
The Certificates shall be issuable only in registered form and only in
denominations of a single Income PRIDES or Growth PRIDES and any integral
multiple thereof.
Section 3.2. Rights and Obligations Evidenced by the Certificates.
Each Income PRIDES Certificate shall evidence the number of Income
PRIDES specified therein, with each such Income PRIDES representing the
ownership by the Holder thereof of a beneficial interest in a Trust Preferred
Security or the Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, subject to the Pledge of such Trust Preferred Security or the
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, by
such Holder pursuant to the Pledge Agreement, and the rights and obligations of
the Holder thereof and the Company under one Purchase Contract. The Agent as
attorney-in-fact for, and on behalf of, the Holder of each Income PRIDES shall
pledge, pursuant to the Pledge Agreement, the Trust Preferred Security or the
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
forming a part of such Income PRIDES, to the Collateral Agent and grant to the
Collateral Agent a security interest in the right, title, and interest of such
Holder in such Trust Preferred Security or the Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, for the benefit of the Company, to
secure the obligation of the Holder under each Purchase Contract to purchase the
Common Stock of the Company.
Each Growth PRIDES Certificate shall evidence the number of Growth
PRIDES specified therein, with each such Growth PRIDES representing the
ownership by the Holder thereof of a 1/100 undivided beneficial interest in a
Treasury Security with a principal amount equal to $1,000 subject to the Pledge
of such Treasury Security by such Holder pursuant to the Pledge Agreement, and
the rights and obligations of the Holder thereof and the Company under one
Purchase Contract.
Section 3.3. Execution, Authentication, Delivery and Dating.
Subject to the provisions of Sections 3.13 and 3.14 hereof, upon the
execution and delivery of this Agreement, and at any time and from time to time
thereafter, the Company may deliver Certificates executed by the Company to the
Agent for authentication, execution on behalf of the Holders and delivery,
together with its Issuer Order for authentication of such Certificates, and the
Agent in accordance with such Issuer Order shall authenticate, execute on behalf
of the Holders and deliver such Certificates.
21
<PAGE> 27
The Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents and its
Treasurer or one of its Assistant Treasurers, or its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the
Certificates may be manual or facsimile.
Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates.
No Purchase Contract evidenced by a Certificate shall be valid until
such Certificate has been executed on behalf of the Holder by the manual
signature of an authorized signatory of the Agent, as such Holder's
attorney-in-fact. Such signature by an authorized signatory of the Agent shall
be conclusive evidence that the Holder of such Certificate has entered into the
Purchase Contracts evidenced by such Certificate.
Each Certificate shall be dated the date of its authentication.
No Certificate shall be entitled to any benefit under this Agreement or
be valid or obligatory for any purpose unless there appears on such Certificate
a certificate of authentication substantially in the form provided for herein
executed by an authorized signatory of the Agent by manual signature, and such
certificate upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
Section 3.4. Temporary Certificates.
Pending the preparation of definitive Certificates, the Company shall
execute and deliver to the Agent, and the Agent shall authenticate, execute on
behalf of the Holders, and deliver, in lieu of such definitive Certificates,
temporary Certificates which are in substantially the form set forth in Exhibit
A or Exhibit B hereto, as the case may be, with such letters, numbers or other
marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Income PRIDES or Growth PRIDES are listed, or
as may, consistently herewith, be determined by the officers of the Company
executing such Certificates, as evidenced by their execution of the
Certificates.
22
<PAGE> 28
If temporary Certificates are issued, the Company will cause definitive
Certificates to be prepared without unreasonable delay. After the preparation of
definitive Certificates, the temporary Certificates shall be exchangeable for
definitive Certificates upon surrender of the temporary Certificates at the
Corporate Trust Office, at the expense of the Company and without charge to the
Holder. Upon surrender for cancellation of any one or more temporary
Certificates, the Company shall execute and deliver to the Agent, and the Agent
shall authenticate, execute on behalf of the Holder, and deliver in exchange
therefor, one or more definitive Certificates of like tenor and denominations
and evidencing a like number of Income PRIDES or Growth PRIDES, as the case may
be, as the temporary Certificate or Certificates so surrendered. Until so
exchanged, the temporary Certificates shall in all respects evidence the same
benefits and the same obligations with respect to the Income PRIDES or Growth
PRIDES, as the case may be, evidenced thereby as definitive Certificates.
Section 3.5. Registration; Registration of Transfer and Exchange.
The Agent shall keep at the Corporate Trust Office a Register (the
"Income PRIDES Register") in which, subject to such reasonable regulations as it
may prescribe, the Agent shall provide for the registration of Income PRIDES
Certificates and of transfers of Income PRIDES Certificates (the Agent, in such
capacity, the "Income PRIDES Registrar") and a Register (the "Growth PRIDES
Register") in which, subject to such reasonable regulations as it may prescribe,
the Agent shall provide for the registration of the Growth PRIDES Certificates
and transfers of Growth PRIDES Certificates (the Agent, in such capacity, the
"Growth PRIDES Registrar").
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Company shall execute and deliver to the Agent, and
the Agent shall authenticate, execute on behalf of the designated transferee or
transferees, and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of any authorized denominations, like
tenor, and evidencing a like number of Income PRIDES or Growth PRIDES, as the
case may be.
At the option of the Holder, Certificates may be exchanged for other
Certificates, of any authorized denominations and evidencing a like number of
Income PRIDES or Growth PRIDES, as the case may be, upon surrender of the
Certificates to be exchanged at the Corporate Trust Office. Whenever any
Certificates are so surrendered for exchange, the Company shall execute and
deliver to the Agent, and
23
<PAGE> 29
the Agent shall authenticate, execute on behalf of the Holder, and deliver the
Certificates which the Holder making the exchange is entitled to receive.
All Certificates issued upon any registration of transfer or exchange
of a Certificate shall evidence the ownership of the same number of Income
PRIDES or Growth PRIDES, as the case may be, and be entitled to the same
benefits and subject to the same obligations, under this Agreement as the Income
PRIDES or Growth PRIDES, as the case may be, evidenced by the Certificate
surrendered upon such registration of transfer or exchange.
Every Certificate presented or surrendered for registration of transfer
or for exchange shall (if so required by the Agent) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Agent duly executed, by the Holder thereof or its attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of a Certificate, but the Company and the Agent may require payment
from the Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates, other than any exchanges pursuant to Sections 3.6 and
8.5 not involving any transfer.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenticate, execute on behalf of the Holder and deliver any Certificate
presented or surrendered for registration of transfer or for exchange on or
after the Business Day immediately preceding the earlier of the Purchase
Contract Settlement Date or the Termination Date. In lieu of delivery of a new
Certificate, upon satisfaction of the applicable conditions specified above in
this Section and receipt of appropriate registration or transfer instructions
from such Holder, the Agent shall (i) if the Purchase Contract Settlement Date
has occurred, deliver the shares of Common Stock issuable in respect of the
Purchase Contracts forming a part of the Securities evidenced by such
Certificate, (ii) in the case of Income PRIDES, if a Termination Event shall
have occurred prior to the Purchase Contract Settlement Date, transfer the
aggregate Stated Amount of the Trust Preferred Securities or the Treasury
Portfolio, as applicable, evidenced thereby, or (iii) in the case of Growth
PRIDES, if a Termination Event shall have occurred prior to the Purchase
Contract Settlement Date, transfer the Treasury Securities evidenced thereby, in
each case subject to the applicable conditions and in accordance with the
applicable provisions of Article Five hereof.
24
<PAGE> 30
Section 3.6. Book-Entry Interests.
The Certificates, on original issuance, will be issued in the form of
one or more, fully registered Global Certificates, to be delivered to the
Depositary by, or on behalf of, the Company. Such Global Certificate shall
initially be registered on the books and records of the Company in the name of
Cede & Co., the nominee of the Depositary, and no Beneficial Owner will receive
a definitive Certificate representing such Beneficial Owner's interest in such
Global Certificate, except as provided in Section 3.9. The Agent shall enter
into an agreement with the Depositary if so requested by the Company. Unless and
until definitive, fully registered Certificates have been issued to Beneficial
Owners pursuant to Section 3.9:
(a) the provisions of this Section 3.6 shall be in full force
and effect;
(b) the Company shall be entitled to deal with the Clearing
Agency for all purposes of this Agreement (including the payment of Contract
Adjustment Payments, if any, and receiving approvals, votes or consents
hereunder) as the Holder of the Securities and the sole holder of the Global
Certificate(s) and shall have no obligation to the Beneficial Owners;
(c) to the extent that the provisions of this Section 3.6
conflict with any other provisions of this Agreement, the provisions of this
Section 3.6 shall control; and
(d) the rights of the Beneficial Owners shall be exercised
only through the Clearing Agency and shall be limited to those established by
law and agreements between such Beneficial Owners and the Clearing Agency and/or
the Clearing Agency Participants. The Clearing Agency will make book entry
transfers among Clearing Agency Participants and receive and transmit payments
of Contract Adjustment Payments to such Clearing Agency Participants.
Section 3.7. Notices to Holders.
Whenever a notice or other communication to the Holders is required to
be given under this Agreement, the Company or the Company's agent shall give
such notices and communications to the Holders and, with respect to any
Securities registered in the name of a Clearing Agency or the nominee of a
Clearing Agency,
25
<PAGE> 31
the Company or the Company's agent shall, except as set forth herein, have no
obligations to the Beneficial Owners.
Section 3.8. Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Securities, the Company may, in its sole
discretion, appoint a successor Clearing Agency with respect to the Securities.
Section 3.9. Definitive Certificates.
If (i) a Clearing Agency elects to discontinue its services as
securities depositary with respect to the Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 3.8, (ii) the Company elects to terminate the book-entry system through
the Clearing Agency with respect to the Securities, or (iii) there shall have
occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts, then upon surrender of the
Global Certificates representing the Book-Entry Interests with respect to the
Securities by the Clearing Agency, accompanied by registration instructions, the
Company shall cause definitive Certificates to be delivered to Beneficial Owners
in accordance with the instructions of the Clearing Agency. The Company shall
not be liable for any delay in delivery of such instructions and may
conclusively rely on and shall be protected in relying on, such instructions.
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates.
If any mutilated Certificate is surrendered to the Agent, the Company
shall execute and deliver to the Agent, and the Agent shall authenticate,
execute on behalf of the Holder, and deliver in exchange therefor, a new
Certificate at the cost of the Holder, evidencing the same number of Income
PRIDES or Growth PRIDES, as the case may be, and bearing a Certificate number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Agent (i) evidence
to their satisfaction of the destruction, loss or theft of any Certificate, and
(ii) such security or indemnity at the cost of the Holder as may be required by
them to hold each of them and any agent of any of them harmless, then, in the
absence of notice to the Company or the Agent that such Certificate has been
acquired by a bona fide purchaser, the Company shall execute and deliver to the
Agent, and the Agent shall
26
<PAGE> 32
authenticate, execute on behalf of the Holder, and deliver to the Holder, in
lieu of any such destroyed, lost or stolen Certificate, a new Certificate,
evidencing the same number of Income PRIDES or Growth PRIDES, as the case may
be, and bearing a Certificate number not contemporaneously outstanding.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenticate, execute on behalf of the Holder, and deliver to the Holder, a
Certificate on or after the Business Day immediately preceding the earlier of
the Purchase Contract Settlement Date or the Termination Date. In lieu of
delivery of a new Certificate, upon satisfaction of the applicable conditions
specified above in this Section and receipt of appropriate registration or
transfer instructions from such Holder, the Agent shall (i) if the Purchase
Contract Settlement Date has occurred, deliver the shares of Common Stock
issuable in respect of the Purchase Contracts forming a part of the Securities
evidenced by such Certificate, or (ii) if a Termination Event shall have
occurred prior to the Purchase Contract Settlement Date, transfer the Trust
Preferred Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or the Treasury Securities, as the case may be, evidenced
thereby, in each case subject to the applicable conditions and in accordance
with the applicable provisions of Article Five hereof.
Upon the issuance of any new Certificate under this Section, the
Company and the Agent may require the payment by the Holder of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Agent)
connected therewith.
Every new Certificate issued pursuant to this Section in lieu of any
destroyed, lost or stolen Certificate shall constitute an original additional
contractual obligation of the Company and of the Holder in respect of the
Security evidenced thereby, whether or not the destroyed, lost or stolen
Certificate (and the Securities evidenced thereby) shall be at any time
enforceable by anyone, and shall be entitled to all the benefits and be subject
to all the obligations of this Agreement equally and proportionately with any
and all other Certificates delivered hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates.
27
<PAGE> 33
Section 3.11. Persons Deemed Owners.
Prior to due presentment of a Certificate for registration of transfer,
the Company and the Agent, and any agent of the Company or the Agent, may treat
the Person in whose name such Certificate is registered as the owner of the
Income PRIDES or Growth PRIDES evidenced thereby, for the purpose of receiving
distributions on the Trust Preferred Securities or on the maturing quarterly
interest strips of the Treasury Portfolio, as applicable, receiving payments of
Contract Adjustment Payments, performance of the Purchase Contracts and for all
other purposes whatsoever, whether or not any distributions on the Trust
Preferred Securities or the Contract Adjustment Payments payable in respect of
the Purchase Contracts constituting a part of the Income PRIDES or Growth PRIDES
evidenced thereby shall be overdue and notwithstanding any notice to the
contrary, and neither the Company nor the Agent, nor any agent of the Company or
the Agent, shall be affected by notice to the contrary.
Notwithstanding the foregoing, with respect to any Global Certificate,
nothing herein shall prevent the Company, the Agent or any agent of the Company
or the Agent, from giving effect to any written certification, proxy or other
authorization furnished by any Clearing Agency (or its nominee), as a Holder,
with respect to such Global Certificate or impair, as between such Clearing
Agency and owners of beneficial interests in such Global Certificate, the
operation of customary practices governing the exercise of rights of such
Clearing Agency (or its nominee) as Holder of such Global Certificate.
Section 3.12. Cancellation.
All Certificates surrendered for delivery of shares of Common Stock on
or after the Purchase Contract Settlement Date, upon the transfer of Trust
Preferred Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or Treasury Securities, as the case may be, after the
occurrence of a Termination Event or pursuant to an Early Settlement, or upon
the registration of a transfer or exchange of a Security, or a Collateral
Substitution or the re-establishment of an Income PRIDES shall, if surrendered
to any Person other than the Agent, be delivered to the Agent and, if not
already cancelled, shall be promptly cancelled by it. The Company may at any
time deliver to the Agent for cancellation any Certificates previously
authenticated, executed and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Certificates so delivered shall, upon
Issuer Order, be promptly cancelled by the Agent. No Certificates shall be
authenti-
28
<PAGE> 34
cated, executed on behalf of the Holder and delivered in lieu of or in exchange
for any Certificates cancelled as provided in this Section, except as expressly
permitted by this Agreement. All cancelled Certificates held by the Agent shall
upon written request be returned to the Company.
If the Company or any Affiliate of the Company shall acquire any
Certificate, such acquisition shall not operate as a cancellation of such
Certificate unless and until such Certificate is delivered to the Agent
cancelled or for cancellation.
Section 3.13. Establishment or Reestablishment of Growth PRIDES.
A Holder may separate the Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as applicable, from the
related Purchase Contracts in respect of an Income PRIDES by substituting for
such Trust Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, Treasury Securities in an
aggregate principal amount equal to the aggregate Stated Amount of such Trust
Preferred Securities or for the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as applicable (a "Collateral Substitution"), at any time from and
after the date of this Agreement and on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date in the case of the
Trust Preferred Securities and on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date in the case of the
appropriate Applicable Ownership Interest of the Treasury Portfolio, in each
case by (a) depositing with the Collateral Agent Treasury Securities having an
aggregate principal amount equal to the aggregate Stated Amount of the Trust
Preferred Securities comprising part of such Income PRIDES or for the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio comprising part of such
Income PRIDES, as the case may be, and (b) (i) by delivering cash in an amount
equal to the excess of the Contract Adjustment Payments that would have accrued
since the last Payment Date through the date of substitution on the Growth
PRIDES being created by the holder, over the Contract Adjustment Payments that
have accrued over the same time period on the related Income PRIDES, which
amount the Agent shall promptly remit to the Company, and (ii) transferring the
related Income PRIDES to the Agent accompanied by a notice to the Agent,
substantially in the form of Exhibit D hereto, stating that the Holder has
transferred the relevant amount of Treasury Securities to the Collateral Agent
and requesting that the Agent instruct the Collateral Agent to release the Trust
Preferred Securities or the appropriate Applicable Ownership
29
<PAGE> 35
Interest of the Treasury Portfolio, as the case may be, underlying such Income
PRIDES, whereupon the Agent shall promptly give such instruction to the
Collateral Agent, substantially in the form of Exhibit C hereto. Upon receipt of
the Treasury Securities described in clause (a) above and the instruction
described in clause (b) above, in accordance with the terms of the Pledge
Agreement, the Collateral Agent will release to the Agent, on behalf of the
Holder, Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, having a corresponding
aggregate Stated Amount of such Trust Preferred Securities or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be, from the Pledge, free
and clear of the Company's security interest therein, and upon receipt thereof
the Agent shall promptly:
(i) cancel the related Income PRIDES;
(ii) transfer the Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, to the Holder; and
(iii) authenticate, execute on behalf of such Holder and
deliver a Growth PRIDES Certificate executed by the Company in
accordance with Section 3.3 evidencing the same number of Purchase
Contracts as were evidenced by the cancelled Income PRIDES.
Holders who elect to separate the Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, from the related Purchase Contract and to substitute Treasury Securities
for such Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, shall be responsible for
any fees or expenses payable to the Collateral Agent for its services as
Collateral Agent in respect of the substitution, and the Company shall not be
responsible for any such fees or expenses.
Holders may make Collateral Substitutions (i) only in integral
multiples of 100 Income PRIDES if Trust Preferred Securities are being
substituted by Treasury Securities, or (ii) only in integral multiples of
4,000,000 Income PRIDES if the appropriate Applicable Ownership Interests of the
Treasury Portfolio are being substituted by Treasury Securities.
30
<PAGE> 36
In the event a Holder making a Collateral Substitution pursuant to this
Section 3.13 fails to effect a book-entry transfer of the Income PRIDES or fails
to deliver an Income PRIDES Certificate(s) to the Agent after depositing
Treasury Securities with the Collateral Agent, the Trust Preferred Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, constituting a part of such Income PRIDES, and any distributions
on such Trust Preferred Security or the Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, shall be held in the name of the Agent
or its nominee in trust for the benefit of such Holder, until such Income PRIDES
is so transferred or the Income PRIDES Certificate is so delivered, as the case
may be, or, with respect to an Income PRIDES Certificate, such Holder provides
evidence satisfactory to the Company and the Agent that such Income PRIDES
Certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Agent and the Company.
Except as described in this Section 3.13, for so long as the Purchase
Contract underlying an Income PRIDES remains in effect, such Income PRIDES shall
not be separable into its constituent parts, and the rights and obligations of
the Holder in respect of the Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, and
Purchase Contract comprising such Income PRIDES may be acquired, and may be
transferred and exchanged, only as an Income PRIDES.
Section 3.14. Establishment or Reestablishment of Income PRIDES.
A Holder of a Growth PRIDES may create or recreate Income PRIDES at any
time (i) on or prior to the fifth Business Day immediately preceding the
Purchase Contract Settlement Date, if a Tax Event Redemption has not occurred,
and (ii) on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date, if a Tax Event Redemption has occurred, in
each case by (a) depositing with the Collateral Agent Trust Preferred Securities
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, having an aggregate Stated Amount in the case of the Trust
Preferred Securities, or an appropriate Applicable Ownership Interest (as
defined in clause (A) of the definition of such term) of the Treasury Portfolio,
as the case may be, equal to the aggregate principal amount of the Treasury
Securities comprising part of the Growth PRIDES and (b) transferring the related
Growth PRIDES to the Agent accompanied by a notice to the Agent, substantially
in the form of Exhibit D hereto, stating that the Holder has transferred the
relevant amount of Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may
31
<PAGE> 37
be, to the Collateral Agent and requesting that the Agent instruct the
Collateral Agent to release the Treasury Securities underlying such Growth
PRIDES, whereupon the Agent shall promptly give such instruction to the
Collateral Agent, substantially in the form of Exhibit C hereto. Upon receipt of
the Trust Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, described in clause (a) above and
the instruction described in clause (b) above, in accordance with the terms of
the Pledge Agreement, the Collateral Agent will effect the release of the
Treasury Securities having a corresponding aggregate principal amount from the
Pledge to the Agent free and clear of the Company's security interest therein,
and upon receipt thereof the Agent shall promptly:
(i) cancel the related Growth PRIDES;
(ii) transfer the Treasury Securities to the Holder; and
(iii) authenticate, execute on behalf of such Holder and
deliver an Income PRIDES Certificate executed by the Company in
accordance with Section 3.3 evidencing the same number of Purchase
Contracts as were evidenced by the cancelled Growth PRIDES.
Holders of Growth PRIDES may establish or reestablish Income PRIDES in
integral multiples of 100 Growth PRIDES for 100 Income PRIDES if a Tax Event
Redemption has not occurred, and in integral multiples of 4,000,000 Growth
PRIDES for 4,000,000 Income PRIDES if a Tax Event Redemption has occurred.
Except as provided in this Section 3.14, for so long as the Purchase
Contract underlying a Growth PRIDES remains in effect, such Growth PRIDES shall
not be separable into its constituent parts and the rights and obligations of
the Holder of such Growth PRIDES in respect of the Treasury Security and
Purchase Contract comprising such Growth PRIDES may be acquired, and may be
transferred and exchanged only as a Growth PRIDES.
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event.
Upon the occurrence of a Termination Event and the transfer to the
Agent of the Trust Preferred Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury Securities, as the case may
be, underlying the Income PRIDES and the Growth PRIDES pursuant to the terms of
the Pledge Agreement, the Agent shall request transfer instructions with respect
to such Trust
32
<PAGE> 38
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio or Treasury Securities, as the case may be, from each Holder
by written request mailed to such Holder at its address as it appears in the
Income PRIDES Register or the Growth PRIDES Register, as the case may be. Upon
book-entry transfer of the Income PRIDES or Growth PRIDES or delivery of an
Income PRIDES Certificate or Growth PRIDES Certificate to the Agent with such
transfer instructions, the Agent shall transfer the Trust Preferred Securities,
the Treasury Portfolio or Treasury Securities, as the case may be, underlying
such Income PRIDES or Growth PRIDES, as the case may be, to such Holder by
book-entry transfer, or other appropriate procedures, in accordance with such
instructions. In the event a Holder of Income PRIDES or Growth PRIDES fails to
effect such transfer or delivery, the Trust Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or Treasury
Securities, as the case may be, underlying such Income PRIDES or Growth PRIDES,
as the case may be, and any distributions thereon, shall be held in the name of
the Agent or its nominee in trust for the benefit of such Holder, until such
Income PRIDES or Growth PRIDES are transferred or the Income PRIDES Certificate
or Growth PRIDES Certificate is surrendered or such Holder provides
satisfactory evidence that such Income PRIDES Certificate or Growth PRIDES
Certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Agent and the Company.
Section 3.16. No Consent to Assumption.
Each Holder of a Security, by acceptance thereof, shall be deemed
expressly to have withheld any consent to the assumption under Section 365 of
the Bankruptcy Code or otherwise, of the Purchase Contract by the Company,
receiver, liquidator or a person or entity performing similar functions, its
trustee in the event that the Company becomes the debtor under the Bankruptcy
Code or subject to other similar state or federal law providing for
reorganization or liquidation.
33
<PAGE> 39
ARTICLE IV
The Trust Preferred Securities
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice.
A distribution on any Trust Preferred Security or on the appropriate
Applicable Ownership Interest in the Treasury Portfolio, as the case may be,
which is paid on any Payment Date shall, subject to receipt thereof by the Agent
from the Collateral Agent as provided by the terms of the Pledge Agreement, be
paid to the Person in whose name the Income PRIDES Certificate (or one or more
Predecessor Income PRIDES Certificates) of which such Trust Preferred Security
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, is a part is registered at the close of business on the Record
Date for such Payment Date.
Each Income PRIDES Certificate evidencing Trust Preferred Securities
delivered under this Agreement upon registration of transfer of or in exchange
for or in lieu of any other Income PRIDES Certificate shall carry the rights to
distributions accrued and unpaid, and to accrue distributions, which were
carried by the Trust Preferred Securities underlying such other Income PRIDES
Certificate.
In the case of any Income PRIDES with respect to which Cash Settlement
of the underlying Purchase Contract is effected on the Business Day immediately
preceding the Purchase Contract Settlement Date pursuant to prior notice, or
with respect to which Early Settlement of the underlying Purchase Contract is
effected on an Early Settlement Date, or with respect to which a Collateral
Substitution is effected, in each case on a date that is after any Record Date
and on or prior to the next succeeding Payment Date, distributions on the Trust
Preferred Securities or on the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, underlying such Income PRIDES otherwise
payable on such Payment Date shall be payable on such Payment Date
notwithstanding such Cash Settlement or Early Settlement or Collateral
Substitution, and such distributions shall, subject to receipt thereof by the
Agent, be payable to the Person in whose name the Income PRIDES Certificate (or
one or more Predecessor Income PRIDES Certificates) was registered at the close
of business on the Record Date. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Income PRIDES with respect to
which Cash Settlement or Early Settlement of the underlying Purchase Contract
is effected on the Business Day immediately preceding the Purchase
34
<PAGE> 40
Contract Settlement Date or an Early Settlement Date, as the case may be, or
with respect to which a Collateral Substitution has been effected, distributions
on the related Trust Preferred Securities or on the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, that would
otherwise be payable after the Purchase Contract Settlement Date or Early
Settlement Date shall not be payable hereunder to the Holder of such Income
PRIDES; provided, however, that to the extent that such Holder continues to hold
the separated Trust Preferred Securities that formerly comprised a part of such
Holder's Income PRIDES, such Holder shall be entitled to receive the
distributions on such separated Trust Preferred Securities.
The applicable Coupon Rate on the Trust Preferred Securities on and
after the Purchase Contract Settlement Date will be reset on the third Business
Day immediately preceding the Purchase Contract Settlement Date to the Reset
Rate (such Reset Rate to be in effect on and after the Purchase Contract
Settlement Date). On the Reset Announcement Date the Reset Spread and the
Two-Year Benchmark Treasury to be used to determine the Reset Rate will be
announced by the Company. On the Business Day immediately following the Reset
Announcement Date, the Trust Preferred Securities Holders will be notified of
such Reset Spread and Two-Year Benchmark Treasury by the Company. Such notice
shall be sufficiently given to Holders of Trust Preferred Securities if
published in an Authorized Newspaper in The City of New York.
Not later than 7 calendar days nor more than 15 calendar days prior to
the Reset Announcement Date, the Company will notify the DTC or its nominee (or
any successor Clearing Agency or its nominee) by first-class mail, postage
prepaid, to notify the Beneficial Owners or Clearing Agency Participants holding
Income PRIDES or Growth PRIDES, of such Reset Announcement Date and the
procedures to be followed by such Holders of Income PRIDES who intend to settle
their obligation under the Purchase Contract with separate cash on the Purchase
Contract Settlement Date.
Section 4.2. Notice and Voting.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Trust
Preferred Securities pledged with the Collateral Agent but only to the extent
instructed by the Holders as described below. Upon receipt of notice of any
meeting at which holders of Trust Preferred Securities are entitled to vote or
upon any solicitation of consents,
35
<PAGE> 41
waivers or proxies of holders of Trust Preferred Securities, the Agent shall, as
soon as practicable thereafter, mail to the Holders of Income PRIDES a notice
(a) containing such information as is contained in the notice or solicitation,
(b) stating that each Holder on the record date set by the Agent therefor
(which, to the extent possible, shall be the same date as the record date for
determining the holders of Trust Preferred Securities entitled to vote) shall
be entitled to instruct the Agent as to the exercise of the voting rights
pertaining to the Trust Preferred Securities underlying their Income PRIDES and
(c) stating the manner in which such instructions may be given. Upon the written
request of the Holders of Income PRIDES on such record date, the Agent shall
endeavor insofar as practicable to vote or cause to be voted, in accordance with
the instructions set forth in such requests, the maximum number of Trust
Preferred Securities as to which any particular voting instructions are
received. In the absence of specific instructions from the Holder of an Income
PRIDES, the Agent shall abstain from voting the Trust Preferred Security
underlying such Income PRIDES. The Company hereby agrees, if applicable, to
solicit Holders of Income PRIDES to timely instruct the Agent in order to enable
the Agent to vote such Trust Preferred Securities and the Trust shall covenant
to such effect in the Declaration.
Section 4.3. Distribution of Debentures; Tax Event Redemption.
Upon the occurrence of an Investment Company Event or a liquidation of
the Trust in accordance with the Declaration, a principal amount of Debentures
constituting the assets of the Trust and underlying the Trust Preferred
Securities equal to the aggregate Stated Amount of the Pledged Trust Preferred
Securities shall be delivered to the Collateral Agent in exchange for the
Pledged Trust Preferred Securities. Thereafter, the Debentures will be
substituted for the Pledged Trust Preferred Securities, and will be held by the
Collateral Agent in accordance with the terms of the Pledge Agreement to secure
the obligations of each Holder of an Income PRIDES to purchase the Common Stock
of the Company under the Purchase Contracts constituting a part of such Income
PRIDES. Following the occurrence of an Investment Company Event or a liquidation
of the Trust, the Holders and the Collateral Agent shall have such security
interests, rights and obligations with respect to the Debentures as the Holders
and the Collateral Agent had in respect of the Trust Preferred Securities
subject to the Pledge thereof as provided in Articles II, III, IV, V and VI of
the Pledge Agreement, and any reference herein to the Trust Preferred Securities
shall be deemed to be a reference to such Debentures. The Company may cause to
be made in any Income PRIDES Certificates thereafter to be issued such change in
phraseology and form (but not in substance) as may be
36
<PAGE> 42
appropriate to reflect the liquidation of the Trust and the substitution of
Debentures for Trust Preferred Securities as Collateral.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Collateral Agent in exchange for the Pledged Trust
Preferred Securities. Thereafter, pursuant to the terms of the Pledge Agreement,
the Collateral Agent will apply an amount equal to the Redemption Amount of such
Redemption Price to purchase on behalf of the Holders of Income PRIDES the
Treasury Portfolio and promptly remit the remaining portion of such Redemption
Price to the Agent for payment to the Holders of such Income PRIDES. The
Treasury Portfolio will be substituted for the Pledged Trust Preferred
Securities, and will be held by the Collateral Agent in accordance with the
terms of the Pledge Agreement to secure the obligation of each Holder of an
Income PRIDES to purchase the Common Stock of the Company under the Purchase
Contract constituting a part of such Income PRIDES. Following the occurrence of
a Tax Event Redemption prior to the Purchase Contract Settlement Date, the
Holders of Income PRIDES and the Collateral Agent shall have such security
interests, rights and obligations with respect to the Treasury Portfolio as the
Holder of Income PRIDES and the Collateral Agent had in respect of the Trust
Preferred Security or Debentures, as the case may be, subject to the Pledge
thereof as provided in Articles II, III, IV, V, and VI of the Pledge Agreement,
and any reference herein to the Trust Preferred Security or the Debenture shall
be deemed to be reference to such Treasury Portfolio. The Company may cause to
be made in any Income PRIDES Certificates thereafter to be issued such change in
phraseology and form (but not in substance) as may be appropriate to reflect the
liquidation of the Trust and the substitution of the Treasury Portfolio for
Trust Preferred Securities or Debentures as collateral.
ARTICLE V
The Purchase Contracts
Section 5.1. Purchase of Shares of Common Stock.
Each Purchase Contract shall, unless an Early Settlement has occurred
in accordance with Section 5.9 hereof, obligate the Holder of the related
Security to purchase, and the Company to sell, on the Purchase Contract
Settlement Date at a
37
<PAGE> 43
price equal to the Stated Amount (the "Purchase Price"), a number of newly
issued shares of Common Stock equal to the Settlement Rate unless, on or prior
to the Purchase Contract Settlement Date, there shall have occurred a
Termination Event with respect to the Security of which such Purchase Contract
is a part. The "Settlement Rate" is equal to (a) if the Applicable Market Value
(as defined below) is equal to or greater than $ (the "Threshold
Appreciation Price"), shares of Common Stock per Purchase Contract, (b) if
the Applicable Market Value is less than the Threshold Appreciation Price, but
is greater than $ , the number of shares of Common Stock equal to the
Stated Amount divided by the Applicable Market Value and (c) if the Applicable
Market Value is less than or equal to $ , shares of Common Stock per
Purchase Contract, in each case subject to adjustment as provided in Section 5.6
(and in each case rounded upward or downward to the nearest 1/10,000th of a
share). As provided in Section 5.10, no fractional shares of Common Stock will
be issued upon settlement of Purchase Contracts.
The "Applicable Market Value" means the average of the Closing Price
per share of Common Stock on each of the 20 consecutive Trading Days ending on
the third Trading Day immediately preceding the Purchase Contract Settlement
Date. The "Closing Price" of the Common Stock on any date of determination means
the closing sale price (or, if no closing price is reported, the last reported
sale price) of the Common Stock on the NASDAQ National Market (the "NNM") on
such date or, if the Common Stock is not listed for trading on the NNM on any
such date, as reported in the composite transactions for the principal United
States securities exchange on which the Common Stock is so listed, or if the
Common Stock is not so listed on a United States national or regional securities
exchange, the last quoted bid price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization, or,
if such bid price is not available, the market value of the Common Stock on such
date as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Company. A "Trading Day" means a day on
which the Common Stock (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of the Common Stock.
Each Holder of an Income PRIDES or a Growth PRIDES, by its acceptance
thereof, irrevocably authorizes the Agent to enter into and perform the related
Purchase Contract on its behalf as its attorney-in-fact (including the execution
of
38
<PAGE> 44
Certificates on behalf of such Holder), agrees to be bound by the terms and
provisions thereof, covenants and agrees to perform its obligations under such
Purchase Contracts, and consents to the provisions hereof, irrevocably
authorizes the Agent as its attorney-in-fact to enter into and perform the
Pledge Agreement on its behalf as its attorney-in-fact, and consents to and
agrees to be bound by the Pledge of the Trust Preferred Securities, the Treasury
Portfolio or the Treasury Securities pursuant to the Pledge Agreement; provided
that upon a Termination Event, the rights of the Holder of such Security under
the Purchase Contract may be enforced without regard to any other rights or
obligations. Each Holder of an Income PRIDES or a Growth PRIDES, by its
acceptance thereof, further covenants and agrees, that, to the extent and in the
manner provided in Section 5.4 and the Pledge Agreement, but subject to the
terms thereof, payments in respect of the Stated Amount of the Trust Preferred
Securities or the Proceeds of the Treasury Securities or the Treasury Portfolio
on the Purchase Contract Settlement Date shall be paid by the Collateral Agent
to the Company in satisfaction of such Holder's obligations under such Purchase
Contract and such Holder shall acquire no right, title or interest in such
payments.
Upon registration of transfer of a Certificate, the transferee shall be
bound (without the necessity of any other action on the part of such
transferee), under the terms of this Agreement, the Purchase Contracts
underlying such Certificate and the Pledge Agreement and the transferor shall be
released from the obligations under this Agreement, the Purchase Contracts
underlying the Certificates so transferred and the Pledge Agreement. The Company
covenants and agrees, and each Holder of a Certificate, by its acceptance
thereof, likewise covenants and agrees, to be bound by the provisions of this
paragraph.
Section 5.2. Contract Adjustment Payments.
Subject to Section 5.3 herein, the Company shall pay, on each Payment
Date, the Contract Adjustment Payments payable in respect of each Purchase
Contract to the Person in whose name a Certificate (or one or more Predecessor
Certificates) is registered at the close of business on the Record Date next
preceding such Payment Date. The Contract Adjustment Payments will be payable at
the office of the Agent in The City of New York maintained for that purpose or,
at the option of the Company, by check mailed to the address of the Person
entitled thereto at such Person's address as it appears on the Income PRIDES
Register or Growth PRIDES Register.
39
<PAGE> 45
Upon the occurrence of a Termination Event, the Company's obligation to
pay Contract Adjustment Payments (including any accrued or Deferred Contract
Adjustment Payments) shall cease.
Each Certificate delivered under this Agreement upon registration of
transfer of or in exchange for or in lieu of (including as a result of a
Collateral Substitution or the re-establishment of an Income PRIDES) any other
Certificate shall carry the rights to Contract Adjustment Payments accrued and
unpaid, and to accrue Contract Adjustment Payments, which were carried by the
Purchase Contracts underlying such other Certificates.
Subject to Section 5.9, in the case of any Security with respect to
which Early Settlement of the underlying Purchase Contract is effected on an
Early Settlement Date that is after any Record Date and on or prior to the next
succeeding Payment Date, Contract Adjustment Payments, if any, otherwise payable
on such Payment Date shall be payable on such Payment Date notwithstanding such
Early Settlement, and such Contract Adjustment Payments shall be paid to the
Person in whose name the Certificate evidencing such Security (or one or more
Predecessor Certificates) is registered at the close of business on such Record
Date. Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Security with respect to which Early Settlement of
the underlying Purchase Contract is effected on an Early Settlement Date,
Contract Adjustment Payments that would otherwise be payable after the Early
Settlement Date with respect to such Purchase Contract shall not be payable.
The Company's obligations with respect to Contract Adjustment Payments,
will be subordinated and junior in right of payment to the Company's obligations
under any Senior Indebtedness.
Section 5.3. Deferral of Payment Dates For Contract Adjustment Payments.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election to
defer such payment (specifying the amount to be deferred) at least ten Business
Days prior to the earlier of (i) the next succeeding Payment Date or (ii) the
date the Company is required to give notice of the Record Date or Payment Date
with respect to payment of such Contract Adjustment Payments to the NNM or other
applicable self-regulatory
40
<PAGE> 46
organization or to Holders of the Securities, but in any event not less than one
Business Day prior to such Record Date. Any Contract Adjustment Payments so
deferred shall bear additional Contract Adjustment Payments thereon at the rate
of % per annum (computed on the basis of 360 day year of twelve 30 day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
installments of Contract Adjustment Payments together with the additional
Contract Adjustment Payments accrued thereon, being referred to herein as the
"Deferred Contract Adjustment Payments"). Deferred Contract Adjustment Payments
shall be due on the next succeeding Payment Date except to the extent that
payment is deferred pursuant to this Section. No Contract Adjustment Payments
may be deferred to a date that is after the Purchase Contract Settlement Date.
If the Purchase Contracts are terminated upon the occurrence of a Termination
Event, the Holder's right to receive Contract Adjustment Payments and Deferred
Contract Adjustment Payments will terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each Holder will receive on the Purchase Contract Settlement
Date in lieu of a cash payment a number of shares of Common Stock (in addition
to a number of shares of Common Stock equal to the Settlement Rate) equal to (x)
the aggregate amount of Deferred Contract Adjustment Payments payable to such
Holder divided by (y) the Applicable Market Value.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the Purchase
Contract Settlement Date. In lieu of fractional shares otherwise issuable with
respect to such payment of Deferred Contract Adjustment Payments, the Holder
will be entitled to receive an amount in cash as provided in Section 5.10.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or acquisitions
of shares of capital stock of the Company in connection with the satisfaction by
the Company of its obligations under any employee benefit plans or the
satisfaction by the Company of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Company to purchase
capital stock of the Company, (ii) as a
41
<PAGE> 47
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan or the
declaration thereunder of a dividend of rights in the future).
Section 5.4. Payment of Purchase Price.
(a) (i) Unless a Tax Event Redemption has occurred or a Holder settles
the underlying Purchase Contract through the early delivery of cash to the
Purchase Contract Agent in the manner described in Section 5.9, each Holder of
an Income PRIDES must notify the Agent by use of a notice in substantially the
form of Exhibit E hereto of its intention to pay in cash ("Cash Settlement") the
Purchase Price for the shares of Common Stock to be purchased pursuant to a
Purchase Contract. Such notice shall be made on or prior to 5:00 p.m., New York
City time, on the fifth Business Day immediately preceding the Purchase Contract
Settlement Date. The Agent shall promptly notify the Collateral Agent of the
receipt of such a notice from a Holder intending to make a Cash Settlement.
(ii) A Holder of an Income PRIDES who has so notified the
Agent of its intention to make a Cash Settlement is required to pay the
Purchase Price to the Collateral Agent prior to 11:00 a.m., New York
City time, on the Business Day immediately preceding the Purchase
Contract Settlement Date in lawful money of the United States by
certified or cashiers' check or wire transfer, in each case in
immediately available funds payable to or upon the order of the
Company. Any cash received by the Collateral Agent will be invested
promptly by the Collateral Agent in Permitted Investments and paid to
the Company on the Purchase Contract Settlement Date in settlement of
the Purchase Contract in accordance with the terms of this Agreement
and the Pledge Agreement. Any funds received by the Collateral Agent in
respect of the investment earnings from the investment in such
Permitted Investments, will be distributed to the Agent when received
for payment to the Holder.
42
<PAGE> 48
(iii) If a Holder of an Income PRIDES fails to notify the
Agent of its intention to make a Cash Settlement in accordance with
paragraph (a)(i) above, such failure shall constitute an event of
default and the Holder shall be deemed to have consented to the
disposition of the pledged Trust Preferred Securities pursuant to the
Remarketing as described in paragraph (b) below. If a Holder of an
Income PRIDES does notify the Agent as provided in paragraph (a)(i)
above of its intention to pay the Purchase Price in cash, but fails to
make such payment as required by paragraph (a)(ii) above, such failure
shall also constitute a default; however, the Trust Preferred
Securities of such a Holder will not be remarketed but instead the
Collateral Agent, for the benefit of the Company, will exercise its
rights as a secured party with respect to such Trust Preferred
Securities, including those rights specified in paragraph (c) below.
(b) In order to dispose of the Trust Preferred Securities of Income
PRIDES Holders who have not notified the Agent of their intention to effect a
Cash Settlement as provided in paragraph (a)(i) above, the Company shall engage
a nationally recognized investment bank (the "Remarketing Agent") pursuant to
the Remarketing Agreement to sell such Trust Preferred Securities. In order to
facilitate the remarketing, the Agent shall notify, by 10:00 a.m., New York City
time, on the fourth Business Day immediately preceding the Purchase Contract
Settlement Date, the Remarketing Agent of the aggregate number of Trust
Preferred Securities to be remarketed. Concurrently, the Collateral Agent,
pursuant to the terms of the Pledge Agreement, will present for remarketing such
Trust Preferred Securities to the Remarketing Agent. Upon receipt of such notice
from the Agent and such Trust Preferred Securities from the Collateral Agent,
the Remarketing Agent will, on the third Business Day immediately preceding the
Purchase Contract Settlement Date, use its reasonable efforts to remarket such
Trust Preferred Securities on such date at a price of approximately 100.5% (but
not less than 100%) of the aggregate stated liquidation amount of such Trust
Preferred Securities, plus accrued and unpaid distributions (including deferred
distributions), if any, thereon. After deducting as the remarketing fee
("Remarketing Fee") an amount not exceeding 25 basis points (.25%) of the
aggregate stated liquidation amount of the remarketed Trust Preferred Securities
from any amount of such proceeds in excess of the aggregate stated liquidation
amount of the remarketed Trust Preferred Securities plus accrued and unpaid
distributions (including any deferred distributions), if any, then the
Remarketing Agent will remit the entire amount of the proceeds from such
remarketing to the Collateral Agent. Such portion of the proceeds, equal to the
aggregate stated liquidation amount of such Trust Preferred Securities, will
automati-
43
<PAGE> 49
cally be applied by the Collateral Agent, in accordance with the Pledge
Agreement to satisfy in full such Income PRIDES holders' obligations to pay the
Purchase Price for the Common Stock under the related Purchase Contracts on the
Purchase Contract Settlement Date. Any proceeds in excess of those required to
pay the Purchase Price and the Remarketing Fee will be remitted to the Agent for
payment to the Holders of the related Income PRIDES. Income PRIDES Holders whose
Trust Preferred Securities are so remarketed will not otherwise be responsible
for the payment of any Remarketing Fee in connection therewith. If, in spite of
using its reasonable efforts, the Remarketing Agent cannot remarket the related
Trust Preferred Securities of such Holders of Income PRIDES at a price not less
than 100% of the aggregate stated liquidation amount of such Trust Preferred
Securities plus accrued and unpaid distributions (including deferred
distributions), if any, the remarketing will be deemed to have failed (a "Failed
Remarketing") and in accordance with the terms of the Pledge Agreement the
Collateral Agent for the benefit of the Company will exercise its rights as a
secured party with respect to such Trust Preferred Securities, including those
actions specified in paragraph (c) below; provided, that if upon a Failed
Remarketing the Collateral Agent exercises such rights for the benefit of the
Company with respect to such Trust Preferred Securities, any accrued and unpaid
distributions (including any deferred distributions) on such Trust Preferred
Securities will become payable by the Company to the Agent for payment to the
Holder of the Income PRIDES to which such Trust Preferred Securities relates.
Such payment will be made by the Company on or prior to 11 a.m. New York City
time on the Purchase Contract Settlement Date in lawful money of the United
States by certified or cashiers' check or wire transfer in immediately available
funds payable to or upon the order of the Agent. The Company will cause a notice
of such Failed Remarketing to be published on the Second Business Day
immediately preceding the Purchase Contract Settlement Date in a daily newspaper
in the English language of general circulation in The City of New York, which is
expected to be The Wall Street Journal.
(c) With respect to any Trust Preferred Securities beneficially owned
by Holders who have elected Cash Settlement but failed to deliver cash as
required in (a)(ii) above, or with respect to Trust Preferred Securities which
are subject to a Failed Remarketing, the Collateral Agent for the benefit of the
Company reserves all of its rights as a secured party with respect thereto and,
subject to applicable law and paragraph (h) below, may, among other things, (i)
retain the Trust Preferred Securities in full satisfaction of the Holders
obligations under the Purchase Contracts or (ii) sell the Trust Preferred
Securities in one or more public or private sales.
44
<PAGE> 50
(d) (i) Unless a Holder of Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) settles the underlying Purchase Contract through
the early delivery of cash to the Purchase Contract Agent in the manner
described in Section 5.9, each Holder of a Growth PRIDES or Income PRIDES (if a
Tax Event Redemption has occurred) must notify the Agent by use of a notice in
substantially the form of Exhibit E hereto of its intention to pay in cash the
Purchase Price for the shares of Common Stock to be purchased pursuant to a
Purchase Contract on or prior to 5:00 p.m., New York City time, on the second
Business Day immediately preceding the Purchase Contract Settlement Date.
(ii) A Holder of a Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) who has so notified the Agent of its
intention to make a Cash Settlement in accordance with paragraph
(d)(i) above is required to pay the Purchase Price to the Collateral
Agent prior to 11:00 a.m., New York City time, on the Business Day
immediately preceding the Purchase Contract Settlement Date in lawful
money of the United States by certified or cashiers' check or wire
transfer, in each case in immediately available funds payable to or
upon the order of the Company. Any cash received by the Collateral
Agent will be invested promptly by the Collateral Agent in Permitted
Investments and paid to the Company on the Purchase Contract Settlement
Date in settlement of the Purchase Contract in accordance with the
terms of this Agreement and the Pledge Agreement. Any funds received by
the Collateral Agent in respect of the investment earnings from the
investment in such Permitted Investments will be distributed to the
Agent when received for payment to the Holder.
(iii) If a Holder of a Growth PRIDES fails to notify the Agent
of its intention to make a Cash Settlement in accordance with paragraph
(d)(i) above, or if a Holder of an Income PRIDES (if a Tax Event
Redemption has occurred) does notify the Agent as provided in paragraph
(d)(i) above its intention to pay the Purchase Price in cash, but fails
to make such payment as required by paragraph (d)(ii) above, then upon
the maturity of the Pledged Treasury Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, held by the Collateral Agent on the Business Day immediately
prior to the Purchase Contract Settlement Date, the principal amount of
the Treasury Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, received by the
Collateral Agent will be invested promptly in overnight Permitted
Investments. On the Purchase Contract Settlement Date an amount equal
to the
45
<PAGE> 51
Purchase Price will be remitted to the Company as payment thereof
without receiving any instructions from the Holder. In the event the
sum of the proceeds from the related Pledged Treasury Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, and the investment earnings earned from such
investments is in excess of the aggregate Purchase Price of the
Purchase Contracts being settled thereby, the Collateral Agent will
distribute such excess to the Agent for the benefit of the Holder of
the related Growth PRIDES or Income PRIDES when received.
(e) Any distribution to Holders of excess funds and interest described
above, shall be payable at the office of the Agent in The City of New York
maintained for that purpose or, at the option of the Holder, by check mailed to
the address of the Person entitled thereto at such address as it appears on the
Register.
(f) Unless a Holder settles the underlying Purchase Contract through
the early delivery of cash to the Collateral Agent in the manner described
herein, the Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificate therefor to the
Holder unless it shall have received payment in full of the Purchase Price for
the shares of Common Stock to be purchased thereunder in the manner herein set
forth.
(g) Upon Cash Settlement of any Purchase Contract, (i) the Collateral
Agent will in accordance with the terms of the Pledge Agreement cause the
Pledged Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, or the Pledged Treasury
Securities underlying the relevant Security to be released from the Pledge by
the Collateral Agent free and clear of any security interest of the Company and
transferred to the Agent for delivery to the Holder thereof or its designee as
soon as practicable and (ii) subject to the receipt thereof from the Collateral
Agent, the Agent shall, by book-entry transfer, or other appropriate procedures,
in accordance with instructions provided by the Holder thereof, transfer such
Trust Preferred Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, or such Treasury Securities (or, if
no such instructions are given to the Agent by the Holder, the Agent shall hold
such Trust Preferred Securities or the Treasury Portfolio, as the case may be,
or such Treasury Securities, and any distribution thereon, in the name of the
Agent or its nominee in trust for the benefit of such Holder).
(h) The obligations of the Holders to pay the Purchase Price are
non-recourse obligations and are payable solely out of any Cash Settlement or
the
46
<PAGE> 52
proceeds of any Collateral pledged to secure the obligations of the Holders and
in no event will Holders be liable for any deficiency between the proceeds of
Collateral disposition and the Purchase Price.
Section 5.5. Issuance of Shares of Common Stock.
Unless a Termination Event or an Early Settlement shall have occurred,
on the Purchase Contract Settlement Date, upon its receipt of payment in full of
the Purchase Price for the shares of Common Stock purchased by the Holders
pursuant to the foregoing provisions of this Article and subject to Section
5.6(b), the Company shall issue and deposit with the Agent, for the benefit of
the Holders of the Outstanding Securities, one or more certificates
representing the newly issued shares of Common Stock registered in the name of
the Agent (or its nominee) as custodian for the Holders (such certificates for
shares of Common Stock, together with any dividends or distributions for which
both a record date and payment date for such dividend or distribution has
occurred after the Purchase Contract Settlement Date, being hereinafter referred
to as the "Purchase Contract Settlement Fund") to which the Holders are entitled
hereunder. Subject to the foregoing, upon surrender of a Certificate to the
Agent on or after the Purchase Contract Settlement Date, together with
settlement instructions thereon duly completed and executed, the Holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Common Stock which such Holder is
entitled to receive pursuant to the provisions of this Article Five (after
taking into account all Securities then held by such Holder) together with cash
in lieu of fractional shares as provided in Section 5.10 and any dividends or
distributions with respect to such shares constituting part of the Purchase
Contract Settlement Fund, but without any interest thereon, and the Certificate
so surrendered shall forthwith be cancelled. Such shares shall be registered in
the name of the Holder or the Holder's designee as specified in the settlement
instructions provided by the Holder to the Agent. If any shares of Common Stock
issued in respect of a Purchase Contract are to be registered to a Person other
than the Person in whose name the Certificate evidencing such Purchase Contract
is registered, no such registration shall be made unless the Person requesting
such registration has paid any transfer and other taxes required by reason of
such registration in a name other than that of the registered Holder of the
Certificate evidencing such Purchase Contract or has established to the
satisfaction of the Company that such tax either has been paid or is not
payable.
Section 5.6. Adjustment of Settlement Rate.
47
<PAGE> 53
(a) Adjustments for Dividends, Distributions, Stock Splits, Etc.
(1) In case the Company shall pay or make a dividend or other
distribution on the Common Stock in Common Stock, the Settlement Rate, as in
effect at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be increased by dividing such Settlement Rate by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this paragraph (1), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include any shares issuable
in respect of any scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.
(2) In case the Company shall issue rights, options or
warrants to all holders of its Common Stock (not being available on an
equivalent basis to Holders of the Securities upon settlement of the Purchase
Contracts underlying such Securities) entitling them, for a period expiring
within 45 days after the record date for the determination of stockholders
entitled to receive such rights, options or warrants, to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price per share of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights, options or
warrants (other than pursuant to a dividend reinvestment plan), the Settlement
Rate, in effect at the opening of business on the day following the date fixed
for such determination shall be increased by dividing such Settlement Rate, by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such Current Market Price and the denominator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For
48
<PAGE> 54
the purposes of this paragraph (2), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include any shares issuable in respect of any scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company shall not
issue any such rights, options or warrants in respect of shares of Common Stock
held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be
subdvided or split into a greater number of shares of Common Stock, the
Settlement Rate, in effect at the opening of business on the day following the
day upon which such subdivision or split becomes effective shall be
proportionately increased, and, conversely, in case outstanding shares of Common
Stock shall each be combined into a smaller number of shares of Common Stock,
the Settlement Rate, in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be proportionately
reduced, such increase or reduction, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision, split or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any rights or warrants referred to
in paragraph (2) of this Section, any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in paragraph (1) of this
Section), the Settlement Rate, shall be adjusted so that the same shall equal
the rate determined by dividing the Settlement Rate in effect immediately prior
to the close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the numerator shall
be the Current Market Price per share of the Common Stock on the date fixed for
such determination less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution filed with the Agent) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following the date fixed for the determination of stockholders
entitled to receive such distribution. In any case in which this paragraph (4)
is applicable, paragraph (2) of this Section shall not be applicable.
49
<PAGE> 55
(5) In case the Company shall, (I) by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed in a Reorganization Event to which Section 5.6(b) applies or as part
of a distribution referred to in paragraph (4) of this Section) in an aggregate
amount that, combined together with (II) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no adjustment pursuant to this paragraph (5) or paragraph (6) of this
Section has been made and (III) the aggregate of any cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) of consideration payable in
respect of any tender or exchange offer by the Company or any of its
subsidiaries for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of the distribution described in clause
(I) above and in respect of which no adjustment pursuant to this paragraph (5)
or paragraph (6) of this Section has been made, exceeds 15% of the product of
the Current Market Price per share of the Common Stock on the date for the
determination of holders of shares of Common Stock entitled to receive such
distribution times the number of shares of Common Stock outstanding on such
date, then, and in each such case, immediately after the close of business on
such date for determination, the Settlement Rate, shall be increased so that the
same shall equal the rate determined by dividing the Settlement Rate in effect
immediately prior to the close of business on the date fixed for determination
of the stockholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the Current Market Price per share of the
Common Stock on the date fixed for such determination less an amount equal to
the quotient of (x) the combined amount distributed or payable in the
transactions described in clauses (I), (II) and (III) above and (y) the number
of shares of Common Stock outstanding on such date for determination and (ii)
the denominator of which shall be equal to the Current Market Price per share of
the Common Stock on such date for determination.
(6) In case (I) a tender or exchange offer made by the Company
or any subsidiary of the Company for all or any portion of the Common Stock
shall expire and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to stockholders (based on the acceptance (up
to any maximum specified in the terms of the tender or exchange offer) of
Purchased Shares) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) that combined together with (II) the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination
50
<PAGE> 56
shall be conclusive and described in a Board Resolution), as of the expiration
of such tender or exchange offer, of consideration payable in respect of any
other tender or exchange offer, by the Company or any subsidiary of the Company
for all or any portion of the Common Stock expiring within the 12 months
preceding the expiration of such tender or exchange offer and in respect of
which no adjustment pursuant to paragraph (5) of this Section or this paragraph
(6) has been made and (III) the aggregate amount of any distributions to all
holders of the Company's Common Stock made exclusively in cash within the 12
months preceding the expiration of such tender or exchange offer and in respect
of which no adjustment pursuant to paragraph (5) of this Section or this
paragraph (6) has been made, exceeds 15% of the product of the Current Market
Price per share of the Common Stock as of the last time (the "Expiration Time")
tenders could have been made pursuant to such tender or exchange offer (as it
may be amended) times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, then, and in each such
case, immediately prior to the opening of business on the day after the date of
the Expiration Time, the Settlement Rate, shall be adjusted so that the same
shall equal the rate determined by dividing the Settlement Rate immediately
prior to the close of business on the date of the Expiration Time by a fraction
(i) the numerator of which shall be equal to (A) the product of (I) the Current
Market Price per share of the Common Stock on the date of the Expiration Time
and (II) the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time less (B) the amount of cash plus the
fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the transactions described in clauses (I), (II)
and (III) above (assuming in the case of clause (I) the acceptance, up to any
maximum specified in the terms of the tender or exchange offer, of Purchased
Shares), and (ii) the denominator of which shall be equal to the product of (A)
the Current Market Price per share of the Common Stock as of the Expiration Time
and (B) the number of shares of Common Stock outstanding (including any
tendered shares) as of the Expiration Time less the number of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares").
(7) The reclassification of Common Stock into securities
including securities other than Common Stock (other than any reclassification
upon a Reorganization Event to which Section 5.6(b) applies) shall be deemed to
involve (a) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution" and
51
<PAGE> 57
the "date fixed for such determination" within the meaning of paragraph (4) of
this Section), and (b) a subdivision, split or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall
be deemed to be "the day upon which such subdivision or split becomes effective"
or "the day upon which such combination becomes effective", as the case may be,
and "the day upon which such subdivision, split or combination becomes
effective" within the meaning of paragraph (3) of this Section).
(8) The "Current Market Price" per share of Common Stock on
any day means the average of the daily Closing Prices for the 5 consecutive
Trading Days selected by the Company commencing not more than 30 Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex date" with respect to the issuance or distribution requiring
such computation. For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution, shall mean the first date on which
the Common Stock trades regular way on such exchange or in such market without
the right to receive such issuance or distribution.
(9) All adjustments to the Settlement Rate, shall be
calculated to the nearest 1/10,000th of a share of Common Stock (or if there is
not a nearest 1/10,000th of a share to the next lower 1/10,000th of a share). No
adjustment in the Settlement Rate shall be required unless such adjustment would
require an increase or decrease of at least one percent therein; provided,
however, that any adjustments which by reason of this subparagraph are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. If an adjustment is made to the Settlement Rate pursuant
to paragraph (1), (2), (3), (4), (5), (6), (7) or (10) of this Section 5.6(a),
an adjustment shall also be made to the Applicable Market Value solely to
determine which of clauses (a), (b) or (c) of the definition of Settlement Rate
in Section 5.1 will apply on the Purchase Contract Settlement Date. Such
adjustment shall be made by multiplying the Applicable Market Value by a
fraction of which the numerator shall be the Settlement Rate immediately after
such adjustment pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or (10)
of this Section 5.6(a) and the denominator shall be the Settlement Rate
immediately before such adjustment; provided, however, that if such adjustment
to the Settlement Rate is required to be made pursuant to the occurrence of any
of the events contemplated by paragraph (1), (2), (3), (4), (5), (7) or (10) of
this Section 5.6(a) during the period
52
<PAGE> 58
taken into consideration for determining the Applicable Market Value,
appropriate and customary adjustments shall be made to the Settlement Rate.
(10) The Company may make such increases in the Settlement
Rate, in addition to those required by this Section, as it considers to be
advisable in order to avoid or diminish any income tax to any holders of shares
of Common Stock resulting from any dividend or distribution of stock or issuance
of rights or warrants to purchase or subscribe for stock or from any event
treated as such for income tax purposes or for any other reasons.
(b) Adjustment for Consolidation, Merger or Other Reorganization Event.
In the event of (i) any consolidation or merger of the Company with or into
another Person (other than a merger or consolidation in which the Company is the
continuing corporation and in which the Common Stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash, securities or
other property of the Company or another corporation), (ii) any sale, transfer,
lease or conveyance to another Person of the property of the Company as an
entirety or substantially as an entirety, (iii) any statutory exchange of
securities of the Company with another Person (other than in connection with a
merger or acquisition) or (iv) any liquidation, dissolution or winding up of the
Company other than as a result of or after the occurrence of a Termination Event
(any such event, a "Reorganization Event"), the Settlement Rate will be adjusted
to provide that each Holder of Securities will receive on the Purchase Contract
Settlement Date with respect to each Purchase Contract forming a part thereof,
the kind and amount of securities, cash and other property receivable upon such
Reorganization Event (without any interest thereon, and without any right to
dividends or distribution thereon which have a record date that is prior to the
Purchase Contract Settlement Date) by a Holder of the number of shares of Common
Stock issuable on account of each Purchase Contract if the Purchase Contract
Settlement Date had occurred immediately prior to such Reorganization Event
assuming such Holder of Common Stock is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be (any such Person,
a "Constituent Person"), or an Affiliate of a Constituent Person to the extent
such Reorganization Event provides for different treatment of Common Stock held
by Affiliates of the Company and non-affiliates and such Holder failed to
exercise its rights of election, if any, as to the kind or amount of securities,
cash and other property receivable upon such Reorganization Event (provided that
if the kind or amount of securities, cash and other property receivable upon
such Reorganization Event is not the same for each share of Common Stock held
immediately prior to
53
<PAGE> 59
such Reorganization Event by other than a Constituent Person or an Affiliate
thereof and in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this Section the kind
and amount of securities, cash and other property receivable upon such
Reorganization Event by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
In the event of such a Reorganization Event, the Person formed by such
consolidation, merger or exchange or the Person which acquires the assets of the
Company or, in the event of a liquidation or dissolution of the Company, the
Company or a liquidating trust created in connection therewith, shall execute
and deliver to the Agent an agreement supplemental hereto providing that the
Holders of each Outstanding Security shall have the rights provided by this
Section 5.6. Such supplemental agreement shall provide for adjustments which,
for events subsequent to the effective date of such supplemental agreement,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section. The above provisions of this Section shall similarly apply
to successive Reorganization Events.
Section 5.7. Notice of Adjustments and Certain Other Events.
(a) Whenever the Settlement Rate is adjusted as herein provided, the
Company shall:
(i) forthwith compute the Settlement Rate in accordance with
Section 5.6 and prepare and transmit to the Agent an Officer's
Certificate setting forth the Settlement Rate, the method of
calculation thereof in reasonable detail, and the facts requiring such
adjustment and upon which such adjustment is based; and
(ii) within 10 Business Days following the occurrence of an
event that requires an adjustment to the Settlement Rate pursuant to
Section 5.6 (or if the Company is not aware of such occurrence, as soon
as practicable after becoming so aware), provide a written notice to
the Holders of the Securities of the occurrence of such event and a
statement in reasonable detail setting forth the method by which the
adjustment to the Settlement Rate was determined and setting forth the
adjusted Settlement Rate.
(b) The Agent shall not at any time be under any duty or responsibility
to any Holder of Securities to determine whether any facts exist which may
require any adjustment of the Settlement Rate, or with respect to the nature or
extent or calcula-
54
<PAGE> 60
tion of any such adjustment when made, or with respect to the method employed in
making the same. The Agent shall not be accountable with respect to the validity
or value (or the kind or amount) of any shares of Common Stock, or of any
securities or property, which may at the time be issued or delivered with
respect to any Purchase Contract; and the Agent makes no representation with
respect thereto. The Agent shall not be responsible for any failure of the
Company to issue, transfer or deliver any shares of Common Stock pursuant to a
Purchase Contract or to comply with any of the duties, responsibilities or
covenants of the Company contained in this Article.
Section 5.8. Termination Event; Notice.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay any Contract
Adjustment Payments or Deferred Contract Adjustment Payments, if the Company
shall have such obligation, and the rights and obligations of Holders to
purchase Common Stock, shall immediately and automatically terminate, without
the necessity of any notice or action by any Holder, the Agent or the Company,
if, on or prior to the Purchase Contract Settlement Date, a Termination Event
shall have occurred. Upon and after the occurrence of a Termination Event, the
Securities shall thereafter represent the right to receive the Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, forming a part of such Securities in the case of
Income PRIDES, or Treasury Securities in the case of Growth PRIDES, in
accordance with the provisions of Section 4.3 of the Pledge Agreement. Upon the
occurrence of a Termination Event, the Company shall promptly but in no event
later than two Business Days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Register.
Section 5.9. Early Settlement.
(a) Subject to and upon compliance with the provisions of this Section
5.9, at the option of the Holder thereof, Purchase Contracts underlying
Securities, having an aggregate Stated Amount equal to $1,000 or an integral
multiple thereof, may be settled early ("Early Settlement") in the case of
Income PRIDES (unless a Tax Event Redemption has occurred) on or prior to the
fifth Business Day immediately preceding the Purchase Contract Settlement Date
and in the case of Growth PRIDES on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date, in each case, as
provided herein; provided however, that if a Tax Event Redemption has occurred
and the Treasury Portfolio has become a
55
<PAGE> 61
component of the Income PRIDES, Purchase Contracts underlying Income PRIDES may
be settled early, on or prior to the second Business Day immediately preceding
the Purchase Contract Settlement Date, but only in an aggregate amount of
$40,000,000 or in an integral multiple thereof. In order to exercise the right
to effect Early Settlement with respect to any Purchase Contracts, the Holder of
the Certificate evidencing Securities shall deliver such Certificate to the
Agent at the Corporate Trust Office duly endorsed for transfer to the Company or
in blank with the form of Election to Settle Early on the reverse thereof duly
completed and accompanied by payment (payable to the Company in immediately
available funds in an amount (the "Early Settlement Amount") equal to (i) the
product of (A) the Stated Amount times (B) the number of Purchase Contracts with
respect to which the Holder has elected to effect Early Settlement plus (ii) if
such delivery is made with respect to any Purchase Contracts during the period
from the close of business on any Record Date next preceding any Payment Date to
the opening of business on such Payment Date, an amount equal to the sum of (x)
the Contract Adjustment Payments payable on such Payment Date with respect to
such Purchase Contracts plus (y) in the case of Income PRIDES Certificate, the
distributions on the related Trust Preferred Securities payable on such Payment
Date. Except as provided in the immediately preceding sentence and subject to
the second to last paragraph of Section 5.2, no payment or adjustment shall be
made upon Early Settlement of any Purchase Contract on account of any Contract
Adjustment Payments accrued on such Purchase Contract or on account of any
dividends on the Common Stock issued upon such Early Settlement. If the
foregoing requirements are first satisfied with respect to Purchase Contracts
underlying any Securities at or prior to 5:00 p.m., New York City time, on a
Business Day, such day shall be the "Early Settlement Date" with respect to such
Securities and if such requirements are first satisfied after 5:00 p.m., New
York City time, on a Business Day or on a day that is not a Business Day, the
"Early Settlement Date" with respect to such Securities shall be the next
succeeding Business Day.
(b) Upon Early Settlement of Purchase Contracts by a Holder of the
related Securities, the Company shall issue, and the Holder shall be entitled to
receive, shares of Common Stock on account of each Purchase Contract as to
which Early Settlement is effected (the "Early Settlement Rate"); provided,
however, that upon the Early Settlement of the Purchase Contracts, the Holder of
such related Securities will forfeit the right to receive any Deferred Contract
Adjustment Payments. The Early Settlement Rate shall be adjusted in the same
manner and at the same time as the Settlement Rate is adjusted. As promptly as
practicable after Early Settlement of Purchase Contracts in accordance with the
provisions of this Section 5.9, the Company shall issue and shall deliver to the
Agent at the Corporate Trust
56
<PAGE> 62
Office a certificate or certificates for the full number of shares of Common
Stock issuable upon such Early Settlement together with payment in lieu of any
fraction of a share, as provided in Section 5.10.
(c) No later than the third Business Day after the applicable Early
Settlement Date the Company shall cause (i) the shares of Common Stock issuable
upon Early Settlement of Purchase Contracts to be issued and delivered, and (ii)
the related Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, in the case of Income PRIDES, or the related
Treasury Securities, in the case of Growth PRIDES, to be released from the
Pledge by the Collateral Agent and transferred, in each case to the Agent for
delivery to the Holder thereof or its designee.
(d) Upon Early Settlement of any Purchase Contracts, and subject to
receipt of shares of Common Stock from the Company and the Trust Preferred
Securities, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or Treasury Securities, as the case may be, from the Collateral Agent,
as applicable, the Agent shall, in accordance with the instructions provided by
the Holder thereof on the applicable form of Election to Settle Early on the
reverse of the Certificate evidencing the related Securities, (i) transfer to
the Holder the Trust Preferred Securities, Treasury Portfolio or Treasury
Securities, as the case may be, forming a part of such Securities, and (ii)
deliver to the Holder a certificate or certificates for the full number of
shares of Common Stock issuable upon such Early Settlement together with payment
in lieu of any fraction of a share, as provided in Section 5.10.
(e) In the event that Early Settlement is effected with respect to
Purchase Contracts underlying less than all the Securities evidenced by a
Certificate, upon such Early Settlement the Company shall execute and the Agent
shall authenticate, countersign and deliver to the Holder thereof, at the
expense of the Company, a Certificate evidencing the Securities as to which
Early Settlement was not effected.
Section 5.10. No Fractional Shares.
No fractional shares or scrip representing fractional shares of Common
Stock shall be issued or delivered upon settlement on the Purchase Contract
Settlement Date or upon Early Settlement of any Purchase Contracts. If
Certificates evidencing more than one Purchase Contract shall be surrendered for
settlement at one time by the same Holder, the number of full shares of Common
Stock which shall be delivered upon settlement shall be computed on the basis of
the aggregate number of
57
<PAGE> 63
Purchase Contracts evidenced by the Certificates so surrendered. Instead of any
fractional share of Common Stock which would otherwise be deliverable upon
settlement of any Purchase Contracts on the Purchase Contract Settlement Date or
upon Early Settlement, the Company, through the Agent, shall make a cash payment
in respect of such fractional interest in an amount equal to the value of such
fractional shares times the Applicable Market Value. The Company shall provide
the Agent from time to time with sufficient funds to permit the Agent to make
all cash payments required by this Section 5.10 in a timely manner.
Section 5.11. Charges and Taxes.
The Company will pay all stock transfer and similar taxes attributable
to the initial issuance and delivery of the shares of Common Stock pursuant to
the Purchase Contracts and in payment of any Deferred Contract Adjustment
Payments; provided, however, that the Company shall not be required to pay any
such tax or taxes which may be payable in respect of any exchange of or
substitution for a Certificate evidencing a Security or any issuance of a share
of Common Stock in a name other than that of the registered Holder of a
Certificate surrendered in respect of the Securities evidenced thereby, other
than in the name of the Agent, as custodian for such Holder, and the Company
shall not be required to issue or deliver such share certificates or
Certificates unless or until the Person or Persons requesting the transfer or
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
ARTICLE VI
Remedies
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment
Payments and to Purchase Common Stock.
In the event that Contract Adjustment Payments shall constitute a
component of Income PRIDES or Growth PRIDES, the Holder of any Income PRIDES or
Growth PRIDES shall have the right, which is absolute and unconditional (subject
to the right of the Company to defer payment thereof pursuant to Section 5.3,
the prepayment of Contract Adjustment Payments pursuant to Section 5.9(a) and to
the forfeiture of any Deferred Contract Adjustment Payments upon Early
Settlement pursuant to Section 5.9(b) or upon the occurrence of a Termination
Event), to receive
58
<PAGE> 64
payment of each installment of the Contract Adjustment Payments with respect to
the Purchase Contract constituting a part of such Security on the respective
Payment Date for such Security and to purchase Common Stock pursuant to such
Purchase Contract and, in each such case, to institute suit for the enforcement
of any such payment and right to purchase Common Stock, and such rights shall
not be impaired without the consent of such Holder.
Section 6.2. Restoration of Rights and Remedies.
If any Holder has instituted any proceeding to enforce any right or
remedy under this Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company and such Holder shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of such Holder
shall continue as though no such proceeding had been instituted.
Section 6.3. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Certificates in the last paragraph of
Section 3.10, no right or remedy herein conferred upon or reserved to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.4. Delay or Omission Not Waiver.
No delay or omission of any Holder to exercise any right or remedy upon
a default shall impair any such right or remedy or constitute a waiver of any
such right. Every right and remedy given by this Article or by law to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by such Holders.
59
<PAGE> 65
Section 6.5. Undertaking for Costs.
All parties to this Agreement agree, and each Holder of Income PRIDES
or Growth PRIDES, by its acceptance of such Income PRIDES or Growth PRIDES shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Agreement, or in any
suit against the Agent for any action taken, suffered or omitted by it as Agent,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided that the provisions of this Section shall not
apply to any suit instituted by the Company, to any suit instituted by the
Agent, to any suit instituted by any Holder, or group of Holders, holding in the
aggregate more than 10% of the Outstanding Securities, or to any suit instituted
by any Holder for the enforcement of distributions on any Trust Preferred
Securities or Contract Adjustment Payments, if any, on any Purchase Contract on
or after the respective Payment Date therefor in respect of any Security held by
such Holder, or for enforcement of the right to purchase shares of Common Stock
under the Purchase Contracts constituting part of any Security held by such
Holder.
Section 6.6. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Agreement; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Agent or the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
60
<PAGE> 66
ARTICLE VII
The Agent
Section 7.1. Certain Duties and Responsibilities.
(a) (1) The Agent undertakes to perform, with respect to the
Securities, such duties and only such duties as are specifically set forth in
this Agreement and the Pledge Agreement, and no implied covenants or obligations
shall be read into this Agreement against the Agent; and
(2) The Agent may, with respect to the Securities,
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Agent and conforming to the requirements of
this Agreement, but in the case of any certificates or opinions which
by any provision hereof are specifically required to be furnished to
the Agent, the Agent shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Agreement.
(b) No provision of this Agreement shall be construed to relieve the
Agent from liability for its own negligent action, its own negligent failure to
act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Agent shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Agent was negligent in ascertaining the pertinent facts; and
(3) no provision of this Agreement shall require the Agent to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers.
(c) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Agent shall be subject to the provisions of this
Section.
61
<PAGE> 67
(d) The Agent is authorized to execute and deliver the Pledge Agreement
in its capacity as Agent.
Section 7.2. Notice of Default.
Within 30 days after the occurrence of any default by the Company
hereunder of which a Responsible Officer of the Agent has actual knowledge, the
Agent shall transmit by mail to the Company and the Holders of Securities, as
their names and addresses appear in the Register, notice of such default
hereunder, unless such default shall have been cured or waived.
Section 7.3. Certain Rights of Agent.
Subject to the provisions of Section 7.1:
(a) the Agent may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officer's Certificate, Issuer Order or Issuer
Request, and any resolution of the Board of Directors of the Company may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Agreement the Agent shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Agent (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate of the Company;
(d) the Agent may consult with counsel of its selection and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(e) the Agent shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report,
62
<PAGE> 68
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Agent, in its
discretion, may make reasonable further inquiry or investigation into such facts
or matters related to the execution, delivery and performance of the Purchase
Contracts as it may see fit, and, if the Agent shall determine to make such
further inquiry or investigation, it shall be given a reasonable opportunity to
examine the books, records and premises of the Company, personally or by agent
or attorney; and
(f) the Agent may execute any of the powers hereunder or perform any
duties hereunder either directly or by or through agents or attorneys or an
Affiliate and the Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney or an Affiliate appointed with
due care by it hereunder.
Section 7.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Certificates shall be taken as
the statements of the Company and the Agent assumes no responsibility for their
accuracy. The Agent makes no representations as to the validity or sufficiency
of either this Agreement or of the Securities, or of the Pledge Agreement or the
Pledge. The Agent shall not be accountable for the use or application by the
Company of the proceeds in respect of the Purchase Contracts.
Section 7.5. May Hold Securities.
Any Registrar or any other agent of the Company, or the Agent and its
Affiliates, in their individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with the Company, the Collateral
Agent or any other Person with the same rights it would have if it were not
Registrar or such other agent, or the Agent.
Section 7.6. Money Held in Custody.
Money held by the Agent in custody hereunder need not be segregated
from the other funds except to the extent required by law or provided herein.
The Agent shall be under no obligation to invest or pay interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
63
<PAGE> 69
Section 7.7. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Agent from time to time such compensation
for all services rendered by it hereunder as the parties shall agree
from time to time;
(2) except as otherwise expressly provided herein, to
reimburse the Agent upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Agent in accordance
with any provision of this Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the Agent and any predecessor Agent for, and
to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of its duties
hereunder, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder.
Section 7.8. Corporate Agent Required; Eligibility.
There shall at all times be an Agent hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (or being a member of a bank
holding company having) a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority and having
a Corporate Trust Office in the Borough of Manhattan, The City of New York, if
there be such a corporation in the Borough of Manhattan, The City of New York,
qualified and eligible under this Article and willing to act on reasonable
terms. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Agent shall cease to be eligible in accordance with the
64
<PAGE> 70
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
Section 7.9. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Agent and no appointment of a
successor Agent pursuant to this Article shall become effective until the
acceptance of appointment by the successor Agent in accordance with the
applicable requirements of Section 7.10.
(b) The Agent may resign at any time by giving written notice thereof
to the Company 60 days prior to the effective date of such resignation. If the
instrument of acceptance by a successor Agent required by Section 7.10 shall
not have been delivered to the Agent within 30 days after the giving of such
notice of resignation, the resigning Agent may petition any court of competent
jurisdiction for the appointment of a successor Agent.
(c) The Agent may be removed at any time by Act of the Holders of a
majority in number of the Outstanding Securities delivered to the Agent and the
Company.
(d) if at any time
(1) the Agent fails to comply with Section 310(b) of the TIA,
as if the Agent were an indenture trustee under an indenture qualified
under the TIA, after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Agent shall cease to be eligible under Section 7.8 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Agent shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Agent or of its
property shall be appointed or any public officer shall take charge or
control of the Agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
65
<PAGE> 71
then, in any such case, (i) the Company by a Board Resolution may remove the
Agent, or (ii) any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Agent and
the appointment of a successor Agent.
(e) If the Agent shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Agent for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Agent and
shall comply with the applicable requirements of Section 7.10. If no successor
Agent shall have been so appointed by the Company and accepted appointment in
the manner required by Section 7.10, any Holder who has been a bona fide Holder
of a Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Agent.
(f) The Company shall give, or shall cause such successor Agent to
give, notice of each resignation and each removal of the Agent and each
appointment of a successor Agent by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders as their names and addresses
appear in the applicable Register. Each notice shall include the name of the
successor Agent and the address of its Corporate Trust Office.
Section 7.10. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Agent, every
such successor Agent so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Agent an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Agent shall become
effective and such successor Agent, without any further act, deed or conveyance,
shall become vested with all the rights, powers, agencies and duties of the
retiring Agent; but, on the request of the Company or the successor Agent, such
retiring Agent shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Agent all the rights, powers and
trusts of the retiring Agent and shall duly assign, transfer and deliver to such
successor Agent all property and money held by such retiring Agent hereunder.
(b) Upon request of any such successor Agent, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirm-
66
<PAGE> 72
ing to such successor Agent all such rights, powers and agencies referred to in
paragraph (a) of this Section.
(c) No successor Agent shall accept its appointment unless at the time
of such acceptance such successor Agent shall be qualified and eligible under
this Article.
Section 7.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Agent shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Agent, shall be the successor of the Agent hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Certificates shall have been
authenticated and executed on behalf of the Holders, but not delivered, by the
Agent then in office, any successor by merger, conversion or consolidation to
such Agent may adopt such authentication and execution and deliver the
Certificates so authenticated and executed with the same effect as if such
successor Agent had itself authenticated and executed such Securities.
Section 7.12. Preservation of Information; Communications to Holders.
(a) The Agent shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders received by the Agent in its
capacity as Registrar.
(b) If three or more Holders (herein referred to as "applicants") apply
in writing to the Agent, and furnish to the Agent reasonable proof that each
such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their
rights under this Agreement or under the Securities and is accompanied by a copy
of the form of proxy or other communication which such applicants propose to
transmit, then the Agent shall, mail to all the Holders copies of the form of
proxy or other communication which is specified in such request, with reasonable
promptness after a tender to the Agent of the materials to be mailed and of
payment, or provision for the payment, of the reasonable expenses of such
mailing.
67
<PAGE> 73
Section 7.13. No Obligations of Agent.
Except to the extent otherwise provided in this Agreement, the Agent
assumes no obligations and shall not be subject to any liability under this
Agreement, the Pledge Agreement or any Purchase Contract in respect of the
obligations of the Holder of any Security thereunder. The Company agrees, and
each Holder of a Certificate, by his acceptance thereof, shall be deemed to have
agreed, that the Agent's execution of the Certificates on behalf of the Holders
shall be solely as agent and attorney-in-fact for the Holders, and that the
Agent shall have no obligation to perform such Purchase Contracts on behalf of
the Holders, except to the extent expressly provided in Article Five hereof.
Section 7.14. Tax Compliance.
(a) The Agent, on its own behalf and on behalf of the Company, will
comply with all applicable certification, information reporting and withholding
(including "backup" withholding) requirements imposed by applicable tax laws,
regulations or administrative practice with respect to (i) any payments made
with respect to the Securities or (ii) the issuance, delivery, holding,
transfer, redemption or exercise of rights under the Securities. Such compliance
shall include, without limitation, the preparation and timely filing of required
returns and the timely payment of all amounts required to be withheld to the
appropriate taxing authority or its designated agent.
(b) The Agent shall comply with any written direction received from the
Company with respect to the application of such requirements to particular
payments or Holders or in other particular circumstances, and may for purposes
of this Agreement rely on any such direction in accordance with the provisions
of Section 7.1(a)(2) hereof.
(c) The Agent shall maintain all appropriate records documenting
compliance with such requirements, and shall make such records available, on
written request, to the Company or its authorized representative within a
reasonable period of time after receipt of such request.
68
<PAGE> 74
ARTICLE VIII
Supplemental Agreements
Section 8.1. Supplemental Agreements Without Consent of Holders.
Without the consent of any Holders, the Company and the Agent, at any
time and from time to time, may enter into one or more agreements supplemental
hereto, in form satisfactory to the Company and the Agent, for any of the
following purposes:
(1) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of
the Company herein and in the Certificates; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Agent; or
(4) to make provision with respect to the rights of Holders
pursuant to the requirements of Section 5.6(b); or
(5) to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other provisions
herein, or to make any other provisions with respect to such matters or
questions arising under this Agreement, provided such action shall not
adversely affect the interests of the Holders.
Section 8.2. Supplemental Agreements with Consent of Holders.
With the consent of the Holders of not less than a majority of the
outstanding Purchase Contracts voting together as one Class, by Act of said
Holders delivered to the Company and the Agent, the Company, when authorized by
a Board Resolution, and the Agent may enter into an agreement or agreements
supplemental hereto for the purpose of modifying in any manner the terms of the
Purchase Contracts, or the provisions of this Agreement or the rights of the
Holders in respect of the Securities;
69
<PAGE> 75
provided, however, that, except as contemplated herein, no such supplemental
agreement shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) change any Payment Date;
(2) change the amount or the type of Collateral required to be
Pledged to secure a Holder's Obligations under the Purchase Contract,
impair the right of the Holder of any Purchase Contract to receive
distributions on the related Collateral (except for the rights of
Holders of Income PRIDES to substitute the Treasury Securities for the
Pledged Trust Preferred Securities or the rights of holders of Growth
PRIDES to substitute Trust Preferred Securities for the Pledged
Treasury Securities) or otherwise adversely affect the Holder's rights
in or to such Collateral or adversely alter the rights in or to such
Collateral;
(3) reduce any Contract Adjustment Payments or any Deferred
Contract Adjustment Payment, or change any place where, or the coin or
currency in which, any Contract Adjustment Payment is payable;
(4) impair the right to institute suit for the enforcement of
any Purchase Contract;
(5) reduce the number of shares of Common Stock to be
purchased pursuant to any Purchase Contract, increase the price to
purchase shares of Common Stock upon settlement of any Purchase
Contract, change the Purchase Contract Settlement Date or otherwise
adversely affect the Holder's rights under any Purchase Contract; or
(6) reduce the percentage of the outstanding Purchase
Contracts the consent of whose Holders is required for any such
supplemental agreement;
provided, that if any amendment or proposal referred to above would adversely
affect only the Income PRIDES or the Growth PRIDES, then only the affected class
of Holder as of the record date for the Holders entitled to vote thereon will be
entitled to vote on such amendment or proposal, and such amendment or proposal
shall not be effective except with the consent of Holders of not less than a
majority of such class.
70
<PAGE> 76
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental agreement, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 8.3. Execution of Supplemental Agreements.
In executing, or accepting the additional agencies created by, any
supplemental agreement permitted by this Article or the modifications thereby
of the agencies created by this Agreement, the Agent shall be entitled to
receive and (subject to Section 7.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental agreement
is authorized or permitted by this Agreement. The Agent may, but shall not be
obligated to, enter into any such supplemental agreement which affects the
Agent's own rights, duties or immunities under this Agreement or otherwise.
Section 8.4. Effect of Supplemental Agreements.
Upon the execution of any supplemental agreement under this Article,
this Agreement shall be modified in accordance therewith, and such supplemental
agreement shall form a part of this Agreement for all purposes; and every Holder
of Certificates theretofore or thereafter authenticated, executed on behalf of
the Holders and delivered hereunder shall be bound thereby.
Section 8.5. Reference to Supplemental Agreements.
Certificates authenticated, executed on behalf of the Holders and
delivered after the execution of any supplemental agreement pursuant to this
Article may, and shall if required by the Agent, bear a notation in form
approved by the Agent as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Certificates so modified as to
conform, in the opinion of the Agent and the Company, to any such supplemental
agreement may be prepared and executed by the Company and authenticated,
executed on behalf of the Holders and delivered by the Agent in exchange for
Outstanding Certificates.
71
<PAGE> 77
ARTICLE IX
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property Except
Under Certain Conditions.
The Company covenants that it will not merge or consolidate with any
other Person or sell, assign, transfer, lease or convey all or substantially all
of its properties and assets to any Person or group of affiliated Persons in one
transaction or a series of related transactions, unless (i) either the Company
shall be the continuing corporation, or the successor (if other than the
Company) shall be a corporation organized and existing under the laws of the
United States of America or a State thereof or the District of Columbia and such
corporation shall expressly assume all the obligations of the Company under the
Purchase Contracts, this Agreement and the Pledge Agreement by one or more
supplemental agreements in form reasonably satisfactory to the Agent and the
Collateral Agent, executed and delivered to the Agent and the Collateral Agent
by such corporation, and (ii) the Company or such successor corporation, as the
case may be, shall not, immediately after such merger or consolidation, or such
sale, assignment, transfer, lease or conveyance, be in default in the
performance of any covenant or condition hereunder, under any of the Securities
or under the Pledge Agreement.
Section 9.2. Rights and Duties of Successor Corporation.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance and upon any such assumption by a successor corporation in
accordance with Section 9.1, such successor corporation shall succeed to and be
substituted for the Company with the same effect as if it had been named herein
as the Company. Such successor corporation thereupon may cause to be signed, and
may issue either in its own name or in the name of Philadelphia Consolidated
Holding Corp. any or all of the Certificates evidencing Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Agent; and, upon the order of such successor corporation,
instead of the Company, and subject to all the terms, conditions and limitations
in this Agreement prescribed, the Agent shall authenticate and execute on behalf
of the Holders and deliver any Certificates which previously shall have been
signed and delivered by the officers of the Company to the Agent for
authentication and execution, and any Certificate evidencing Securities which
such successor corporation thereafter shall cause to be signed and delivered to
72
<PAGE> 78
the Agent for that purpose. All the Certificates so issued shall in all respects
have the same legal rank and benefit under this Agreement as the Certificates
theretofore or thereafter issued in accordance with the terms of this Agreement
as though all of such Certificates had been issued at the date of the execution
hereof.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance such change in phraseology and form (but not in substance)
may be made in the Certificates evidencing Securities thereafter to be issued as
may be appropriate.
Section 9.3. Opinion of Counsel Given to Agent.
The Agent, subject to Sections 7.1 and 7.3, shall receive an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale,
assignment, transfer, lease or conveyance, and any such assumption, complies
with the provisions of this Article and that all conditions precedent to the
consummation of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance have been met.
ARTICLE X
Covenants
Section 10.1. Performance Under Purchase Contracts.
The Company covenants and agrees for the benefit of the Holders from
time to time of the Securities that it will duly and punctually perform its
obligations under the Purchase Contracts in accordance with the terms of the
Purchase Contracts and this Agreement.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York an office or agency where Certificates may be presented or surrendered for
acquisition of shares of Common Stock upon settlement of the Purchase Contracts
on the Purchase Contract Settlement Date or Early Settlement and for transfer of
Collateral upon occurrence of a Termination Event, where Certificates may be
surrendered for registration of transfer or exchange, for a Collateral
Substitution or
73
<PAGE> 79
re-establishment of an Income PRIDES and where notices and demands to or upon
the Company in respect of the Securities and this Agreement may be served. The
Company will give prompt written notice to the Agent of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Agent with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Company hereby appoints the Agent as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where Certificates may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company will
give prompt written notice to the Agent of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby designates as the place of payment for the Securities the
Corporate Trust Office and appoints the Agent at its Corporate Trust Office as
paying agent in such city.
Section 10.3. Company to Reserve Common Stock.
The Company shall at all times prior to the Purchase Contract
Settlement Date reserve and keep available, free from preemptive rights, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock issuable against tender of payment in respect of all Purchase Contracts
constituting a part of the Securities evidenced by Outstanding Certificates.
Section 10.4. Covenants as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued against tender of payment in respect of any Purchase Contract
constituting a part of the Outstanding Securities will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable.
74
<PAGE> 80
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:____________________________
Name:
Title:
<PAGE> 81
EXHIBIT A
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE
NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
Unless this Certificate is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York, New York) to the
Company or its agent for registration of transfer, exchange or payment, and any
Certificate issued is registered in the name of Cede & Co., or such other name
as requested by an authorized representative of The Depository Trust Company,
and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein.
No. _____ Cusip No.
Number of Income PRIDES _______
Form of Face of Income PRIDES Certificate
____% Income PRIDES
This Income PRIDES Certificate certifies that ___________ is the
registered Holder of the number of Income PRIDES set forth above. Each Income
PRIDES represents (i) either (a) beneficial ownership by the Holder of one %
Trust Originated Preferred Security (the "Trust Preferred Security") of PCHC
Financing I, a Delaware statutory business trust (the "Trust"), having a stated
liquidation amount of $10, subject to the Pledge of such Trust Preferred
Security by such Holder pursuant to the Pledge Agreement or (b) upon the
occurrence of a Tax Event Redemption prior to the Purchase Contract Settlement
Date, the appropriate Applicable Ownership Interest of the Treasury Portfolio,
subject to the Pledge of such
<PAGE> 82
Applicable Ownership Interest of the Treasury Portfolio by such Holder pursuant
to the Pledge Agreement, and (ii) the rights and obligations of the Holder under
one Purchase Contract with Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation (the "Company"). All capitalized terms used herein
which are defined in the Purchase Contract Agreement have the meaning set forth
therein.
Pursuant to the Pledge Agreement, the Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, constituting part of each Income PRIDES evidenced hereby have been
pledged to the Collateral Agent, for the benefit of the Company, to secure the
obligations of the Holder under the Purchase Contract comprising a portion of
such Income PRIDES.
The Pledge Agreement provides that all payments of the Stated Amount of
or the appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio, as the case may be, or
cash distributions on, any Pledged Trust Preferred Securities (as defined in the
Pledge Agreement) or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, constituting part of the Income PRIDES
received by the Collateral Agent shall be paid by the Collateral Agent by wire
transfer in same day funds (i) in the case of (A) cash distributions with
respect to Pledged Trust Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (B) of the definition of such term)
of the Treasury Portfolio, as the case may be, and (B) any payments of the
Stated Amount or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such terms) of the Treasury Portfolio, as the
case may be, with respect to any Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
that have been released from the Pledge pursuant to the Pledge Agreement, to
the Agent to the account designated by the Agent, no later than 2:00 p.m., New
York City time, on the Business Day such payment is received by the Collateral
Agent (provided that in the event such payment is received by the Collateral
Agent on a day that is not a Business Day or after 12:30 p.m., New York City
time, on a Business Day, then such payment shall be made no later than 10:30
a.m., New York City time, on the next succeeding Business Day) and (ii) in the
case of payments of the Stated Amount or the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, as the case may be, of any Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, to the Company on the Purchase Contract Settlement Date (as defined
herein) in accordance with the terms of the Pledge
A-2
<PAGE> 83
Agreement, in full satisfaction of the respective obligations of the Holders of
the Income PRIDES of which such Pledged Trust Preferred Securities or the
Treasury Portfolio, as the case may be, are a part under the Purchase Contracts
forming a part of such Income PRIDES. Distributions on any Trust Preferred
Security or the appropriate Applicable Ownership Interest (as specified in
clause (B) of the definition of such term) of the Treasury Portfolio, as the
case may be, forming part of an Income PRIDES evidenced hereby which are payable
quarterly in arrears on February 16, May 16, August 16 and November 16 each
year, commencing 16, 1998 (a "Payment Date"), shall, subject to receipt
thereof by the Agent from the Collateral Agent, be paid to the Person in whose
name this Income PRIDES Certificate (or a Predecessor Income PRIDES Certificate)
is registered at the close of business on the Record Date for such Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this
Income PRIDES Certificate to purchase, and the Company to sell, on 16, 2001
(the "Purchase Contract Settlement Date"), at a price equal to $10 (the "Stated
Amount"), a number of shares of Common Stock, no par value ("Common Stock"), of
the Company, equal to the Settlement Rate, unless on or prior to the Purchase
Contract Settlement Date there shall have occurred a Termination Event or an
Early Settlement with respect to the Income PRIDES of which such Purchase
Contract is a part, all as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof. The purchase price (the "Purchase Price")
for the shares of Common Stock purchased pursuant to each Purchase Contract
evidenced hereby, if not paid earlier, shall be paid on the Purchase Contract
Settlement Date by application of payment received in respect of the Stated
Amount or the appropriate Applicable Ownership Interest (as specified in clause
(A) of the definition of such term) of the Treasury Portfolio, as the case may
be, of the Pledged Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, pledged to
secure the obligations under such Purchase Contract of the Holder of the Income
PRIDES of which such Purchase Contract is a part.
The Company shall pay, on each Payment Date, in respect of each
Purchase Contract forming part of an Income PRIDES evidenced hereby an amount
(the "Contract Adjustment Payments") equal to % per annum of the Stated Amount,
computed on the basis of a 360 day year of twelve 30 day months, subject to
deferral at the option of the Company as provided in the Purchase Contract
Agreement and more fully described on the reverse hereof. Such Contract
Adjustment Payments shall be payable to the Person in whose name this Income
PRIDES Certificate (or a
A-3
<PAGE> 84
Predecessor Income PRIDES Certificate) is registered at the close of business on
the Record Date for such Payment Date.
Distributions on the Trust Preferred Securities or the appropriate
Applicable Ownership Interest (as specified in clause (B) of the definition of
such term) of the Treasury Portfolio, as the case may be, and Contract
Adjustment Payments will be payable at the office of the Agent in The City of
New York or, at the option of the Company, by check mailed to the address of the
Person entitled thereto as such address appears on the Income PRIDES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Income PRIDES Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
A-4
<PAGE> 85
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
PHILADELPHIA CONSOLIDATED HOLDING CORP.
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under the
Purchase Contracts evidenced hereby)
By: THE FIRST NATIONAL BANK OF CHICAGO
not individually but solely as
Attorney-in-Fact of such Holder
By:
-----------------------------------------
Name:
Title:
Dated: , 1998
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Income PRIDES Certificates referred to in the within
mentioned Purchase Contract Agreement.
By: THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:
-----------------------------------------
Authorized Officer
A-5
<PAGE> 86
(Form of Reverse of Income PRIDES Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of April , 1998 (as may be supplemented from time
to time, the "Purchase Contract Agreement"), between the Company and The First
National Bank of Chicago, as Purchase Contract Agent (herein called the
"Agent"), to which Purchase Contract Agreement and supplemental agreements
thereto reference is hereby made for a description of the respective rights,
limitations of rights, obligations, duties and immunities thereunder of the
Agent, the Company, and the Holders and of the terms upon which the Income
PRIDES Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Income PRIDES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price"), a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless, on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event or Early Settlement with respect
to the Security of which such Purchase Contract is a part. The "Settlement Rate"
is equal to (a) if the Applicable Market Value (as defined below) is equal to or
greater than $ (the "Threshold Appreciation Price"), shares of Common
Stock per Purchase Contract, (b) if the Applicable Market Value is less than the
Threshold Appreciation Price but is greater than $ , the number of shares of
Common Stock per Purchase Contract equal to the Stated Amount divided by the
Applicable Market Value and (c) if the Applicable Market Amount is less than or
equal to $ , shares of Common Stock per Purchase Contract, in each
case subject to adjustment as provided in the Purchase Contract Agreement. No
fractional shares of Common Stock will be issued upon settlement of Purchase
Contracts, as provided in the Purchase Contract Agreement.
Each Purchase Contract evidenced hereby, which is settled either
through Early Settlement or Cash Settlement, shall obligate the Holder of the
related Income PRIDES to purchase at the Purchase Price, and the Company to
sell, a number of newly issued shares of Common Stock equal to the Early
Settlement Rate or the Settlement Rate, as applicable.
The "Applicable Market Value" means the average of the Closing Price
per share of Common Stock on each of the 20 consecutive Trading Days ending on
the
A-6
<PAGE> 87
third Trading Day immediately preceding the Purchase Contract Settlement Date.
The "Closing Price" of the Common Stock on any date of determination means the
closing sale price (or, if no closing price is reported, the last reported sale
price) of the Common Stock on the NASDAQ National Market (the "NNM") on such
date or, if the Common Stock is not listed for trading on the NNM on any such
date, as reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, the last quoted bid price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization, or,
if such bid price is not available, the market value of the Common Stock on such
date as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Company. A "Trading Day" means a day on
which the Common Stock (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of the Common Stock.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Income PRIDES Certificate shall pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting a Cash Settlement, an Early Settlement or from the proceeds
of a remarketing of the related Pledged Trust Preferred Securities of such
holders. A Holder of Income PRIDES who does not elect, on or prior to 5:00 p.m.
New York City time on the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, to make an effective Cash Settlement or an Early
Settlement, shall pay the Purchase Price for the shares of Common Stock to be
issued under the related Purchase Contract from the Proceeds of the sale of the
related Pledged Trust Preferred Securities held by the Collateral Agent. Such
sale will be made by the Remarketing Agent pursuant to the terms of the
Remarketing Agreement and the Remarketing Underwriting Agreement on the third
Business Day immediately preceding the Purchase Contract Settlement Date. If, as
provided in the Purchase Contract Agreement, upon the occurrence of a Failed
Remarketing the Collateral Agent, for the benefit of the Company, exercises its
rights as a secured creditor with respect to the Pledged Trust Preferred
Securities related to this Income PRIDES certificate, any accrued and unpaid
distributions (including deferred distributions) on such Pledged Trust Preferred
Securities will become payable by the Company to the holder of this Income
PRIDES Certificate in the manner provided for in the Purchase Contract
Agreement.
A-7
<PAGE> 88
The Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate purchase
price for the shares of Common Stock to be purchased thereunder in the manner
herein set forth.
Each Purchase Contract evidenced hereby and all obligations and rights
of the Company and the Holder thereunder shall terminate if a Termination Event
shall have occurred. Upon the occurrence of a Termination Event, the Company
shall give written notice to the Agent and to the Holders, at their addresses as
they appear in the Income PRIDES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Trust
Preferred Security (as defined in the Pledge Agreement) or the appropriate
Applicable Ownership Interest of the Treasury Portfolio forming a part of each
Income PRIDES, or the Liquidation Distribution received in respect of such
Pledged Trust Preferred Security, from the Pledge. An Income PRIDES shall
thereafter represent the right to receive the Trust Preferred Security or the
appropriate Applicable Ownership Interest of the Treasury Portfolio forming a
part of such Income PRIDES, or the Liquidation Distribution received in respect
of such Trust Preferred Security, in accordance with the terms of the Purchase
Contract Agreement and the Pledge Agreement.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Pledged
Trust Preferred Securities. Upon receipt of notice of any meeting at which
holders of Trust Preferred Securities are entitled to vote or upon the
solicitation of consents, waivers or proxies of holders of Trust Preferred
Securities, the Agent shall, as soon as practicable thereafter, mail to the
Income PRIDES holders a notice (a) containing such information as is contained
in the notice or solicitation, (b) stating that each Income PRIDES holder on the
record date set by the Agent therefor (which, to the extent possible, shall be
the same date as the record date for determining the holders of Trust Preferred
Securities entitled to vote) shall be entitled to instruct the Agent as to the
exercise of the voting rights pertaining to the Trust Preferred Securities
constituting a part of such holder's Income PRIDES and (c) stating the manner in
which such instructions may be given. Upon the written request of the Income
PRIDES Holders on such record date, the Agent shall endeavor insofar as
practicable to vote or cause to be voted, in accordance with the instructions
set forth in such requests, the maximum number of Trust Preferred Securities as
to which any particular voting instructions are received. In the absence of
specific instructions from the Holder of an Income PRIDES, the Agent shall
abstain from voting the Trust Preferred Security evidenced by such Income
PRIDES.
A-8
<PAGE> 89
Upon the occurrence of an Investment Company Event or liquidation of
the Trust, a principal amount of the Debentures constituting the assets of the
Trust and underlying the Trust Preferred Securities equal to the aggregate
Stated Amount of the Pledged Trust Preferred Securities shall be delivered to
the Collateral Agent in exchange for Pledged Trust Preferred Securities.
Thereafter, the Debentures shall be held by the Collateral Agent to secure the
obligations of each Holder of Income PRIDES to purchase shares of Common Stock
under the Purchase Contracts constituting a part of such Income PRIDES.
Following the liquidation of the Trust, the Holders and the Collateral Agent
shall have such security interests, rights and obligations with respect to the
Debentures as the Holders and the Collateral Agent had in respect of the Pledged
Trust Preferred Securities, and any reference in the Purchase Contract Agreement
or Pledge Agreement to the Trust Preferred Securities shall be deemed to be a
reference to the Debentures.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Collateral Agent in exchange for the Pledged Trust
Preferred Securities. Thereafter, pursuant to the terms of the Pledge Agreement,
the Collateral Agent for the benefit of the Company will apply an amount equal
to the Redemption Amount of such Redemption Price to purchase, the Treasury
Portfolio and promptly remit the remaining portion of such Redemption Price to
the Agent for payment to the Holders of such Income PRIDES.
Following the occurrence of a Tax Event Redemption prior to the
Purchase Contract Settlement Date, the Holders of Income PRIDES and the
Collateral Agent shall have such security interests rights and obligations with
respect to the Treasury Portfolio as the Holder of Income PRIDES and the
Collateral Agent had in respect of the Trust Preferred Security or Debentures,
as the case may be, subject to the Pledge thereof as provided in Articles II,
III, IV, V and VI, of the Pledge Agreement and any reference herein to the Trust
Preferred Security or the Debenture shall be deemed to be reference to such
Treasury Portfolio.
The Income PRIDES Certificates are issuable only in registered form and
only in denominations of a single Income PRIDES and any integral multiple
thereof. The transfer of any Income PRIDES Certificate will be registered and
Income PRIDES Certificates may be exchanged as provided in the Purchase Contract
Agreement. The Income PRIDES Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents permitted by the
Purchase Contract
A-9
<PAGE> 90
Agreement. No service charge shall be required for any such registration of
transfer or exchange, but the Company and the Agent may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. A holder who elects to substitute Treasury Securities for Trust
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, thereby creating Growth PRIDES, shall be responsible for any
fees or expenses payable in connection therewith. Except as provided in the
Purchase Contract Agreement, for so long as the Purchase Contract underlying an
Income PRIDES remains in effect, such Income PRIDES shall not be separable into
its constituent parts, and the rights and obligations of the Holder of such
Income PRIDES in respect of Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, and
Purchase Contract constituting such Income PRIDES may be transferred and
exchanged only as an Income PRIDES. The holder of an Income PRIDES may
substitute for the Pledged Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio securing its obligation
under the related Purchase Contract, Treasury Securities in an aggregate
principal amount equal to the aggregate Stated Amount of the Pledged Trust
Preferred Securities or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) in the Treasury
Portfolio in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement. From and after such Collateral Substitution, the Security
for which such Pledged Treasury Securities secures the holder's obligation under
the Purchase Contract shall be referred to as a "Growth PRIDES." A Holder may
make such Collateral Substitution only in integral multiples of 100 Income
PRIDES for 100 Growth PRIDES; provided, however, that if a Tax Event Redemption
has occurred and the Treasury Portfolio has become a component of the Income
PRIDES, a Holder may make such Collateral Substitutions only in integral
multiples of 4,000,000 Income PRIDES for 4,000,000 Growth PRIDES. Such
Collateral Substitution may cause the equivalent aggregate principal amount of
this Certificate to be increased or decreased; provided, however, the equivalent
aggregate principal amount outstanding under this Income PRIDES Certificate
shall not exceed $103,500,000. All such adjustments to the equivalent aggregate
principal amount of this Income PRIDES Certificate shall be duly recorded by
placing an appropriate notation on the Schedule attached hereto.
A Holder of Growth PRIDES may create or recreate Income PRIDES by
delivering to the Collateral Agent Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, with a Stated Amount,
in the case of such Trust Preferred Securities, or with the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury
A-10
<PAGE> 91
Portfolio, in the case of such appropriate Applicable Ownership Interest of the
Treasury Portfolio, equal to the aggregate principal amount of the Pledged
Treasury Securities in exchange for the release of such Pledged Treasury
Securities in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement.
Subject to the next succeeding paragraph, the Company shall pay, on
each Payment Date, the Contract Adjustment Payments payable in respect of each
Purchase Contract to the Person in whose name the Income PRIDES Certificate
evidencing such Purchase Contract is registered at the close of business on the
Record Date for such Payment Date. Contract Adjustment Payments will be payable
at the office of the Agent in The City of New York or, at the option of the
Company, by check mailed to the address of the Person entitled thereto at such
address as it appears on the Income PRIDES Register.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election to
defer such payment (specifying the amount to be deferred) as provided in the
Purchase Contract Agreement. Any Contract Adjustment Payments so deferred shall
bear additional Contract Adjustment Payments thereon at the rate of % per
annum (computed on the basis of a 360 day year of twelve 30 day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
installments of Contract Adjustment Payments, if any, together with the
additional Contract Adjustment Payments accrued thereon, are referred to herein
as the "Deferred Contract Adjustment Payments"). Deferred Contract Adjustment
Payments, if any, shall be due on the next succeeding Payment Date except to the
extent that payment is deferred pursuant to the Purchase Contract Agreement. No
Contract Adjustment Payments may be deferred to a date that is after the
Purchase Contract Settlement Date.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, the Holder of this Income PRIDES Certificate will receive on
the Purchase Contract Settlement Date, in lieu of a cash payment, a number of
shares of Common Stock equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to the Holder of this Income PRIDES Certificate
divided by (y) the Applicable Market Value.
A-11
<PAGE> 92
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or acquisitions
of capital stock of the Company in connection with the satisfaction by the
Company of its obligations under any employee benefit plans or the satisfaction
by the Company of its obligations pursuant to any contract or security
outstanding on the date of such event requiring the Company to purchase capital
stock of the Company, (ii) as a result of a reclassification of the Company's
capital stock or the exchange or conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (iv) dividends or
distributions in capital stock of the Company (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the issuance
or exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan or a declaration thereunder of a
dividend of rights in the future).
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay any Contract
Adjustment Payments or any Deferred Contract Adjustment Payments, shall
immediately and automatically terminate, without the necessity of any notice or
action by any Holder, the Agent or the Company, if, on or prior to the Purchase
Contract Settlement Date, a Termination Event shall have occurred. Upon the
occurrence of a Termination Event, the Company shall promptly but in no event
later than two Business Days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Income PRIDES Register. Upon and after the occurrence of a Termination Event,
the Collateral Agent shall release the Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, from the Pledge in accordance with the provisions of the Pledge
Agreement.
A-12
<PAGE> 93
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities having an aggregate Stated Amount equal to $1,000 or an
integral multiple thereof may be settled early ("Early Settlement") as provided
in the Purchase Contract Agreement; provided, however, that if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of the
Income PRIDES, Holders may early settle Income PRIDES only in integral multiples
of 4,000,000 Income PRIDES. In order to exercise the right to effect Early
Settlement with respect to any Purchase Contracts evidenced by this Income
PRIDES Certificate, the Holder of this Income PRIDES Certificate shall deliver
this Income PRIDES Certificate to the Agent at the Corporate Trust Office duly
endorsed for transfer to the Company or in blank with the form of Election to
Settle Early set forth below duly completed and accompanied by payment in the
form of immediately available funds payable to the order of the Company in an
amount (the "Early Settlement Amount") equal to (i) the product of (A) the
Stated Amount times (B) the number of Purchase Contracts with respect to which
the Holder has elected to effect Early Settlement, plus (ii) if such delivery is
made with respect to any Purchase Contracts during the period from the close of
business on any Record Date for any Payment Date to the opening of business on
such Payment Date, an amount equal to the Contract Adjustment Payments payable
on such Payment Date with respect to such Purchase Contracts. Upon Early
Settlement of Purchase Contracts by a Holder of the related Securities, the
Pledged Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio underlying such Securities shall be released
from the Pledge as provided in the Pledge Agreement and the Holder shall be
entitled to receive a number of shares of Common Stock on account of each
Purchase Contract forming part of a Income PRIDES as to which Early Settlement
is effected equal to the Early Settlement Rate; provided however, that upon the
Early Settlement of the Purchase Contracts, the Holder thereof will forfeit the
right to receive any Deferred Contract Adjustment Payments, if any, on such
Purchase Contracts. The Early Settlement Rate shall initially be equal to shares
of Common Stock and shall be adjusted in the same manner and at the same time as
the Settlement Rate is adjusted as provided in the Purchase Contract Agreement.
Upon registration of transfer of this Income PRIDES Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract Agreement
and the Purchase Contracts evidenced hereby and the transferor shall be released
from the obligations under the Purchase Contracts evidenced by this Income
PRIDES Certificate. The
A-13
<PAGE> 94
Company covenants and agrees, and the Holder, by its acceptance hereof, likewise
covenants and agrees, to be bound by the provisions of this paragraph.
The Holder of this Income PRIDES Certificate, by its acceptance hereof,
authorizes the Agent to enter into and perform the related Purchase Contracts
forming part of the Income PRIDES evidenced hereby on his behalf as his
attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company or its trustee in the event
that the Company becomes the subject of a case under the Bankruptcy Code, agrees
to be bound by the terms and provisions thereof, covenants and agrees to perform
its obligations under such Purchase Contracts, consents to the provisions of the
Purchase Contract Agreement, authorizes the Agent to enter into and perform the
Pledge Agreement on its behalf as its attorney-in-fact, and consents to the
Pledge of the Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, underlying this Income
PRIDES Certificate pursuant to the Pledge Agreement. The Holder further
covenants and agrees, that, to the extent and in the manner provided in the
Purchase Contract Agreement and the Pledge Agreement, but subject to the terms
thereof, payments in respect to the Stated Amount of the Pledged Trust Preferred
Securities, or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, on the
Purchase Contract Settlement Date shall be paid by the Collateral Agent to the
Company in satisfaction of such Holder's obligations under such Purchase
Contract and such Holder shall acquire no right, title or interest in such
payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Income PRIDES Certificate
is registered as the owner of the Income PRIDES evidenced hereby for the purpose
of receiving payments of distributions payable quarterly on the Trust Preferred
Securities, receiving payments of Contract Adjustment Payments and any Deferred
Contract Adjustment Payments, performance of the Purchase Contracts and for all
other purposes whatsoever, whether or not any payments in respect thereof be
overdue and
A-14
<PAGE> 95
notwithstanding any notice to the contrary, and neither the Company, the Agent
nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
A-15
<PAGE> 96
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ------------Custodian------------
(cust) (minor)
Under Uniform Gifts to Minors Act
------------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
---------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
-------------------------------------------------------------
- ------------------------------------------------------------------------------
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Income PRIDES Certificates and all rights thereunder, hereby
irrevocably constituting and appointing
- ------------------------------------------------------------------------------
attorney to transfer said Income PRIDES Certificates on the books of
Philadelphia Consolidated Holding Corp. with full power of substitution in the
premises.
Dated:
----------------- -------------------------------------
Signature
NOTICE: The signature to this
assignment must correspond with the
name as it appears upon the face of
the within Income PRIDES Certificates
in every particular, without
alteration or enlargement or any
change whatsoever.
Signature Guarantee:
-------------------------------
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined
A-16
<PAGE> 97
by the Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-17
<PAGE> 98
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Income PRIDES evidenced
by this Income PRIDES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned at
the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated:
------------------ -------------------------------------
Signature
Signature Guarantee:
-----------------
(if assigned to another person)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
If shares are to be registered
in the name of and delivered to REGISTERED HOLDER
a Person other than the
Holder, please (i) print such
Person's name and address and
(ii) provide a guarantee of your
signature:
Please print name and address of
Registered Holder:
- ------------------------------------- --------------------------------------
Name Name
- ------------------------------------- --------------------------------------
Address Address
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
A-18
<PAGE> 99
- ------------------------------------- --------------------------------------
Social Security or other
Taxpayer Identification
Number, if any --------------------------------------
A-19
<PAGE> 100
ELECTION TO SETTLE EARLY
The undersigned Holder of this Income PRIDES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Income PRIDES evidenced by this Income PRIDES
Certificate specified below. The undersigned Holder directs that a certificate
for shares of Common Stock deliverable upon such Early Settlement be registered
in the name of, and delivered, together with a check in payment for any
fractional share and any Income PRIDES Certificate representing any Income
PRIDES evidenced hereby as to which Early Settlement of the related Purchase
Contracts is not effected, to the undersigned at the address indicated below
unless a different name and address have been indicated below. Pledged Trust
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, deliverable upon such Early Settlement
will be transferred in accordance with the transfer instructions set forth
below. If shares are to be registered in the name of a Person other than the
undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated:
----------------------------- --------------------------------------
Signature
Signature Guarantee:
--------------------------------
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-20
<PAGE> 101
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock or Income REGISTERED HOLDER
PRIDES Certificates are to be
registered in the name of and delivered to
and Pledged Trust Preferred Securities, or
the Treasury Portfolio, as the case may
be, are to be transferred to a Person
other than the Holder, please print such
Person's name and address:
Please print name and address of
Registered Holder:
- ------------------------------------- --------------------------------------
Name Name
- ------------------------------------- --------------------------------------
Address Address
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
Social Security or other
Taxpayer Identification
Number, if any
--------------------------------------
A-21
<PAGE> 102
Transfer Instructions for Pledged Trust Preferred Securities, or the Treasury
Portfolio, as the case may be, Transferable Upon Early Settlement or a
Termination Event:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-22
<PAGE> 103
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global
Certificate have been made:
<TABLE>
<CAPTION>
=====================================================================================================================
Principal Amount of
Amount of Amount of this Global Certificate Signature of autho-
decrease in Principal increase in Principal following such de- rized officer of
Amount of the Global Amount of the Global crease or Trustee or Securities
Date Certificate Certificate increase Custodian
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
</TABLE>
A-23
<PAGE> 104
EXHIBIT B
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE
NAME OF A CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY,
AND ANY PAYMENT THEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST THEREIN.
No. ____________________ Number of Growth PRIDES ___________________ Cusip No.
Form of Face of Growth PRIDES Certificate
This Growth PRIDES Certificate certifies that __________ is the
registered Holder of the number of Growth PRIDES set forth above. Each Growth
PRIDES represents (i) a 1/100 undivided beneficial ownership interest, of a
Treasury Security having a principal amount at maturity equal to $1,000, subject
to the Pledge of such Treasury Security by such Holder pursuant to the Pledge
Agreement, and (ii) the rights and obligations of the Holder under one Purchase
Contract with Philadelphia Consolidated Holding Corp., a Pennsylvania
corporation (the "Company"). All capitalized terms used herein which are defined
in the Purchase Contract Agreement have the meaning set forth therein.
Pursuant to the Pledge Agreement, the Treasury Securities constituting
part of each Growth PRIDES evidenced hereby have been pledged to the Collateral
Agent, for the benefit of the Company, to secure the obligations of the Holder
under the Purchase Contract comprising a portion of such Growth PRIDES.
<PAGE> 105
Each Purchase Contract evidenced hereby obligates the Holder of this
Growth PRIDES Certificate to purchase, and the Company, to sell, on 16,
2001 (the "Purchase Contract Settlement Date"), at a price equal to $10 (the
"Stated Amount"), a number of shares of Common stock, no par value per share
("Common Stock"), of the Company equal to the Settlement Rate, unless on or
prior to the Purchase Contract Settlement Date there shall have occurred a
Termination Event or an Early Settlement with respect to the Growth PRIDES of
which such Purchase Contract is a part, all as provided in the Purchase Contract
Agreement and more fully described on the reverse hereof. The purchase price for
the shares of Common Stock purchased pursuant to each Purchase Contract
evidenced hereby will be paid by application of the Proceeds from the Treasury
Securities pledged to secure the obligations under such Purchase Contract in
accordance with the terms of the Pledge Agreement.
The Company shall pay on each Payment Date in respect of each
Purchase Contract evidenced hereby an amount (the "Contract Adjustment
Payments") equal to __% per annum of the Stated Amount, computed on the basis of
the actual number of days elapsed in a year of 360 day year of twelve 30 day
months, as the case may be, subject to deferral at the option of the Company as
provided in the Purchase Contract Agreement and more fully described on the
reverse hereof. Such Contract Adjustment Payments shall be payable to the Person
in whose name this Growth PRIDES Certificate (or a Predecessor Growth PRIDES
Certificate) is registered at the close of business on the Record Date for such
Payment Date.
Contract Adjustment Payments will be payable at the office of the Agent
in The City of New York or, at the option of the Company, by check mailed to the
address of the Person entitled thereto as such address appears on the Growth
PRIDES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Growth PRIDES Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
B-2
<PAGE> 106
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
PHILADELPHIA CONSOLIDATED HOLDING CORP.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under the
Purchase Contracts)
By: THE FIRST NATIONAL BANK OF CHICAGO,
not individually but solely as
Attorney-in-Fact of such Holder
By:
------------------------------------
Name:
Title:
Dated: , 1998
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Growth PRIDES referred to in the within-mentioned
Purchase Contract Agreement.
By: THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:
------------------------------------
Authorized Signatory
<PAGE> 107
(Reverse of
Growth PRIDES Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of April , 1998 (as may be supplemented from time
to time, the "Purchase Contract Agreement") between the Company and The First
National Bank of Chicago, as Purchase Contract Agent (including its successors
thereunder, herein called the "Agent"), to which the Purchase Contract Agreement
and supplemental agreements thereto reference is hereby made for a description
of the respective rights, limitations of rights, obligations, duties and
immunities thereunder of the Agent, the Company and the Holders and of the terms
upon which the Growth PRIDES Certificates are, and are to be, executed and
delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Growth PRIDES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price") a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event or an Early Settlement with
respect to the Security of which such Purchase Contract is a part. The
"Settlement Rate" is equal to (a) if the Applicable Market Value (as defined
below) is equal to or greater than $ (the "Threshold Appreciation Price"),
shares of Common Stock per Purchase Contract, (b) if the Applicable
Market Value is less than the Threshold Appreciation Price but is greater than
$ , the number of shares of Common Stock per Purchase Contract equal to
the Stated Amount divided by the Applicable Market Value and (c) if the
Applicable Market Amount is less than or equal to $ , then shares
of Common Stock per Purchase Contract, in each case subject to adjustment as
provided in the Purchase Contract Agreement. No fractional shares of Common
Stock will be issued upon settlement of Purchase Contracts, as provided in the
Purchase Contract Agreement.
The "Applicable Market Value" means the average of the Closing Prices
per share of Common Stock on each of the twenty consecutive Trading Days ending
on the third Trading Day immediately preceding the Purchase Contract Settlement
Date. The "Closing Price" of the Common Stock on any date of determination means
the closing sale price (or, if no closing price is reported, the last reported
sale price) of the Common Stock NASDAQ National Market (the "NNM") on such date
or, if the Common Stock is not listed for trading on the NNM on any such date,
as reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, the last quoted bid price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization, or,
if such bid price is not available, the market value of the Common Stock on such
date as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Company. A "Trading Day" means a day on
which the Common Stock (A) is not suspended from
<PAGE> 108
trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the Common
Stock.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Growth PRIDES Certificate shall pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting either an Early Settlement of each such Purchase Contract or
by applying a principal amount of the Pledged Treasury Securities underlying
such Holder's Growth PRIDES equal to the Stated Amount of such Purchase Contract
to the purchase of the Common Stock.
The Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate purchase
price for the shares of Common Stock to be purchased thereunder in the manner
herein set forth.
Each Purchase Contract evidenced hereby and all obligations and rights
of the Company and the Holder thereunder shall terminate if a Termination Event
shall have occurred. Upon the occurrence of a Termination Event, the Company
shall give written notice to the Agent and to the Holders, at their addresses as
they appear in the Growth PRIDES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Treasury
Securities (as defined in the Pledge Agreement) forming a part of each Growth
PRIDES.
The Growth PRIDES Certificates are issuable only in registered form and
only in denominations of a single Growth PRIDES and any integral multiple
thereof. The transfer of any Growth PRIDES Certificate will be registered and
Growth PRIDES Certificates may be exchanged as provided in the Purchase Contract
Agreement. The Growth PRIDES Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents permitted by the
Purchase Contract Agreement. No service charge shall be required for any such
registration of transfer or exchange, but the Company and the Agent may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. A Holder who elects to substitute Trust
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, for Treasury Securities, thereby
recreating Income PRIDES, shall be responsible for any fees or expenses
associated therewith. Except as provided in the Purchase Contract Agreement, for
so long as the Purchase Contract underlying a Growth PRIDES remains in effect,
such Growth PRIDES shall not be separable into its constituent parts, and the
rights and obligations of the Holder of such Growth PRIDES in respect of the
Treasury Security and the Purchase Contract constituting such Growth PRIDES may
be transferred and exchanged only as a Growth PRIDES. A Holder of Growth PRIDES
may create or recreate Income PRIDES by delivering to the Collateral Agent Trust
Preferred Securities or
B-5
<PAGE> 109
the appropriate Applicable Ownership Interest of the Treasury Portfolio, with a
Stated Amount, in the case of such Trust Preferred Securities, or with the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, in the case of such
appropriate Applicable Ownership Interest of the Treasury Portfolio, equal to
the aggregate principal amount of the Pledged Treasury Securities in exchange
for the release of such Pledged Treasury Securities in accordance with the terms
of the Purchase Contract Agreement and the Pledge Agreement. From and after such
substitution, the Holder's Security shall be referred to as an "Income PRIDES."
Such substitution may cause the equivalent aggregate principal amount of this
Certificate to be increased or decreased; provided, however, the equivalent
aggregate principal amount outstanding under this Growth PRIDES Certificate
shall not exceed $103,500,000. All such adjustments to the equivalent aggregate
principal amount of this Growth PRIDES Certificate shall be duly recorded by
placing an appropriate notation on the Schedule attached hereto.
A Holder of an Income PRIDES may create or recreate a Growth PRIDES by
delivering to the Collateral Agent Treasury Securities in an aggregate principal
amount equal to the aggregate Stated Amount of the Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, in exchange for the release of such Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, in accordance with the terms of the Purchase
Contract Agreement and the Pledge Agreement. Any such recreation of a Growth
PRIDES may be effected only in multiples of 100 Income PRIDES for 100 Growth
PRIDES; provided, however, if a Tax Event Redemption has occurred and the
Treasury Portfolio has become a component of the Income PRIDES, a Holder may
make such Collateral Substitution in integral multiples of 4,000,000 Income
PRIDES for 4,000,000 Growth PRIDES.
Subject to the next succeeding paragraph, the Company shall pay, on
each Payment Date, the Contract Adjustment Payments payable in respect of each
Purchase Contract to the Person in whose name the Growth PRIDES Certificate
evidencing such Purchase Contract is registered at the close of business on the
Record Date for such Payment Date. Contract Adjustment Payments will be payable
at the office of the Agent in The City of New York or, at the option of the
Company, by check mailed to the address of the Person entitled thereto at such
address as it appears on the Growth PRIDES Register.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election to
defer such payment (specifying the amount to be deferred) as provided in the
Purchase Contract Agreement. Any Contract Adjustment Payments so deferred shall
bear additional Contract Adjustment Payments thereon at the rate of ____% per
annum (computed on the basis of a 360 day year of twelve 30 day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
install-
B-6
<PAGE> 110
ments of Contract Adjustment Payments together with the additional Contract
Adjustment Payments accrued thereon, are referred to herein as the "Deferred
Contract Adjustment Payments"). Deferred Contract Adjustment Payments, if any,
shall be due on the next succeeding Payment Date except to the extent that
payment is deferred pursuant to the Purchase Contract Agreement. No Contract
Adjustment Payments may be deferred to a date that is after the Purchase
Contract Settlement Date.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, the Holder of this Growth PRIDES Certificate will receive on
the Purchase Contract Settlement Date, in lieu of a cash payment, a number of
Shares of Common Stock equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to the Holder of the Growth PRIDES Certificate
divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or acquisitions
of shares of capital stock of the Company in connection with the satisfaction by
the Company of its obligations under any employee benefit plans or the
satisfaction by the Company of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Company to
purchase capital stock of the Company, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of the
Company's capital stock or the security being converted or exchanged, (iv)
dividends or distributions in capital stock of the Company (or rights to
acquire capital stock) or repurchases or redemptions of capital stock solely
from the issuance or exchange of capital stock or (v) redemptions or repurchases
of any rights outstanding under a shareholder rights plan or the declaration
thereunder of a dividend of rights in the future).
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay Contract Adjustment
Payments or any Deferred Contract Adjustment Payments, shall immediately and
automatically terminate, without the necessity of any notice or action by any
Holder, the Agent or the Company, if, on or prior to the Purchase Contract
Settlement Date, a Termination Event shall have occurred. Upon the occurrence of
a Termination Event, the Company shall promptly but in no event later than two
business days thereafter give written notice to the Agent, the Collateral Agent
and to the Holders, at their addresses as they appear in the Growth PRIDES
Register. Upon and after
B-7
<PAGE> 111
the occurrence of a Termination Event, the Collateral Agent shall release the
Treasury Securities from the Pledge in accordance with the provisions of the
Pledge Agreement.
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities having an aggregate Stated Amount equal to $1,000 or an
integral multiple thereof may be settled early ("Early Settlement") as provided
in the Purchase Contract Agreement. In order to exercise the right to effect
Early Settlement with respect to any Purchase Contracts evidenced by this Growth
PRIDES Certificate, the Holder of this Growth PRIDES Certificate shall deliver
this Growth PRIDES Certificate to the Agent at the Corporate Trust Office duly
endorsed for transfer to the Company or in blank with the form of Election to
Settle Early set forth below duly completed and accompanied by payment in the
form of immediately available funds payable to the order of the Company in an
amount (the "Early Settlement Amount") equal to (i) the product of (A) the
Stated Amount times (B) the number of Purchase Contracts with respect to which
the Holder has elected to effect Early Settlement, plus (ii) if such delivery is
made with respect to any Purchase Contracts during the period from the close of
business on any Record Date for any Payment Date to the opening of business on
such Payment Date, an amount equal to the Contract Adjustment Payments payable,
if any, on such Payment Date with respect to such Purchase Contracts. Upon Early
Settlement of Purchase Contracts by a Holder of the related Securities, the
Pledged Treasury Securities underlying such Securities shall be released from
the Pledge as provided in the Pledge Agreement and the Holder shall be entitled
to receive, a number of shares of Common Stock on account of each Purchase
Contract forming part of a Growth PRIDES as to which Early Settlement is
effected equal to shares of Common Stock per Purchase Contract (the "Early
Settlement Rate"); provided however, that upon the Early Settlement of the
Purchase Contracts, the Holder thereof will forfeit the right to receive any
Deferred Contract Adjustment Payments on such Purchase Contracts. The Early
Settlement Rate shall be adjusted in the same manner and at the same time as the
Settlement Rate is adjusted as provided in the Purchase Contract Agreement.
Upon registration of transfer of this Growth PRIDES Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract Agreement
and the Purchase Contracts evidenced hereby and the transferor shall be released
from the obligations under the Purchase Contracts evidenced by this Growth
PRIDES Certificate. The Company covenants and agrees, and the Holder, by his
acceptance hereof, likewise covenants and agrees, to be bound by the provisions
of this paragraph.
The Holder of this Growth PRIDES Certificate, by its acceptance hereof,
authorizes the Agent to enter into and perform the related Purchase Contracts
forming part of the Growth PRIDES evidenced hereby on his behalf as its
attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company
B-8
<PAGE> 112
or its trustee in the event that the Company becomes the subject of a case under
the Bankruptcy Code, agrees to be bound by the terms and provisions thereof,
covenants and agrees to perform its obligations under such Purchase Contracts,
consents to the provisions of the Purchase Contract Agreement, authorizes the
Agent to enter into and perform the Pledge Agreement on its behalf as its
attorney-in-fact, and consents to the Pledge of the Treasury Securities
underlying this Growth PRIDES Certificate pursuant to the Pledge Agreement. The
Holder further covenants and agrees, that, to the extent and in the manner
provided in the Purchase Contract Agreement and the Pledge Agreement, but
subject to the terms thereof, payments in respect to the Stated Amount of the
Pledged Treasury Securities on the Purchase Contract Settlement Date shall be
paid by the Collateral Agent to the Company in satisfaction of such Holder's
obligations under such Purchase Contract and such Holder shall acquire no right,
title or interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Growth PRIDES Certificate
is registered as the owner of the Growth PRIDES evidenced hereby for the purpose
of receiving payments of interest on the Treasury Securities, receiving payments
of Contract Adjustment Payments and any Deferred Contract Adjustment Payments,
performance of the Purchase Contracts and for all other purposes whatsoever,
whether or not any payments in respect thereof be overdue and notwithstanding
any notice to the contrary, and neither the Company, the Agent nor any such
agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
B-9
<PAGE> 113
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ------------Custodian------------
(cust) (minor)
Under Uniform Gifts to Minors Act
---------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
---------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
--------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
---------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Growth PRIDES Certificates and all rights thereunder, hereby
irrevocably constituting and appointing
- ------------------------------------------------------------------------------
attorney to transfer said Growth PRIDES Certificates on the books of
Philadelphia Consolidated Holding Corp. with full power of substitution in the
premises.
Dated:
----------------- ----------------------------------
Signature
NOTICE: The signature to
this assignment must
correspond with the name as
it appears upon the face of
the within Growth PRIDES
Certificates in every
particular, without
alteration or enlargement
or any change whatsoever.
Signature Guarantee:
---------------------
B-10
<PAGE> 114
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
B-11
<PAGE> 115
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Growth PRIDES evidenced
by this Growth PRIDES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned at
the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated:
------------------------------- ---------------------------------------
Signature
Signature Guarantee:
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
If shares are to be registered
in the name of and delivered to REGISTERED HOLDER
a Person other than the Holder,
please print such Person's name
and address:
Please print name and address of
Registered Holder:
- ------------------------------------ ----------------------------------------
Name Name
- ------------------------------------ ----------------------------------------
Address Address
- ------------------------------------ ----------------------------------------
- ------------------------------------ ----------------------------------------
B-12
<PAGE> 116
- ------------------------------------ ----------------------------------------
Social Security or other
Taxpayer Identification
Number, if any ----------------------------------------
B-13
<PAGE> 117
ELECTION TO SETTLE EARLY
The undersigned Holder of this Growth PRIDES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Growth PRIDES evidenced by this Growth PRIDES
Certificate specified below. The option to effect Early Settlement may be
exercised only with respect to Purchase Contracts underlying Growth PRIDES with
an aggregate Stated Amount equal to $1,000 or an integral multiple thereof. The
undersigned Holder directs that a certificate for shares of Common Stock
deliverable upon such Early Settlement be registered in the name of, and
delivered, together with a check in payment for any fractional share and any
Growth PRIDES Certificate representing any Growth PRIDES evidenced hereby as to
which Early Settlement of the related Purchase Contracts is not effected, to the
undersigned at the address indicated below unless a different name and address
have been indicated below. Pledged Treasury Securities deliverable upon such
Early Settlement will be transferred in accordance with the transfer
instructions set forth below. If shares are to be registered in the name of a
Person other than the undersigned, the undersigned will pay any transfer tax
payable incident thereto.
Dated:
------------------------------- ---------------------------------------
Signature
Signature Guarantee:
---------------------------------
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
B-14
<PAGE> 118
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock of Growth REGISTERED HOLDER
PRIDES Certificates are to be
registered in the name of and delivered to
and Pledged Treasury Securities are to
be transferred to a Person other than
the Holder, please print such Person's
name and address:
Please print name and address of
Registered Holder:
- ------------------------------------ ----------------------------------------
Name Name
- ------------------------------------ ----------------------------------------
Address Address
- ------------------------------------ ----------------------------------------
- ------------------------------------ ----------------------------------------
- ------------------------------------ ----------------------------------------
Social Security or other
Taxpayer Identification
Number, if any
Transfer Instructions for Pledged Treasury Securities Transferable Upon Early
Settlement or a Termination Event:
- ------------------------------------
- ------------------------------------
- ------------------------------------
B-15
<PAGE> 119
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global
Certificate have been made:
<TABLE>
<CAPTION>
=========================================================================================================================
Principal Amount
Amount of Amount of of this Global Signature of au-
decrease in Prin- increase in Prin- Certificate thorized officer
cipal Amount of cipal Amount of following such of Trustee or
the Global Certif- the Global Certif decrease or Securities Custo-
Date icate icate increase dian
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
</TABLE>
B-16
<PAGE> 120
EXHIBIT C
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO
COLLATERAL AGENT
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10010-2697
Attention: Corporate Trust Administration Department
Re: FELINE PRIDES of Philadelphia Consolidated Holding
Corp. (the "Company"), and PCHC Financing I
We hereby notify you in accordance with Section [4.1] [4.2] of
the Pledge Agreement, dated as of _______ ___, 1998, among the Company,
yourselves, as Collateral Agent, and ourselves, as Purchase Contract Agent and
as attorney-in-fact for the holders of [Income PRIDES] [Growth PRIDES] from time
to time, that the holder of securities listed below (the "Holder") has elected
to substitute [$_____ aggregate [principal amount] of Treasury Securities]
[$_______ Stated Amount of Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,] in
exchange for the [Pledged Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,]
[Pledged Treasury Securities] held by you in accordance with the Pledge
Agreement and has delivered to us a notice stating that the Holder has
Transferred [Treasury Securities] [Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,] to
you, as Collateral Agent. We hereby instruct you, upon receipt of such [Pledged
Treasury Securities] [Pledged Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be],
and upon the payment by such Holder of any applicable fees, to release the
[Trust Preferred Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be,] [Treasury Securities] related to
such [Income PRIDES] [Growth PRIDES] to us in accordance with the Holder's
instructions.
Date:
------------------------------- --------------------------------------
By:
-----------------------------------
Name:
Title:
Signature Guarantee:
-----------------------------
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE> 121
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be,] for the
[Pledged Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be,] [Pledged Treasury
Securities]:
- ------------------------------------ ----------------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
- ------------------------------------
Address
- ------------------------------------
- ------------------------------------
C-2
<PAGE> 122
EXHIBIT D
INSTRUCTION TO PURCHASE CONTRACT AGENT
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Philadelphia Consolidated Holding Corp. (the
"Company"), and PCHC Financing I
The undersigned Holder hereby notifies you that it has
delivered to The Chase Manhattan Bank, as Collateral Agent, $_______ aggregate
principal amount of [Treasury Securities] [Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be,] in exchange for the [Pledged Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be,] [Pledged Treasury Securities] held by the Collateral Agent, in
accordance with Section [4.1][4.2] of the Pledge Agreement, dated _______ ___,
1998, between you, the Company and the Collateral Agent. The undersigned Holder
has paid the Collateral Agent all applicable fees relating to such exchange. The
undersigned Holder hereby instructs you to instruct the Collateral Agent to
release to you on behalf of the undersigned Holder the [Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be,] [Pledged Treasury Securities] related to such
[Income PRIDES] [Growth PRIDES].
Dated:
------------------------------ ---------------------------------------
Signature
Signature Guarantee:
------------------------------
Please print name and address of Registered Holder:
- ------------------------------------ ---------------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
Address
- ------------------------------------
- ------------------------------------
- ------------------------------------
D-1
<PAGE> 123
EXHIBIT E
NOTICE TO SETTLE BY SEPARATE CASH
The First National Bank of Chicago
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Philadelphia Consolidated Holding Corp.
(the "Company"), and PCHC Financing I
The undersigned Holder hereby irrevocably notifies you in
accordance with Section 5.4 of the Purchase Contract Agreement, dated as of
______ ___, 1998 among the Company, yourselves, as Purchase Contract Agent and
as Attorney-in-Fact for the Holders of the Purchase Contracts, that such Holder
has elected to pay to the Collateral Agent, on or prior to 11:00 a.m. New York
City time, on the Business Day immediately preceding the Purchase Contract
Settlement Date, (in lawful money of the United States by [certified or cashiers
check or] wire transfer, in each case in immediately available funds),
$_________ as the Purchase Price for the shares of Common Stock issuable to such
Holder by the Company under the related Purchase Contract on the Purchase
Contract Settlement Date. The undersigned Holder hereby instructs you to notify
promptly the Collateral Agent of the undersigned Holders election to make such
cash settlement with respect to the Purchase Contracts related to such Holder's
[Income PRIDES] [Growth PRIDES].
Dated:------------------------------ ---------------------------------------
Signature
Signature Guarantee:
------------------------------
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
Please print name and address of Registered Holder:
Name
-------------------------------- ---------------------------------------
Social Security or other Taxpayer
Identification Number, if any
Address
- ------------------------------------
- ------------------------------------
- ------------------------------------
E-1
<PAGE> 1
EXHIBIT 4.12
PHILADELPHIA CONSOLIDATED HOLDING CORP.,
THE CHASE MANHATTAN BANK,
as Collateral Agent, Custodial Agent
and Securities Intermediary
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
FORM OF PLEDGE AGREEMENT
Dated as of April __, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
RECITALS ......................................................................1
Section 1. Definitions..................................................3
Section 2. Pledge; Control and Perfection...............................8
Section 2.1. The Pledge...................................................8
Section 2.2. Control and Perfection......................................10
Section 3. Distributions on Pledged Collateral.........................12
Section 4. Substitution, Release, Repledge and
Settlement of Trust Preferred Securities................14
Section 4.1. Substitution for Capital
Securities and the Creation
of Growth PRIDES...................................14
Section 4.2. Substitution of Treasury
Securities and the Creation
of Income PRIDES...................................15
Section 4.3. Termination Event...........................................16
Section 4.4. Cash Settlement.............................................17
Section 4.5. Early Settlement............................................19
Section 4.6. Application of Proceeds
Settlement.........................................19
Section 5. Voting Rights -- Trust Preferred Securities.................22
Section 6. Rights and Remedies; Distribution
of the Debentures; Tax Event
Redemption..............................................23
Section 6.1. Rights and Remedies of the
Collateral Agent...................................23
Section 6.2. Distribution of the Debentures;
Tax Event Redemption...............................25
Section 6.3. Substitutions...............................................26
Section 7. Representations and Warranties;
Covenants...............................................26
Section 7.1. Representations and Warranties..............................26
Section 7.2. Covenants...................................................27
i
<PAGE> 3
Page
Section 8. The Collateral Agent........................................28
Section 8.1. Appointment, Powers and
Immunities.........................................28
Section 8.2. Instructions of the Company.................................29
Section 8.3. Reliance by Collateral Agent................................30
Section 8.4. Rights in Other Capacities..................................30
Section 8.5. Non-Reliance on Collateral Agent............................31
Section 8.6. Compensation and Indemnity..................................31
Section 8.7. Failure to Act..............................................31
Section 8.8. Resignation of Collateral
Agent..............................................32
Section 8.9. Right to Appoint Agent or
Advisor............................................34
Section 8.10. Survival....................................................34
Section 8.11. Exculpation.................................................34
Section 9. Amendment...................................................34
Section 9.1. Amendment Without Consent
of Holders.........................................34
Section 9.2. Amendment with Consent of
Holders............................................35
Section 9.3. Execution of Amendments.....................................36
Section 9.4. Effect of Amendments........................................36
Section 9.5. Reference to Amendments.....................................36
Section 10. Miscellaneous...............................................37
Section 10.1. No Waiver...................................................37
Section 10.2. Governing Law...............................................37
Section 10.3. Notices.....................................................38
Section 10.4. Successors and Assigns......................................38
Section 10.5. Counterparts................................................38
Section 10.6. Severability................................................38
Section 10.7. Expenses, etc...............................................39
Section 10.8. Security Interest Absolute..................................39
EXHIBIT A INSTRUCTION TO COLLATERAL AGENT
EXHIBIT B INSTRUCTION TO PURCHASE CONTRACT AGENT
EXHIBIT C INSTRUCTION TO CUSTODIAL AGENT REGARDING
REMARKETING
EXHIBIT D INSTRUCTION TO CUSTODIAL AGENT REGARDING
WITHDRAWAL FROM REMARKETING
ii
<PAGE> 4
PLEDGE AGREEMENT
FORM OF PLEDGE AGREEMENT, dated as of April __, 1998 (this
"Agreement"), among Philadelphia Consolidated Holding Corp., a Pennsylvania
corporation (the "Company"), The Chase Manhattan Bank, a New York banking
corporation, not individually but solely as collateral agent (in such capacity,
together with its successors in such capacity, the "Collateral Agent") as
custodial agent (in such capacity, together with its successors in such
capacity, the "Custodial Agent") and in its capacity as a "securities
intermediary" as defined in Section 8-102(a)(14) of the Code (as defined herein)
(in such capacity, together with its successors in such capacity, the
"Securities Intermediary"), and The First National Bank of Chicago, not
individually but solely as purchase contract agent and as attorney-in-fact of
the Holders (as defined in the Purchase Contract Agreement) from time to time of
the Securities (as hereinafter defined) (in such capacity, together with its
successors in such capacity, the "Purchase Contract Agent") under the Purchase
Contract Agreement (as hereinafter defined).
RECITALS
The Company and the Purchase Contract Agent are parties to the Purchase
Contract Agreement, dated as of the date hereof (as modified and supplemented
and in effect from time to time, the "Purchase Contract Agreement"), pursuant
to which there may be issued up to 10,350,000 FELINE PRIDES of the Company,
having a stated amount of $10 (the "Stated Amount") per FELINE PRIDES.
The FELINE PRIDES will initially consist of (A) 8,000,000,000 units
(referred to as "Income PRIDES") with a face amount, per Income PRIDES, equal to
the Stated Amount and (B) 1,000,000 units (referred to as "Growth PRIDES" and,
together with the Income PRIDES, the "Securities") with a face amount, per
Growth PRIDES, equal to the Stated Amount. Each Income PRIDES will initially be
comprised of (a) a stock purchase contract (a "Purchase Contract") under which
(i) the holder will purchase from the Company on ___ 16, 2001 (the "Purchase
Contract Settlement Date"), for an amount of cash equal to the Stated Amount, a
number of newly issued shares of common stock, no par value per share (the
"Common Stock"), of the Company equal to the Settlement Rate (as defined
<PAGE> 5
below) and (ii) the Company will pay the Holder Contract Adjustment Payments (as
defined below) at the rate of __% of the Stated Amount per annum and (b) either
beneficial ownership of a Trust Preferred Security (as defined below) or upon
the occurrence of a Tax Event Redemption the Applicable Ownership Interest of
the Treasury Portfolio. Each Growth PRIDES will initially be comprised of (a) a
Purchase Contract under which (i) the holder will purchase from the Company on
the Purchase Contract Settlement Date, for an amount in cash equal to the
Stated Amount, a number of newly issued shares of Common Stock of the Company,
equal to the Settlement Rate, and (ii) the Company will pay the Holder Contract
Adjustment Payments, at the rate of __% of the Stated Amount per annum, and (b)
a 1/100 undivided beneficial interest in a zero-coupon U.S. Treasury Security
(CUSIP No. ) having a principal amount equal to $1,000 and maturing on ____15,
2001 (the "Treasury Securities").
Pursuant to the terms of the Declaration (as defined below), PC
Financing I, a statutory business trust formed under the laws of the State of
Delaware (the "Trust") will issue _____ __% Trust Originated Preferred
Securities (the "Trust Preferred Securities") having a stated liquidation value
equal to the Stated Amount.
Pursuant to the terms of the Purchase Contract Agreement and the
Purchase Contracts, the Holders, from time to time, of the Securities have
irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such
Holders, among other things, to execute and deliver this Agreement on behalf of
such Holders and to grant the pledge provided hereby of the Trust Preferred
Securities, any Applicable Ownership Interest in the Treasury Portfolio and any
Treasury Securities delivered in exchange therefor to secure each Holder's
obligations under the related Purchase Contract, as provided herein and subject
to the terms hereof. Upon such pledge, the Trust Preferred Securities will be
beneficially owned by the Holders but will be owned of record by the Purchase
Contract Agent subject to the Pledge hereunder.
Accordingly, the Company, the Collateral Agent, the Securities
Intermediary, the Custodial Agent and the Purchase Contract Agent, on its own
behalf and as attorney-in-fact of the Holders from time to time of the
Securities, agree as follows:
2
<PAGE> 6
Section 1. Definitions. For all purposes of this
Agreement, except as otherwise expressly provided or
unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(b) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision;
(c) the following terms have the meanings assigned to them in
the Purchase Contract Agreement: (i) Act, (ii) Agent, (iii) Board
Resolution, (iv) Cash Settlement, (v) Certificate, (vi) Contract
Adjustment Payments, (vii) Debentures, (viii) Early Settlement, (ix)
Early Settlement Amount, (x) Early Settlement Date, (xi) Failed
Remarketing, (xii) Holder, (xiii) Opinion of Counsel, (xiv) Outstanding
Securities, (xv) Purchase Agreement, (xvi) Purchase Contract, (xvii)
Purchase Contract Settlement Date, (xviii) Remarketing Agent, (xix)
Remarketing Agreement, (xx) Remarketing Underwriting Agreement, (xxi)
Settlement Rate, and (xxii) Termination Event; and
(d) the following terms have the meanings assigned to them in
the Declaration: (i) Applicable Ownership Interest (ii) Applicable
Principal Amount, (iii) Institutional Trustee, (iv) Investment Company
Event,(v) Primary Treasury Dealer, (vi) Quotation Agent, (vii)
Redemption Amount, (viii) Redemption Price, (ix) Tax Event, (x) Tax
Event Redemption, (xi) Tax Event Redemption Date, (xii) Treasury
Portfolio, (xiii) Treasury Portfolio Purchase Price.
"Agreement" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more agreements
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Bankruptcy Code" means title 11 of the United States Code, or any
other law of the United States that
3
<PAGE> 7
from time to time provides a uniform system of bankruptcy laws.
"Business Day" means any day other than a Saturday, a Sunday or any
other day on which banking institutions in The City of New York (in the State of
New York) are permitted or required by any applicable law to close.
"Trust Preferred Securities" has the meaning specified in the Recitals.
"Cash" means any coin or currency of the United States as at the time
shall be legal tender for payment of public and private debts.
"Code" has the meaning specified in Section 6.1 hereof.
"Collateral" has the meaning specified in Section 2.1 hereof.
"Collateral Account" means the securities account (number _____)
maintained at The Chase Manhattan Bank in the name "The First National Bank of
Chicago, as Purchase Contract Agent on behalf of the holders of certain
securities of PCHC Financing I, Collateral Account subject to the security
interest of The Chase Manhattan Bank, as Collateral Agent, for the benefit of
Philadelphia Consolidated Holding Corp., as pledgee" and any successor account.
"Collateral Agent" has the meaning specified in the first paragraph of
this instrument.
"Common Stock" has the meaning specified in the Recitals.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor shall have become such, and
thereafter "Company" shall mean such successor.
"Custodial Agent" has the meaning specified in the Recitals.
"Debenture Trustee" means The First National Bank of Chicago, as
trustee under the Indenture until a successor
4
<PAGE> 8
is appointed thereunder, and thereafter means such successor trustee.
"Declaration" means the Amended and Restated Declaration of Trust,
dated as of April __, 1998, among the Company as sponsor, the trustees named
therein and the holders from time to time of undivided beneficial interests in
the assets of the Trust.
"Intermediary" means any entity that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
"Permitted Investments" means any one of the following which shall
mature not later than the next succeeding Business Day (i) any evidence of
indebtedness with an original maturity of 365 days or less issued, or directly
and fully guaranteed or insured, by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof or such indebtedness
constitutes a general obligation of it); (ii) deposits, certificates of deposit
or acceptances with an original maturity of 365 days or less of any institution
which is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than US $200.0 million at the time of
deposit; (iii) investments with an original maturity of 365 days or less of any
Person that is fully and unconditionally guaranteed by a bank referred to in
clause (ii); (iv) investments in commercial paper, other than commercial paper
issued by the Company or its affiliates, of any corporation incorporated under
the laws of the United States or any State thereof, which commercial paper has a
rating at the time of purchase at least equal to "A-1" by Standard & Poor's
Ratings Services ("S&P") or at least equal to "P-1" by Moody's Investors
Service, Inc. ("Moody's"); and (v) investments in money market funds registered
under the Investment Company Act of 1940, as amended, rated in the highest
applicable rating category by S&P or Moody's.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
5
<PAGE> 9
"Pledge" has the meaning specified in Section 2.1 hereof.
"Pledged Trust Preferred Securities" has the meaning specified in
Section 2.1 hereof.
"Pledged Treasury Securities" has the meaning specified in Section 2.1
hereof.
"Proceeds" means all interest, dividends, cash, instruments,
securities, financial assets (as defined in Section 8-102(a)(9) of the Code) and
other property from time to time received, receivable or otherwise distributed
upon the sale, exchange, collection or disposition of the Collateral or any
proceeds thereof.
"Purchase Contract" has the meaning specified in the Recitals.
"Purchase Contract Agent" has the meaning specified in the first
paragraph of this Agreement.
"Purchase Contract Agreement" has the meaning specified in the
Recitals.
"Securities" has the meaning specified in the Recitals.
"Securities Intermediary" has the meaning specified in the first
paragraph of this Agreement.
"Security Entitlement" has the meaning set forth in Section
8-102(a)(17) of the Code.
"Separate Trust Preferred Securities" means any Trust Preferred
Securities that are not Pledged Trust Preferred Securities.
"Stated Amount" has the meaning specified in the Recitals.
"TRADES" means the Treasury/Reserve Automated Debt Entry System
maintained by the Federal Reserve Bank of New York pursuant to the TRADES
Regulations.
"TRADES Regulations" means the regulations of the United States
Department of the Treasury, published at 31
6
<PAGE> 10
C.F.R. Part 357, as amended from time to time. Unless otherwise defined herein,
all terms defined in the TRADES Regulations are used herein as therein defined.
"Transfer" means, with respect to the Collateral and in accordance with
the instructions of the Collateral Agent, the Purchase Contract Agent or the
Holder, as applicable:
(i) in the case of Collateral consisting of
securities which cannot be delivered by
book-entry or which the parties agree are
to be delivered in physical form, delivery
in appropriate physical form to the
recipient accompanied by any duly executed
instruments of transfer, assignments in
blank, transfer tax stamps and any other
documents necessary to constitute a legally
valid transfer to the recipient;
(ii) in the case of Collateral consisting of
securities maintained in book-entry form by
causing a "securities intermediary" (as defined
in Section 8-102(a)(14) of the Code) to
(i) credit a "security entitlement" (as
defined in Section 8-102(a)(17) of the Code)
with respect to such securities to a
"securities account" (as defined in Section
8-501(a) of the Code) maintained by or on
behalf of the recipient and (ii) to issue a
confirmation to the recipient with respect to
such credit. In the case of Collateral to be
delivered to the Collateral Agent, the
Securities Intermediary shall be the Securities
Intermediary and the securities account shall
be the Collateral Account.
"Treasury Security" means a zero-coupon U.S. Treasury Security (Cusip
Number ________) which are the principal strips of the U.S. Treasury Securities
which mature on _____ 15, 2001.
"Trust" has the meaning specified in the Recitals.
"Value" with respect to any item of Collateral on any date means, as to
(i) a Trust Preferred Security, the Stated Amount, (ii) Cash, the face amount
thereof and
7
<PAGE> 11
(iii) Treasury Securities, the aggregate principal amount thereof at maturity.
Section 2. Pledge; Control and Perfection.
Section 2.1. The Pledge. The Holders from time to time acting through
the Purchase Contract Agent, as their attorney-in-fact, hereby pledge and grant
to the Collateral Agent, for the benefit of the Company, as collateral security
for the performance when due by such Holders of their respective obligations
under the related Purchase Contracts, a security interest in (i) all of the
right, title and interest of such Holders (a) in the Trust Preferred Securities
and Treasury Securities constituting a part of the Securities and any Treasury
Securities delivered in exchange for any Trust Preferred Securities, and any
Trust Preferred Securities delivered in exchange for any Treasury Securities, in
accordance with Section 4 hereof, in each case that have been Transferred to or
received by the Collateral Agent and not released by the Collateral Agent to
such Holders under the provisions of this Agreement; (b) in payments made by
Holders pursuant to Section 4.4; (c) in the Collateral Account and all
securities, financial assets, Cash and other property credited thereto and all
Security Entitlements related thereto; (d) in any Debentures delivered to the
Collateral Agent upon the occurrence of an Investment Company Event or a
liquidation of the Trust as provided in Section 6.2; (e) in the Treasury
Portfolio purchased on behalf of the Holders of Income PRIDES by the Collateral
Agent upon the occurrence of a Tax Event Redemption as provided in Section 6.2
and (f) all Proceeds of the foregoing (all of the foregoing, collectively, the
"Collateral"). Prior to or concurrently with the execution and delivery of this
Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the
Securities, shall cause the Trust Preferred Securities comprising a part of
the Income PRIDES, and the Treasury Securities comprising a part of the Growth
PRIDES, to be Transferred to the Collateral Agent for the benefit of the
Company. Such Trust Preferred Securities shall be Transferred by physically
delivering such Securities to the Securities Intermediary endorsed in blank and
causing the Securities Intermediary to credit the Collateral Account with such
Securities and sending the Collateral Agent a confirmation of the deposit of
such Securities. In the event a Holder of Income PRIDES so elects, such Holder
8
<PAGE> 12
may Transfer Treasury Securities to the Collateral Agent for the benefit of the
Company in exchange for the release by the Collateral Agent on behalf of the
Company of Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, with an aggregate stated
liquidation amount equal to the aggregate principal amount of the Treasury
Securities so Transferred, in the case of Trust Preferred Securities, or with
an appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio equal to the aggregate
principal amount of the Treasury Securities so transferred, in the event that a
Tax Event Redemption has occurred, to the Purchase Contract Agent on behalf of
such Holder. Treasury Securities and the Treasury Port folio, as applicable,
shall be Transferred to the Collateral Account maintained by the Collateral
Agent at the Securities Intermediary by book-entry transfer to the Collateral
Account in accordance with the TRADES Regulations and other applicable law and
by the notation by the Securities Intermediary on its books that a Security
Entitlement with respect to such Treasury Securities or Treasury Portfolio, has
been credited to the Collateral Account. For purposes of perfecting the Pledge
under applicable law, including, to the extent applicable, the TRADES
Regulations or the Uniform Commercial Code as adopted and in effect in any
applicable jurisdiction, the Collateral Agent shall be the agent of the Company
as provided herein. The pledge provided in this Section 2.1 is herein referred
to as the "Pledge" and the Trust Preferred Securities (or the Debentures that
are delivered pursuant to Section 6.2 hereof) or Treasury Securities subject
to the Pledge, excluding any Trust Preferred Securities (or the Debentures that
are delivered pursuant to Section 6.2 hereof) or Treasury Securities released
from the Pledge as provided in Section 4 hereof, are hereinafter referred to as
"Pledged Trust Preferred Securities" or the "Pledged Treasury Securities,"
respectively. Subject to the Pledge and the provisions of Section 2.2 hereof,
the Holders from time to time shall have full beneficial ownership of the
Collateral. When ever directed by the Collateral Agent acting on behalf of the
Company, the Securities Intermediary shall have the right to reregister the
Trust Preferred Securities or any other Securities held in physical form in its
name.
9
<PAGE> 13
Except as may be required in order to release Trust Preferred
Securities in connection with a Holder's election to convert its investment
from an Income PRIDES to a Growth PRIDES, or except as otherwise required to
release Securities as specified herein, neither the Collateral Agent nor the
Securities Intermediary shall relinquish physical possession of any certificate
evidencing a Trust Preferred Security prior to the termination of this
Agreement. If it becomes necessary for the Securities Intermediary to relinquish
physical possession of a certificate in order to release a portion of the Trust
Preferred Securities evidenced thereby from the Pledge, the Securities
Intermediary shall use its best efforts to obtain physical possession of a
replacement certificate evidencing any Trust Preferred Securities remaining
subject to the Pledge hereunder registered to it or endorsed in blank within
fifteen days of the date it relinquished possession. The Securities Intermediary
shall promptly notify the Company and the Collateral Agent of the Securities
Intermediary's failure to obtain possession of any such replacement certificate
as required hereby.
Section 2.2. Control and Perfection. (a) In connection with the Pledge
granted in Section 2.1, and subject to the other provisions of this Agreement,
the Holders from time to time acting through the Purchase Contract Agent, as
their attorney-in-fact, hereby authorize and direct the Securities Intermediary
(without the necessity of obtaining the further consent of the Purchase
Contract Agent or any of the Holders), and the Securities Intermediary agrees,
to comply with and follow any instructions and entitlement orders (as defined in
Section 8-102(a)(8) of the Code) that the Collateral Agent on behalf of the
Company may give in writing with respect to the Collateral Account, the
Collateral credited thereto and any security entitlements with respect to any
thereof. Such instructions and entitlement orders may, without limitation,
direct the Securities Intermediary to transfer, redeem, sell, liquidate,
assign, deliver or otherwise dispose of the Trust Preferred Securities, the
Treasury Securities, the Treasury Portfolio, and any Security Entitlements with
respect thereto and to pay and deliver any income, proceeds or other funds
derived therefrom to the Company. The Holders from time to time acting through
the Purchase Contract Agent hereby further authorize and direct the Collateral
Agent, as Agent of
10
<PAGE> 14
the Company, to itself issue instructions and entitlement orders, and to
otherwise take action, with respect to the Collateral Account, the Collateral
credited thereto and any security entitlements with respect thereto, pursuant to
the terms and provisions hereof, all without the necessity of obtaining the
further consent of the Purchase Contract Agent or any of the Holders. The
Collateral Agent shall be the Agent of the Company and shall act as directed in
writing by the Company. Without limiting the generality of the foregoing, the
Collateral Agent shall issue entitlement orders to the Securities Intermediary
when and as directed by the Company.
(b) The Securities Intermediary hereby confirms and agrees that: (i)
all securities or other property underlying any financial assets credited to
the Collateral Account shall be registered in the name of the Securities
Intermediary, indorsed to the Securities Intermediary or in blank or credited to
another Collateral Account maintained in the name of the Securities
Intermediary and in no case will any financial asset credited to the Collateral
Account be registered in the name of the Purchase Contract Agent, the Collateral
Agent, the Company or any Holder, payable to the order of, or specially indorsed
to, the Purchase Contract Agent, the Collateral Agent, the Company or any Holder
except to the extent the foregoing have been specially indorsed to the
Securities Intermediary or in blank; (ii) all property delivered to the
Securities Intermediary pursuant to this Pledge Agreement (including, without
limitation, any Trust Preferred Securities, the Treasury Portfolio or Treasury
Securities) will be promptly credited to the Collateral Account; (iii) the
Collateral Account is an account to which financial assets are or may be
credited, and the Securities Intermediary shall, subject to the terms of this
Agreement, treat the Purchase Contract Agent as entitled to exercise the rights
of any financial asset credited to the Collateral Account; (iv) the Securities
Intermediary has not entered into, and until the termination of the this
Agreement will not enter into, any agreement with any other person relating to
the Collateral Account and/or any financial assets credited thereto pursuant to
which it has agreed to comply with entitlement orders (as defined in Section
8-102(a)(8) of the Code) of such other person; and (v) the Securities
Intermediary has not entered into, and until the termination of this Agreement
will not enter into, any agreement with
11
<PAGE> 15
the debtor or the secured party purporting to limit or condition the obligation
of the Securities Intermediary to comply with entitlement orders as set forth in
this Section 2.2 hereof.
(c) The Securities Intermediary hereby agrees that each item of
property (whether investment property, financial asset, security, instrument or
cash) credited to the Collateral Account shall be treated as a "financial
asset" within the meaning of Section 8-102(a)(9) of the Code.
(d) In the event of any conflict between this Agreement (or any portion
thereof) and any other agreement now existing or hereafter entered into, the
terms of this Agreement shall prevail.
Section 3. Distributions on Pledged Collateral. So long as the Purchase
Contract Agent is the registered owner of the Pledged Trust Preferred
Securities, it shall receive all payments thereon. If the Pledged Trust
Preferred Securities are reregistered, such that the Collateral Agent becomes
the registered holder, all payments of the Stated Amount or, if applicable, the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, or cash distributions on,
the Pledged Trust Preferred Securities or on the appropriate Applicable
Ownership Interest (as specified in clause (B) of the definition of such term)
of the Treasury Portfolio, as the case may be, and all payments of the principal
of, or cash distributions on, any Pledged Treasury Securities received by the
Collateral Agent that are properly payable hereunder shall be paid by the
Collateral Agent by wire transfer in same day funds:
(i) In the case of (A) cash distributions with respect to the
Pledged Trust Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (B) of the definition of
such term) of the Treasury Portfolio, as the case may be, and (B) any
payments of the Stated Amount or, if applicable, the appropriate
Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio with respect to any
Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the
12
<PAGE> 16
Treasury Portfolio, as the case may be, that have been released from
the Pledge pursuant to Section 4.3 hereof, to the Purchase Contract
Agent, for the benefit of the relevant Holders of Securities, to the
account designated by the Purchase Contract Agent for such purpose, no
later than 2:00 p.m., New York City time, on the Business Day such
payment is received by the Collateral Agent (provided that in the event
such payment is received by the Collateral Agent on a day that is not a
Business Day or after 12:30 p.m., New York City time, on a Business
Day, then such payment shall be made no later than 10:30 a.m., New York
City time, on the next succeeding Business Day);
(ii) In the case of any principal payments with respect to any
Treasury Securities that have been released from the Pledge pursuant to
Section 4.3 hereof, to the Holders of the Growth PRIDES to the accounts
designated by them in writing for such purpose no later than 2:00 p.m.,
New York City time, on the Business Day such payment is received by the
Collateral Agent (provided that in the event such payment is received
by the Collateral Agent on a day that is not a Business Day or after
12:30 p.m., New York City time, on a Business Day, then such payment
shall be made no later than 10:30 a.m., New York City time, on the next
succeeding Business Day); and
(iii) In the case of payments of the Stated Amount of any
Pledged Trust Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be, or the
principal of any Pledged Treasury Securities, to the Company on the
Purchase Contract Settlement Date in accordance with the procedure set
forth in Section 4.6(a) or 4.6(b) hereof, in full satisfaction of the
respective obligations of the Holders under the related Purchase
Contracts.
All payments received by the Purchase Contract Agent as provided herein shall be
applied by the Purchase Contract Agent pursuant to the provisions of the
Purchase Contract Agreement. If, notwithstanding the foregoing, the Purchase
Contract Agent shall receive any payments of the Stated Amount or, if
applicable, the appropriate Applica-
13
<PAGE> 17
ble Ownership Interest (as specified in clause (A) of the definition of such
term) on account of any Trust Preferred Security or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable that, at the time of
such payment, is a Pledged Trust Preferred Security or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, or
a Holder of a Growth PRIDES shall receive any payments of principal on account
of any Treasury Securities that, at the time of such payment, are Pledged
Treasury Securities, the Purchase Contract Agent or such Holder shall hold the
same as trustee of an express trust for the benefit of the Company (and promptly
deliver the same over to the Company) for application to the obligations of the
Holders under the related Purchase Contracts, and the Holders shall acquire no
right, title or interest in any such payments of Stated Amount or principal so
received.
Section 4. Substitution, Release, Repledge and Settlement of Trust
Preferred Securities.
Section 4.1. Substitution for Trust Preferred Securities and the
Creation of Growth PRIDES. At any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date (unless a Tax Event
Redemption has occurred), a Holder of Income PRIDES shall have the right to
substitute Treasury Securities for the Pledged Trust Preferred Securities
securing such Holder's obligations under the Purchase Con tract(s) comprising a
part of its Income PRIDES in integral multiples of 100 Income PRIDES by (a)
Transferring to the Collateral Agent Treasury Securities having a Value equal to
the Stated Amount of the Pledged Trust Preferred Securities to be released and
(b)(i) in the event that Contract Adjustment Payments are at a higher rate for
Growth PRIDES than for Income PRIDES, delivering to the Purchase Contract Agent
Cash in an amount equal to the excess of the Contract Adjustment Payments that
would have accrued since the last Payment Date through the date of substitution
on the Growth PRIDES being created by the Holder, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income
PRIDES, which amount the Purchase Contract Agent shall promptly remit to the
Company, and (ii) delivering the related Income PRIDES to the Purchase Contract
Agent, accompanied by a notice, substantially in the form of
14
<PAGE> 18
Exhibit B hereto, to the Purchase Contract Agent stating that such Holder has
Transferred Treasury Securities to the Collateral Agent pursuant to clause (a)
above (stating the Value of the Treasury Securities Transferred by such Holder)
and requesting that the Purchase Contract Agent instruct the Collateral Agent to
release from the Pledge the Pledged Trust Preferred Securities related to such
Income PRIDES. The Purchase Contract Agent shall instruct the Collateral Agent
in the form provided in Exhibit A; provided, however, that if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of the
Income PRIDES, Holders of Income PRIDES may make such substitution only in
integral multiples of 4,000,000 Income PRIDES at any time on or prior to the
second Business Day immediately preceding the Purchase Contract Settlement Date.
Upon receipt of Treasury Securities from a Holder of Income PRIDES and the
related instruction from the Purchase Contract Agent, the Collateral Agent
shall release the Pledged Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
and shall promptly Transfer such Pledged Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, free and clear of any lien, pledge or security interest created
hereby, to the Purchase Contract Agent.
Section 4.2. Substitution of Treasury Securities and the Creation of
Income PRIDES. At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date (unless a Tax Event Redemption
has occurred), a Holder of Growth PRIDES shall have the right to establish or
reestablish Income PRIDES consisting of the Purchase Contracts and Trust
Preferred Securities in integral multiples of 100 Income PRIDES by (a)
Transferring to the Collateral Agent Trust Preferred Securities having a Value
equal to the Value of the Pledged Treasury Securities to be released and (b)
delivering the related Growth PRIDES to the Purchase Contract Agent,
accompanied by a notice, substantially in the form of Exhibit B hereto, to the
Purchase Contract Agent stating that such Holder has transferred Trust Preferred
Securities to the Collateral Agent pursuant to clause (a) above and requesting
that the Purchase Contract Agent instruct the Collateral Agent to release from
the Pledge the Pledged Treasury Securities related to such Growth PRIDES. The
Purchase Contract Agent shall instruct the
15
<PAGE> 19
Collateral Agent in the form provided in Exhibit A; provided, however, that if a
Tax Event Redemption has occurred and the Treasury Portfolio has become a
component of the Income PRIDES, Holders of Growth PRIDES may make such
substitution only in integral multiples of 4,000,000 Growth PRIDES, at any time
on or prior to the Business Day immediately preceding the Purchase Contract
Settlement Date. Upon receipt of the Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, from such Holder and the instruction from the Purchase Contract
Agent, the Collateral Agent shall release the Treasury Securities and shall
promptly Transfer such Treasury Securities, free and clear of any lien, pledge
or security interest created hereby, to the Purchase Contract Agent.
Section 4.3. Termination Event. Upon receipt by the Collateral Agent of
written notice from the Company or the Purchase Contract Agent that there has
occurred a Termination Event, the Collateral Agent shall release all Collateral
from the Pledge and shall promptly Transfer any Pledged Trust Preferred
Securities (or the Applicable Ownership Interest of the Treasury Portfolio if a
Tax Event Redemption has occurred) and Pledged Treasury Securities to the
Purchase Contract Agent for the benefit of the Holders of the Income PRIDES and
the Growth PRIDES, respectively, free and clear of any lien, pledge or security
interest or other interest created hereby.
If such Termination Event shall result from the Company's becoming a
debtor under the Bankruptcy Code, and if the Collateral Agent shall for any
reason fail promptly to effectuate the release and Transfer of all Pledged Trust
Preferred Securities, the Treasury Portfolio or of the Pledged Treasury
Securities, as the case may be, as provided by this Section 4.3, the Purchase
Contract Agent shall (i) use its best efforts to obtain an opinion of a
nationally recognized law firm reasonably acceptable to the Collateral Agent to
the effect that, as a result of the Company's being the debtor in such a
bankruptcy case, the Collateral Agent will not be prohibited from releasing or
Transferring the Collateral as provided in this Section 4.3, and shall deliver
such opinion to the Collateral Agent within ten days after the occurrence of
such Termination Event, and if (y) the Purchase Contract Agent shall be unable
to obtain such
16
<PAGE> 20
opinion within ten days after the occurrence of such Termination Event or (z)
the Collateral Agent shall continue, after delivery of such opinion, to refuse
to effectuate the release and Transfer of all Pledged Trust Preferred
Securities, the Treasury Portfolio or the Pledged Treasury Securities, as the
case may be, as provided in this Section 4.3, then the Purchase Contract Agent
shall within fifteen days after the occurrence of such Termination Event
commence an action or proceeding in the court with jurisdiction of the Company's
case under the Bankruptcy Code seeking an order requiring the Collateral Agent
to effectuate the release and transfer of all Pledged Trust Preferred
Securities, the Treasury Portfolio or of the Pledged Treasury Securities, as the
case may be, as provided by this Section 4.3 or (ii) commence an action or
proceeding like that described in subsection (i)(z) hereof within ten days after
the occurrence of such Termination Event.
Section 4.4. Cash Settlement. (a) Upon receipt by the Collateral Agent
of (i) a notice from the Purchase Contract Agent promptly after the receipt by
the Purchase Contract Agent of such notice that a Holder of an Income PRIDES or
Growth PRIDES has elected, in accordance with the procedures specified in
Section 5.4(a)(i) or (d)(i) of the Purchase Contract Agreement, respectively, to
settle its Purchase Contract with Cash and (ii) payment by such Holder on or
prior to 11:00 a.m., New York City time, on the Business Day immediately
preceding the Purchase Contract Settlement Date in lawful money of the United
States by certified or cashiers' check or wire transfer in immediately available
funds payable to or upon the order of the Company, then the Collateral Agent
shall, promptly invest any Cash received from a Holder in connection with a Cash
Settlement in Permitted Investments. Upon receipt of the proceeds upon the
maturity of the Permitted Investments on the Purchase Contract Settlement Date,
the Collateral Agent shall pay the portion of such proceeds and deliver any
certified or cashiers' checks received, in an aggregate amount equal to the
Purchase Price, to the Company on the Purchase Contract Settlement Date, and
shall distribute any funds in respect of the interest earned from the Permitted
Investments to the Purchase Contract Agent for payment to the relevant Holders.
17
<PAGE> 21
(b) If a Holder of an Income PRIDES fails to notify the Agent of its
intention to make a Cash Settlement in accordance with Section 5.4(a)(i) of the
Purchase Con tract Agreement, such failure shall constitute an event of default
under the Purchase Contract Agreement and hereunder, and the Holder shall be
deemed to have consented to the disposition of the pledged Trust Preferred
Securities pursuant to the remarketing as described in Section 5.4(b) of the
Purchase Contract Agreement, which is incorporated herein by reference. If a
Holder of an Income PRIDES does notify the Agent as provided in Section
5.4(a)(i) of the Purchase Contract Agreement of its intention to pay the
Purchase Price in cash, but fails to make such payment as required by Section
5.4(a)(ii) of the Purchase Contract Agreement, the Trust Preferred Securities of
such a Holder will not be remarketed but instead the Collateral Agent, for the
benefit of the Company, will exercise its rights as a secured party with respect
to such Trust Preferred Securities at the direction of the Company to retain or
dispose of the Collateral in accordance with applicable law. In addition, in
the event of a Failed Remarketing as described in Section 5.4(b) of the Purchase
Contract Agreement, such Failed Remarketing shall constitute an event of default
hereunder by such Holder and the Collateral Agent, for the benefit of the
Company, will also exercise its rights as a secured party with respect to such
Trust Preferred Securities at the direction of the Company to retain or dispose
of the Collateral in accordance with applicable law.
(c) If a Holder of a Growth PRIDES fails to notify the Purchase
Contract Agent of such Holder's intention to make a Cash Settlement in
accordance with Section 5.4(d)(i) of the Purchase Contract Agreement, or if a
Holder of a Growth PRIDES does notify the Agent as provided in paragraph 5.4
(d)(i) of the Purchase Contract Agreement of its intention to pay the Purchase
Price in cash, but fails to make such payment as required by paragraph
5.4(d)(ii) of the Purchase Contract Agreement, such failure shall constitute an
event of default hereunder by such Holder and upon the maturity of any Pledged
Treasury Securities or the Treasury Portfolio, if any, held by the Collateral
Agent on the Business Day immediately preceding the Purchase Contract
Settlement Date, the principal amount of the Pledged Treasury Securities or the
Treasury Portfolio received by the Collateral
18
<PAGE> 22
Agent shall, upon written direction of the Company, be invested promptly in
Permitted Investments. On the Purchase Contract Settlement Date, an amount equal
to the Purchase Price will be remitted to the Company as payment thereof. In the
event the sum of the proceeds from the related Pledged Treasury Securities or
the Treasury Portfolio, as the case may be, and the investment earnings earned
from such investments is in excess of the aggregate Purchase Price of the
Purchase Contracts being settled thereby, the Collateral Agent will distribute
such excess to the Purchase Contract Agent for the benefit of the Holder of the
related Growth PRIDES or Income PRIDES when received.
Section 4.5. Early Settlement. Upon written notice to the Collateral
Agent by the Purchase Contract Agent that one or more Holders of Securities have
elected to effect Early Settlement of their respective obligations under the
Purchase Contracts forming a part of such Securities in accordance with the
terms of the Purchase Contracts and the Purchase Contract Agreement (setting
forth the number of such Purchase Contracts as to which such Holders have
elected to effect Early Settlement), and that the Purchase Contract Agent has
received from such Holders, and paid to the Company as confirmed in writing by
the Company, the related Early Settlement Amounts pursuant to the terms of the
Purchase Contracts and the Purchase Contract Agreement and that all conditions
to such Early Settlement have been satisfied, then the Collateral Agent shall
release from the Pledge, (a) Pledged Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio in the case
of a Holder of Income PRIDES or (b) Pledged Treasury Securities in the case of a
Holder of Growth PRIDES, as the case may be, with a principal amount equal to
the product of (i) the Stated Amount times (ii) the number of such Purchase
Contracts as to which such Holders have elected to effect Early Settlement and
shall Transfer all such Pledged Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio or Pledged Treasury
Securities, as the case may be, free and clear of the Pledge created hereby, to
the Purchase Contract Agent for the benefit of the Holders.
Section 4.6. Application of Proceeds Settlement.
(a) In the event a Holder of Income PRIDES (if a Tax
19
<PAGE> 23
Event Redemption has not occurred) has not elected to make an effective Cash
Settlement by notifying the Purchase Contract Agent in the manner provided for
in paragraph 5.4(a)(i) in the Purchase Contract Agreement or has not made an
Early Settlement of the Purchase Contract(s) underlying its Income PRIDES, such
Holder shall be deemed to have elected to pay for the shares of Common Stock to
be issued under such Purchase Contract(s) from the Proceeds of the related
Pledged Trust Preferred Securities. The Collateral Agent shall, by 10:00 a.m.,
New York City time, on the fourth Business Day immediately preceding the
Purchase Contract Settlement Date, without any instruction from such Holder of
Income PRIDES, present the related Pledged Trust Preferred Securities to the
Remarketing Agent for remarketing. Upon receiving such Pledged Trust Preferred
Securities, the Remarketing Agent, pursuant to the terms of the Remarketing
Agreement and the Remarketing Underwriting Agreement, will use its reasonable
efforts to remarket such Pledged Trust Preferred Securities on such date at a
price not less than approximately 100.5% of the aggregate Value of such Pledged
Trust Preferred Securities, plus accrued and unpaid distributions (including
deferred distributions), if any, thereon. After deducting as the Remarketing Fee
an amount not exceeding 25 basis points (.25%) of the aggregate Value of the
Pledged Trust Preferred Securities from any amount of such Proceeds in excess of
the aggregate Value, plus such accrued and unpaid distributions (including
deferred distributions) of the remarketed Pledged Trust Preferred Securities,
the Remarketing Agent will remit the entire amount of the Proceeds of such
remarketing to the Collateral Agent. On the Purchase Contract Settlement Date,
the Collateral Agent shall apply that portion of the Proceeds from such
remarketing equal to the aggregate Value, plus such accrued and unpaid
distributions (including deferred distributions) of such Pledged Trust Preferred
Securities, to satisfy in full the obligations of such Holders of Income PRIDES
to pay the Purchase Price to purchase the Common Stock under the related
Purchase Contracts. The remaining portion of such Proceeds, if any, shall be
distributed by the Collateral Agent to the Purchase Contract Agent for payment
to the Holders. If the Remarketing Agent advises the Collateral Agent in writing
that it cannot remarket the related Pledged Trust Preferred Securities of such
Holders of Income PRIDES at a price not less than 100% of the aggregate Value
of such Pledged Trust Preferred Securi-
20
<PAGE> 24
ties plus any accrued and unpaid distributions (including deferred
distributions), thus resulting in a Failed Remarketing and an event of default
under the Purchase Contract Agreement and hereunder, the Collateral Agent, for
the benefit of the Company will, at the written direction of the Company, retain
or dispose of the Pledged Trust Preferred Securities in accordance with
applicable law and satisfy in full, from any such disposition or retention,
such Holder's obligation to pay the Purchase Price for the Common Stock.
(b) In the event a Holder of Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) has not made an Early Settlement of the Purchase
Contract(s) underlying its Growth PRIDES or Income PRIDES, such Holder shall be
deemed to have elected to pay for the shares of Common Stock to be issued under
such Purchase Contract(s) from the Proceeds of the related Pledged Treasury
Securities or the Treasury Portfolio, as the case may be. On the Business Day
immediately prior to the Purchase Contract Settlement Date, the Collateral Agent
shall, at the written direction of the Purchase Contract Agent, invest the Cash
proceeds of the maturing Pledged Treasury Securities or the Treasury Portfolio,
as the case may be, in overnight Permitted Investments. Without receiving any
instruction from any such Holder of Growth PRIDES or Income PRIDES, the
Collateral Agent shall apply the Proceeds of the related Pledged Treasury
Securities or Treasury Portfolio to the settlement of such Purchase Contracts on
the Purchase Contract Settlement Date.
In the event the sum of the Proceeds from the related Pledged Treasury
Securities or Treasury Portfolio and the investment earnings from the investment
in overnight Permitted Investments is in excess of the aggregate Purchase Price
of the Purchase Contracts being settled thereby, the Collateral Agent shall
distribute such excess, when received, to the Purchase Contract Agent for the
benefit of the Holders.
(c) Pursuant to the Remarketing Agreement and subject to the terms of
the Remarketing Underwriting Agreement, on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier than
the Payment Date immediately preceding the Purchase Contract Settlement Date,
holders of Separate
21
<PAGE> 25
Trust Preferred Securities may elect to have their Separate Trust Preferred
Securities remarketed by delivering their Separate Trust Preferred Securities,
together with a notice of such election, substantially in the form of Exhibit C
hereto, to the Custodial Agent. The Custodial Agent will hold such Separate
Trust Preferred Securities in an account separate from the Collateral Account. A
holder of Separate Trust Preferred Securities electing to have its Separate
Trust Preferred Securities remarketed will also have the right to withdraw such
election by written notice to the Custodial Agent, substantially in the form of
Exhibit D hereto, on or prior to the fifth Business Day immediately preceding
the Purchase Contract Settlement Date, upon which notice the Custodial Agent
will return such Separate Trust Preferred Securities to such holder. On the
fourth Business Day immediately preceding the Purchase Contract Settlement Date,
the Custodial Agent will deliver to the Remarketing Agent for remarketing all
separate Trust Preferred Securities delivered to the Custodial Agent pursuant to
this Section 4.6(c) and not withdrawn pursuant to the terms hereof prior to such
date. The portion of the proceeds from such remarketing equal to the aggregate
Value of such Separate Trust Preferred Securities will automatically be remitted
by the Remarketing Agent to the Custodial Agent for the benefit of the holders
of such Separate Trust Preferred Securities. In addition, after deducting as the
Remarketing Fee an amount not exceeding 25 basis points (.25%) of the Value of
the remarketed Separate Trust Preferred Securities, from any amount of such
proceeds in excess of the aggregate Value of the remarketed Separate Trust
Preferred Securities plus any accrued and unpaid distributions (including
deferred distributions, if any), the Remarketing Agent will remit to the
Custodial Agent the remaining portion of the proceeds, if any, for the benefit
of such holders. If, despite using its reasonable efforts, the Remarketing Agent
advises the Custodial Agent in writing that it cannot remarket the related
Separate Trust Preferred Securities of such holders at a price not less than
100% of the aggregate Value of such Separate Trust Preferred Securities plus
accrued and unpaid distributions (including deferred distributions) and thus
resulting in a Failed Remarketing, the Remarketing Agent will promptly return
such Trust Preferred Securities to the Custodial Agent for redelivery to such
holders. In the event of a dissolution of the Trust and the distribution of the
22
<PAGE> 26
Debentures as described in the Declaration, all references to "Separate Trust
Preferred Securities" in this Section 4.6(c) shall be deemed to be references to
Debentures.
Section 5. Voting Rights -- Trust Preferred Securities. The Purchase
Contract Agent may exercise, or refrain from exercising, any and all voting and
other consensual rights pertaining to the Pledged Trust Preferred Securities or
any part thereof for any purpose not inconsistent with the terms of this
Agreement and in accordance with the terms of the Purchase Contract Agreement;
provided, that the Purchase Contract Agent shall not exercise or, as the case
may be, shall not refrain from exercising such right if, in the judgment of the
Company, such action would impair or otherwise have a material adverse effect on
the value of all or any of the Pledged Trust Preferred Securities; and provided,
further, that the Purchase Contract Agent shall give the Company and the
Collateral Agent at least five days' prior written notice of the manner in which
it intends to exercise, or its reasons for refraining from exercising, any such
right. Upon receipt of any notices and other communications in respect of any
Pledged Trust Preferred Securities, including notice of any meeting at which
holders of Trust Preferred Securities are entitled to vote or solicitation of
consents, waivers or proxies of holders of Trust Preferred Securities, the
Collateral Agent shall use reasonable efforts to send promptly to the Purchase
Contract Agent such notice or communication, and as soon as reasonably
practicable after receipt of a written request therefor from the Purchase
Contract Agent, execute and deliver to the Purchase Contract Agent such proxies
and other instruments in respect of such Pledged Trust Preferred Securities (in
form and substance satisfactory to the Collateral Agent) as are prepared by the
Purchase Contract Agent with respect to the Pledged Trust Preferred Securities.
Section 6. Rights and Remedies; Distribution of the Debentures; Tax
Event Redemption
Section 6.1. Rights and Remedies of the Collateral Agent. (a) In
addition to the rights and remedies specified in Section 4.4 hereof or otherwise
available at law or in equity, after an event of default hereunder, the
Collateral Agent shall have all of the rights and
23
<PAGE> 27
remedies with respect to the Collateral of a secured party under the Uniform
Commercial Code as in effect in the State of New York (the "Code") (whether or
not the Code is in effect in the jurisdiction where the rights and remedies are
asserted) and the TRADES Regulations and such additional rights and remedies to
which a secured party is entitled under the laws in effect in any jurisdiction
where any rights and remedies hereunder may be asserted. Without limiting the
generality of the foregoing, such remedies may include, to the extent permitted
by applicable law, (i) retention of the Pledged Trust Preferred Securities or
other Collateral in full satisfaction of the Holders obligations under the
Purchase Contracts or (ii) sale of the Pledged Trust Preferred Securities or
other Collateral in one or more public or private sales.
(b) Without limiting any rights or powers otherwise granted by this Agreement to
the Collateral Agent, in the event the Collateral Agent is unable to make
payments to the Company on account of the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio or on account of principal payments of any Pledged Treasury
Securities as provided in Section 3 hereof in satisfaction of the obligations of
the Holder of the Securities of which such Pledged Treasury Securities, or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as applicable, is a part
under the related Purchase Contracts, the inability to make such payments shall
constitute an event of default hereunder and the Collateral Agent shall have and
may exercise, with reference to such Pledged Treasury Securities, or such
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as applicable, and such
obligations of such Holder, any and all of the rights and remedies available to
a secured party under the Code and the TRADES Regulations after default by a
debtor, and as otherwise granted herein or under any other law.
(c) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably
authorized to receive and collect all payments of (i) the Stated Amount of or,
cash distributions on, the Pledged Trust Preferred
24
<PAGE> 28
Securities, (ii) the principal amount of the Pledged Treasury Securities, or
(iii) the appropriate Applicable Ownership Interest (as specified in clause (A)
of the definition of such term) of the Treasury Portfolio, subject, in each
case, to the provisions of Section 3, and as otherwise granted herein.
(d) The Purchase Contract Agent and each Holder of Securities, in the
event such Holder becomes the Holder of a Growth PRIDES, agrees that, from time
to time, upon the written request of the Collateral Agent, the Purchase Contract
Agent or such Holder shall execute and deliver such further documents and do
such other acts and things as the Collateral Agent may reasonably request in
order to maintain the Pledge, and the perfection and priority thereof, and to
confirm the rights of the Collateral Agent hereunder. The Purchase Contract
Agent shall have no liability to any Holder for executing any documents or
taking any such acts requested by the Collateral Agent hereunder, except for
liability for its own negligent act, its own negligent failure to act or its own
willful misconduct.
Section 6.2. Distribution of the Debentures; Tax Event Redemption. Upon
the occurrence of an Investment Company Event or a liquidation of the Trust, a
principal amount of the Debentures constituting the assets of the Trust and
underlying the Trust Preferred Securities equal to the aggregate stated
liquidation amount of the Pledged Trust Preferred Securities shall be delivered
to the Collateral Agent in exchange for the Pledged Trust Preferred Securities.
In the event the Collateral Agent receives such Debentures in respect of Pledged
Trust Preferred Securities upon the occurrence of an Investment Company Event or
liquidation of the Trust, the Collateral Agent shall Transfer the Debentures to
the Collateral Account in the manner specified herein for Pledged Trust
Preferred Securities to secure the obligations of the Holders of Income PRIDES
to purchase the Company's Common Stock under the related Purchase Contracts.
Thereafter, the Collateral Agent shall have such security interests, rights and
obligations with respect to the Debentures as it had in respect of the Pledged
Trust Preferred Securities as provided in Sections 2, 3, 4, 5 and 6 hereof, and
any reference herein to the Pledged Trust Preferred Securities shall be deemed
to be referring to such Debentures.
25
<PAGE> 29
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Collateral Agent by the Institutional Trustee or upon
a dissolution of the Trust and the distribution of the related Debentures by the
Debenture Trustee on or prior to 12:30 p.m., New York City time, by check or
wire transfer in immediately available funds at such place and at such account
as may be designated by the Collateral Agent in exchange for the Pledged Trust
Preferred Securities or Debentures, as the case may be. In the event the
Collateral Agent receives such Redemption Price, the Collateral Agent will, at
the written direction of the Company, apply an amount equal to the Redemption
Amount of such Redemption Price to purchase from the Quotation Agent, the
Treasury Portfolio and promptly remit the remaining portion of such Redemption
Price to the Purchase Contract Agent for payment to the Holders of Income
PRIDES. The Collateral Agent shall Transfer the Treasury Portfolio to the
Collateral Account in the manner specified herein for Pledged Trust Preferred
Securities to secure the obligation of all Holders of Income PRIDES to purchase
Common Stock of the Company under the Purchase Contracts constituting a part of
such Income PRIDES, in substitution for the Pledged Trust Preferred Securities.
Thereafter the Collateral Agent shall have such security interests, rights and
obligations with respect to the Treasury Portfolio as it had in respect of the
Pledged Trust Preferred Securities or Debentures, as the case may be, as
provided in Sections 2, 3, 4, 5 and 6, and any reference herein to the Pledged
Trust Preferred Securities or the Debentures shall be deemed to be reference to
such Treasury Portfolio.
Section 6.3. Substitutions. Whenever a Holder has the right to
substitute Treasury Securities, Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, for
Collateral held by the Collateral Agent, such substitution shall not constitute
a novation of the security interest created hereby.
26
<PAGE> 30
Section 7. Representations and Warranties; Covenants.
Section 7.1. Representations and Warranties. The Holders from time to
time, acting through the Purchase Contract Agent as their attorney-in-fact (it
being understood that the Purchase Contract Agent shall not be liable for any
representation or warranty made by or on behalf of a Holder), hereby represent
and warrant to the Collateral Agent, which representations and warranties shall
be deemed repeated on each day a Holder Transfers Collateral that:
(a) such Holder has the power to grant a
security interest in and lien on the
Collateral;
(b) such Holder is the sole beneficial owner
of the Collateral and, in the case of
Collateral delivered in physical form, is
the sole holder of such Collateral and is
the sole beneficial owner of, or has the
right to Transfer, the Collateral it
Transfers to the Collateral Agent, free
and clear of any security interest, lien,
encumbrance, call, liability to pay money
or other restriction other than the
security interest and lien granted under
Section 2 hereof;
(c) upon the Transfer of the Collateral to
the Collateral Account, the Collateral
Agent, for the benefit of the Company,
will have a valid and perfected first
priority security interest therein
(assuming that any central clearing
operation or any Intermediary or other entity
not within the control of the Holder
involved in the Transfer of the Collateral,
including the Collateral Agent, gives the
notices and takes the action required of
it hereunder and under applicable law for
perfection of that interest and assuming
the establishment and exercise of control
pursuant to Section 2.2 hereof); and
27
<PAGE> 31
(d) the execution and performance by the
Holder of its obligations under this
Agreement will not result in the creation
of any security interest, lien or other
encumbrance on the Collateral other than
the security interest and lien granted
under Section 2 hereof or violate any
provision of any existing law or regulation
applicable to it or of any mortgage,
charge, pledge, indenture, contract or
undertaking to which it is a party or
which is binding on it or any of its
assets.
Section 7.2. Covenants. The Holders from time to time, acting through
the Purchase Contract Agent as their attorney-in-fact (it being understood that
the Purchase Contract Agent shall not be liable for any covenant made by or on
behalf of a Holder), hereby covenant to the Collateral Agent that for so long as
the Collateral remains subject to the Pledge:
(a) neither the Purchase Contract Agent nor such Holders
will create or purport to create or allow to subsist
any mortgage, charge, lien, pledge or any other
security interest whatsoever over the Collateral or
any part of it other than pursuant to this
Agreement; and
(b) neither the Purchase Contract Agent nor
such Holders will sell or otherwise
dispose (or attempt to dispose) of the
Collateral or any part of it except for the
beneficial interest therein, subject to
the pledge hereunder, transferred in
connection with the Transfer of the Securities.
Section 8. The Collateral Agent. It is hereby agreed as follows:
Section 8.1. Appointment, Powers and Immunities. The Collateral Agent
shall act as Agent for the Company hereunder with such powers as are
specifically vested in the Collateral Agent by the terms of this Agreement,
together with such other powers as are reasonably inci-
28
<PAGE> 32
dental thereto. Each of the Collateral Agent, the Custodial Agent and the
Securities Intermediary: (a) shall have no duties or responsibilities except
those expressly set forth in this Agreement and no implied covenants or
obligations shall be inferred from this Agreement against any of them, nor shall
any of them be bound by the provisions of any agreement by any party hereto
beyond the specific terms hereof; (b) shall not be responsible for any recitals
contained in this Agreement, or in any certificate or other document referred to
or provided for in, or received by it under, this Agreement, the Securities or
the Purchase Contract Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement (other than as
against the Collateral Agent), the Securities or the Purchase Contract Agreement
or any other document referred to or provided for herein or therein or for any
failure by the Company or any other Person (except the Collateral Agent, the
Custodial Agent or the Securities Intermediary, as the case may be) to perform
any of its obligations hereunder or thereunder or for the perfection, priority
or, except as expressly required hereby, maintenance of any security interest
created hereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder (except in the case of the
Collateral Agent, pursuant to directions furnished under Section 8.2 hereof,
subject to Section 8.6 hereof); (d) shall not be responsible for any action
taken or omitted to be taken by it hereunder or under any other document or
instrument referred to or provided for herein or in connection herewith or
therewith, except for its own negligence or willful misconduct; and (e) shall
not be required to advise any party as to selling or retaining, or taking or
refraining from taking any action with respect to, the Securities or other
property deposited hereunder. Subject to the foregoing, during the term of this
Agreement, the Collateral Agent shall take all reasonable action in connection
with the safekeeping and preservation of the Collateral hereunder.
No provision of this Agreement shall require the Collateral Agent, the
Custodial Agent or the Securities Intermediary to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder. In no event shall the Collateral Agent, the Custodial Agent
or the Securities Intermediary be liable for any amount in excess of the Value
29
<PAGE> 33
of the Collateral. Notwithstanding the foregoing, the Collateral Agent, the
Custodial Agent and Securities Intermediary, each in its individual capacity,
hereby waive any right of setoff, bankers lien, liens or perfection rights as
securities intermediary or any counterclaim with respect to any of the
Collateral.
Section 8.2. Instructions of the Company. The Company shall have the
right, by one or more instruments in writing executed and delivered to the
Collateral Agent, the Custodial Agent or the Securities Intermediary, as the
case may be, to direct the time, method and place of conducting any proceeding
for the realization of any right or remedy available to the Collateral Agent, or
of exercising any power conferred on the Collateral Agent, the Custodial Agent
or the Securities Intermediary, as the case may be, or to direct the taking or
refraining from taking of any action authorized by this Agreement; provided,
however, that (i) such direction shall not conflict with the provisions of any
law or of this Agreement and (ii) the Collateral Agent, the Custodial Agent and
the Securities Intermediary shall be adequately indemnified as provided herein.
Nothing in this Section 8.2 shall impair the right of the Collateral Agent in
its discretion to take any action or omit to take any action which it deems
proper and which is not inconsistent with such direction.
Section 8.3. Reliance by Collateral Agent. Each of the Securities
Intermediary, the Custodial Agent and the Collateral Agent shall be entitled
conclusively to rely upon any certification, order, judgment, opinion, notice or
other communication (including, without limitation, any thereof by telephone,
telecopy, telex or facsimile) believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper Person or Persons
(without being required to determine the correctness of any fact stated
therein), and upon advice and statements of legal counsel and other experts
selected by the Collateral Agent, the Custodial Agent or the Securities
Intermediary, as the case may be. As to any matters not expressly provided for
by this Agreement, the Collateral Agent, the Custodial Agent and the Securities
Intermediary shall in all cases be fully protected in acting, or in refraining
from acting, hereunder in accordance with instructions given by the Company in
accordance with this Agreement.
30
<PAGE> 34
Section 8.4. Rights in Other Capacities. The Collateral Agent, the
Custodial Agent and the Securities Intermediary and their affiliates may
(without having to account therefor to the Company) accept deposits from, lend
money to, make their investments in and generally engage in any kind of banking,
trust or other business with the Purchase Contract Agent and any Holder of
Securities (and any of their respective subsidiaries or affiliates) as if it
were not acting as the Collateral Agent, the Custodial Agent or the Securities
Intermediary, as the case may be, and the Collateral Agent, the Custodial Agent
and the Securities Intermediary and their affiliates may accept fees and other
consideration from the Purchase Contract Agent and any Holder of Securities
without having to account for the same to the Company; provided that each of the
Securities Intermediary, the Custodial Agent and the Collateral Agent covenants
and agrees with the Company that it shall not accept, receive or permit there to
be created in favor of itself and shall take no affirmative action to permit
there to be created in favor of any other Person, any security interest, lien or
other encumbrance of any kind in or upon the Collateral.
Section 8.5. Non-Reliance on Collateral Agent. None of the Securities
Intermediary, the Custodial Agent or the Collateral Agent shall be required to
keep itself informed as to the performance or observance by the Purchase
Contract Agent or any Holder of Securities of this Agreement, the Purchase
Contract Agreement, the Securities or any other document referred to or provided
for herein or therein or to inspect the properties or books of the Purchase
Contract Agent or any Holder of Securities. The Collateral Agent, the Custodial
Agent and the Securities Intermediary shall not have any duty or responsibility
to provide the Company with any credit or other information concerning the
affairs, financial condition or business of the Purchase Contract Agent or any
Holder of Securities (or any of their respective affiliates) that may come into
the possession of the Collateral Agent, the Custodial Agent or the Securities
Intermediary or any of their respective affiliates.
Section 8.6. Compensation and Indemnity. The Company agrees: (i) to pay
each of the Collateral Agent and the Custodial Agent from time to time such
compensation as shall be agreed in writing between the Company
31
<PAGE> 35
and the Collateral Agent or the Custodial Agent, as the case may be, for all
services rendered by each of them hereunder and (ii) to indemnify the Collateral
Agent, the Custodial Agent and the Securities Intermediary for, and to hold each
of them harmless from and against, any loss, liability or reasonable
out-of-pocket expense incurred without negligence, willful misconduct or bad
faith on its part, arising out of or in connection with the acceptance or
administration of its powers and duties under this Agreement, including the
reasonable out-of-pocket costs and expenses (including reasonable fees and
expenses of counsel) of defending itself against any claim or liability in
connection with the exercise or performance of such powers and duties.
Section 8.7. Failure to Act. In the event of any ambiguity in the
provisions of this Agreement or any dispute between or conflicting claims by or
among the parties hereto or any other Person with respect to any funds or
property deposited hereunder, the Collateral Agent and the Custodial Agent shall
be entitled, after prompt notice to the Company and the Purchase Contract Agent,
at its sole option, to refuse to comply with any and all claims, demands or
instructions with respect to such property or funds so long as such dispute or
conflict shall continue, and neither the Collateral Agent nor the Custodial
Agent shall be or become liable in any way to any of the parties hereto for its
failure or refusal to comply with such conflicting claims, demands or
instructions. The Collateral Agent and the Custodial Agent shall be entitled to
refuse to act until either (i) such conflicting or adverse claims or demands
shall have been finally determined by a court of competent jurisdiction or
settled by agreement between the conflicting parties as evidenced in a writing,
satisfactory to the Collateral Agent or the Custodial Agent, as the case may be,
or (ii) the Collateral Agent or the Custodial Agent, as the case may be, shall
have received security or an indemnity satisfactory to the Collateral Agent or
the Custodial Agent, as the case may be, sufficient to save the Collateral Agent
or the Custodial Agent, as the case may be, harmless from and against any and
all loss, liability or reasonable out-of-pocket expense which the Collateral
Agent or the Custodial Agent, as the case may be, may incur by reason of its
acting. The Collateral Agent or the Custodial Agent may in addition elect to
commence an interpleader action or seek other judicial
32
<PAGE> 36
relief or orders as the Collateral Agent or the Custodial Agent, as the case may
be, may deem necessary. Notwithstanding anything contained herein to the
contrary, neither the Collateral Agent nor the Custodial Agent shall be required
to take any action that is in its opinion contrary to law or to the terms of
this Agreement, or which would in its opinion subject it or any of its
officers, employees or directors to liability.
Section 8.8. Resignation of Collateral Agent. Subject to the appointment and
acceptance of a successor Collateral Agent or Custodial Agent as provided below,
(a) the Collateral Agent and the Custodial Agent may resign at any time by
giving notice thereof to the Company and the Purchase Contract Agent as
attorney-in-fact for the Holders of Securities, (b) the Collateral Agent and the
Custodial Agent may be removed at any time by the Company and (c) if the
Collateral Agent or the Custodial Agent fails to perform any of its material
obligations hereunder in any material respect for a period of not less than 20
days after receiving written notice of such failure by the Purchase Contract
Agent and such failure shall be continuing, the Collateral Agent or the
Custodial Agent may be removed by the Purchase Contract Agent. The Purchase
Contract Agent shall promptly notify the Company of any removal of the
Collateral Agent pursuant to clause (c) of the immediately preceding sentence.
Upon any such resignation or removal, the Company shall have the right to
appoint a successor Collateral Agent or Custodial Agent, as the case may be. If
no successor Collateral Agent or Custodial Agent, as the case may be, shall have
been so appointed and shall have accepted such appointment within 30 days after
the retiring Collateral Agent's or Custodial Agent's giving of notice of
resignation or such removal, then the retiring Collateral Agent or Custodial
Agent, as the case may be, may petition any court of competent jurisdiction for
the appointment of a successor Collateral Agent or Custodial Agent, as the case
may be. Each of the Collateral Agent and the Custodial Agent shall be a bank
which has an office in New York, New York with a combined capital and surplus of
at least $75,000,000. Upon the acceptance of any appointment as Collateral Agent
or Custodial Agent, as the case may be, hereunder by a successor Collateral
Agent or Custodial Agent, as the case may be, such successor shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring
33
<PAGE> 37
Collateral Agent or Custodial Agent, as the case may be, and the retiring
Collateral Agent or Custodial Agent, as the case may be, shall take all
appropriate action to transfer any money and property held by it hereunder
(including the Collateral) to such successor. The retiring Collateral Agent or
Custodial Agent shall, upon such succession, be discharged from its duties and
obligations as Collateral Agent or Custodial Agent hereunder. After any retiring
Collateral Agent's or Custodial Agent's resignation hereunder as Collateral
Agent or Custodial Agent, the provisions of this Section 8 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Collateral Agent or Custodial Agent. Any
resignation or removal of the Collateral Agent hereunder shall be deemed for all
purposes of this Agreement as the simultaneous resignation or removal of the
Custodial Agent and the Securities Intermediary.
Section 8.9. Right to Appoint Agent or Advisor. The Collateral Agent
shall have the right to appoint agents or advisors in connection with any of its
duties hereunder, and the Collateral Agent shall not be liable for any action
taken or omitted by, or in reliance upon the advice of, such agents or advisors
selected in good faith. The appointment of agents pursuant to this Section 8.9
shall be subject to prior consent of the Company, which consent shall not be
unreasonably withheld.
Section 8.10. Survival. The provisions of this Section 8 shall survive
termination of this Agreement and the resignation or removal of the Collateral
Agent or the Custodial Agent.
Section 8.11. Exculpation. Anything in this Agreement to the contrary
notwithstanding, in no event shall any of the Collateral Agent, the Custodial
Agent or the Securities Intermediary or their officers, employees or agents be
liable under this Agreement to any third party for indirect, special, punitive,
or consequential loss or damage of any kind whatsoever, including lost profits,
whether or not the likelihood of such loss or damage was known to the Collateral
Agent, the Custodial Agent or the Securities Intermediary, or any of them,
incurred without any act or deed that is found to be attributable to gross
negligence or willful misconduct on the part of the
34
<PAGE> 38
Collateral Agent, the Custodial Agent or the Securities Intermediary.
Section 9. Amendment.
Section 9.1. Amendment Without Consent of Holders. Without the consent
of any Holders or the holders of any Separate Trust Preferred Securities, the
Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary
and the Purchase Contract Agent, at any time and from time to time, may amend
this Agreement, in form satisfactory to the Company, the Collateral Agent, the
Custodial Agent, the Securities Intermediary and the Purchase Contract Agent,
for any of the following purposes:
(1) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of
the Company; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company so long as such covenants or such surrender do not
adversely affect the validity, perfection or priority of the security
interests granted or created hereunder; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Collateral Agent, Securities Intermediary or
Purchase Contract Agent; or
(4) to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other such
provisions herein, or to make any other provisions with respect to such
matters or questions arising under this Agreement, provided such action
shall not adversely affect the interests of the Holders.
Section 9.2. Amendment with Consent of Holders. With the consent of the
Holders of not less than a majority of the Purchase Contracts at the time
outstanding, by Act of said Holders delivered to the Company, the Purchase
Contract Agent or the Collateral Agent, as the case may be, the Company, when
duly authorized, the Purchase
35
<PAGE> 39
Contract Agent, the Collateral Agent, the Custodial Agent and the Securities
Intermediary may amend this Agreement for the purpose of modifying in any manner
the provisions of this Agreement or the rights of the Holders in respect of the
Securities; provided, however, that no such supplemental agreement shall,
without the consent of the Holder of each Outstanding Security adversely
affected thereby,
(1) change the amount or type of Collateral underlying a
Security (except for the rights of holders of Income PRIDES to
substitute the Treasury Securities for the Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, or the rights of Holders of
Growth PRIDES to substitute Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio,
as applicable, for the Pledged Treasury Securities), impair the right
of the Holder of any Security to receive distributions on the
underlying Collateral or otherwise adversely affect the Holder's rights
in or to such Collateral; or
(2) otherwise effect any action that would require the consent
of the Holder of each Outstanding Security affected thereby pursuant
to the Purchase Contract Agreement if such action were effected by an
agreement supplemental thereto; or
(3) reduce the percentage of Purchase Contracts the consent of
whose Holders is required for any such amendment.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed amendment, but it shall be sufficient if
such Act shall approve the substance thereof.
Section 9.3. Execution of Amendments. In executing any amendment
permitted by this Section, the Collateral Agent, the Custodial Agent, the
Securities Intermediary and the Purchase Contract Agent shall be entitled to
receive and (subject to Section 6.1 hereof, with respect to the Collateral
Agent, and Section 7.1 of the Purchase Contract Agreement, with respect to the
Purchase Contract Agent) shall be fully protected in relying upon, an
36
<PAGE> 40
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and that all conditions precedent, if any, to the
execution and delivery of such amendment have been satisfied.
Section 9.4. Effect of Amendments. Upon the execution of any amendment
under this Section 9, this Agreement shall be modified in accordance therewith,
and such amendment shall form a part of this Agreement for all purposes; and
every Holder of Certificates theretofore or thereafter authenticated, executed
on behalf of the Holders and delivered under the Purchase Contract Agreement
shall be bound thereby.
Section 9.5. Reference to Amendments. Security Certificates
authenticated, executed on behalf of the Holders and delivered after the
execution of any amendment pursuant to this Section may, and shall if required
by the Collateral Agent or the Purchase Contract Agent, bear a notation in form
approved by the Purchase Contract Agent and the Collateral Agent as to any
matter provided for in such amendment. If the Company shall so determine, new
Security Certificates so modified as to conform, in the opinion of the
Collateral Agent, the Purchase Contract Agent and the Company, to any such
amendment may be prepared and executed by the Company and authenticated,
executed on behalf of the Holders and delivered by the Purchase Contract Agent
in accordance with the Purchase Contract Agreement in exchange for Outstanding
Security Certificates.
Section 10. Miscellaneous.
Section 10.1. No Waiver. No failure on the part of the Collateral Agent
or any of its agents to exercise, and no course of dealing with respect to, and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Collateral Agent
or any of its agents of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
Section 10.2. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS
37
<PAGE> 41
OF THE STATE OF NEW YORK. Without limiting the foregoing, the above choice of
law is expressly agreed to by the Securities Intermediary, the Collateral Agent
and the Holders from time to time acting through the Purchase Contract Agent, as
their attorney-in-fact, in connection with the establishment and maintenance of
the Collateral Account. The Company, the Collateral Agent and the Holders from
time to time of the Securities, acting through the Purchase Contract Agent as
their attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the
United States District Court for the Southern District of New York and of any
New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Company, the Collateral Agent and the Holders from time
to time of the Securities, acting through the Purchase Contract Agent as their
attorney-in-fact, irrevocably waive, to the fullest extent permitted by
applicable law, any objection which they may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
Section 10.3. Notices. All notices, requests, consents and other
communications provided for herein (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to the other parties. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
Section 10.4. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary
and the Purchase Contract Agent, and the Holders from time to time of the
Securities, by their acceptance of the same, shall be deemed to have agreed to
38
<PAGE> 42
be bound by the provisions hereof and to have ratified the agreements of, and
the grant of the Pledge hereunder by, the Purchase Contract Agent.
Section 10.5. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 10.6. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
Section 10.7. Expenses, etc. The Company agrees to reimburse the
Collateral Agent and the Custodial Agent for: (a) all reasonable out-of-pocket
costs and expenses of the Collateral Agent and the Custodial Agent (including,
without limitation, the reasonable fees and expenses of counsel to the
Collateral Agent and the Custodial Agent), in connection with (i) the
negotiation, preparation, execution and delivery or performance of this
Agreement and (ii) any modification, supplement or waiver of any of the terms of
this Agreement; (b) all reasonable costs and expenses of the Collateral Agent
(including, without limitation, reasonable fees and expenses of counsel) in
connection with (i) any enforcement or proceedings resulting or incurred in
connection with causing any Holder of Securities to satisfy its obligations
under the Purchase Contracts forming a part of the Securities and (ii) the
enforcement of this Section 10.7; and (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any other document referred to
herein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated hereby.
39
<PAGE> 43
Section 10.8. Security Interest Absolute. All rights of the Collateral
Agent and security interests hereunder, and all obligations of the Holders from
time to time hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of
the Purchase Contracts or the Securities or any other agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
any other term of, or any increase in the amount of, all or any of the
obligations of Holders of Securities under the related Purchase
Contracts, or any other amendment or waiver of any term of, or any
consent to any departure from any requirement of, the Purchase Contract
Agreement or any Purchase Contract or any other agreement or instrument
relating thereto; or
(c) any other circumstance which might otherwise constitute a
defense available to, or discharge of, a borrower, a guarantor or a
pledgor.
40
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
By:
-------------------------------------
Name:
Title:
Address for Notices:
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
Attention: Chief Financial Officer
Telecopy: (610) 617-7600
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent and as
attorney-in-fact of the Holders from
time to time of the Securities
By:
-------------------------------------
Name:
Title:
Address for Notices:
The First National Bank of Chicago
One First National Plaza,
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust
Services Division
Telecopy: ( )
<PAGE> 45
THE CHASE MANHATTAN BANK,
as Collateral Agent, Custodial
Agent and as Securities Intermediary
By:
-------------------------------------
Name:
Title:
Address for Notices:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, NY 10001-2697
Attention: Corporate Trust
Administration Department
Telecopy: (212) 946-8160
<PAGE> 46
EXHIBIT A
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO COLLATERAL AGENT
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10010-2697
Attention: Corporate Trust Administration Department
Re: FELINE PRIDES of Philadelphia Consolidated
Holding Corp. (the "Company"), and PCHC
Financing I
We hereby notify you in accordance with Section [4.1] [4.2] of
the Pledge Agreement, dated as of April __, 1998, (the "Pledge Agreement") among
the Company, yourselves, as Collateral Agent, Custodial Agent and Securities
Intermediary and ourselves, as Purchase Contract Agent and as attorney-in-fact
for the holders of [Income PRIDES] [Growth PRIDES] from time to time, that the
holder of Securities listed below (the "Holder") has elected to substitute
[$_____ aggregate principal amount of Treasury Securities] [$_______Stated
Amount of Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio] in exchange for an equal Value of [Pledged
Trust Preferred Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio] [Pledged Treasury Securities] held by you in accordance
with the Pledge Agreement and has delivered to us a notice stating that the
Holder has Transferred [Treasury Securities] [Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio] to you, as
Collateral Agent. We hereby instruct you, upon receipt of such [Pledged
Treasury Securities] [Pledged Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio], to release the [Trust
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio] [Treasury Securities] related to such [Income PRIDES]
[Growth PRIDES] to us in accordance with the Holder's instructions. Capitalized
terms used herein but not defined shall have the meaning set forth in the Pledge
Agreement.
Date:
---------------------- --------------------------------
By:
-----------------------------
Name:
<PAGE> 47
Title:
Signature Guarantee:
------------
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio] for the [Pledged Trust Preferred
Securities or the Treasury Portfolio] [Pledged Treasury Securities]:
- --------------------------- ------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
- ---------------------------
Address
- ---------------------------
- ---------------------------
<PAGE> 48
EXHIBIT B
INSTRUCTION TO PURCHASE CONTRACT AGENT
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust, Services Division
Re: FELINE PRIDES of Philadelphia Consolidated
Holding Corp. (the "Company"), and PCHC
Financing I
The undersigned Holder hereby notifies you that it has
delivered to The Chase Manhattan Bank, as Collateral Agent, [$_______ aggregate
principal amount of Treasury Securities] [$ aggregate Stated Amount of Trust
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio] in exchange for an equal Value of [Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio] [Pledged Treasury Securities] held by the Collateral Agent, in
accordance with Section 4.1 of the Pledge Agreement, dated April __, 1998 (the
"Pledge Agreement"), between you, the Company and the Collateral Agent. The
undersigned Holder hereby instructs you to instruct the Collateral Agent to
release to you on behalf of the undersigned Holder the [Pledged Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio] [Pledged Treasury Securities] related to such [Income PRIDES] [Growth
PRIDES]. Capitalized terms used herein but not defined shall have the meaning
set forth in the Pledge Agreement.
Dated:
---------------------- --------------------------------
Signature
Signature Guarantee:
------------------------
<PAGE> 49
Please print name and address of Registered Holder:
- ------------------------- -------------------------
Name Social Security or other
Taxpayer Identification
- ------------------------- Number, if any
Address
- -------------------------
- -------------------------
- -------------------------
<PAGE> 50
EXHIBIT C
INSTRUCTION TO CUSTODIAL AGENT REGARDING REMARKETING
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
Attention: Corporate Trust Administration Department
Re: Trust Preferred Securities of Philadelphia
Consolidated Holding Corp. (the "Company"),
and PCHC Financing I
The undersigned hereby notifies you in accordance with Section
4.6(c) of the Pledge Agreement, dated as of April __, 1998 (the "Pledge
Agreement"), among the Company, yourselves, as Collateral Agent, Securities
Intermediary and Custodial Agent, and The First National Bank of Chicago, as
Purchase Contract Agent and as attorney-in-fact for the Holders of Income PRIDES
and Growth PRIDES from time to time, that the undersigned elects to deliver $
stated liquidation amount of Trust Preferred Securities for delivery to the
Remarketing Agent on the fourth Business Day immediately preceding the Purchase
Contract Settlement Date for remarketing pursuant to Section 4.6(c) of the
Pledge Agreement. The undersigned will, upon request of the Remarketing Agent,
execute and deliver any additional documents deemed by the Remarketing Agent or
by the Company to be necessary or desirable to complete the sale, assignment and
transfer of the Trust Preferred Securities tendered hereby.
The undersigned hereby instructs you, upon receipt of the
Proceeds of such remarketing from the Remarketing Agent to deliver such Proceeds
to the undersigned in accordance with the instructions indicated herein under
"A. Payment Instructions". The undersigned hereby instructs you, in the event
of Failed Remarketing, upon receipt of the Trust Preferred Securities tendered
herewith from the Remarketing Agent, to be delivered to the person(s) and the
address(es) indicated herein under "B. Delivery Instructions."
With this notice, the undersigned hereby (i) represents and
warrants that the undersigned has full power and authority to tender, sell,
assign and transfer the Trust Preferred Securities tendered hereby and that the
undersigned is the record owner of any Trust Preferred Securities tendered
herewith in physical form or a participant in The Depositary Trust Company
("DTC") and the beneficial owner of any Trust Preferred Securities tendered
herewith by book-entry transfer
<PAGE> 51
to your account at DTC and (ii) agrees to be bound by the terms and conditions
of Section 4.6(c) of the Pledge Agreement. Capitalized terms used herein but
not defined shall have the meaning set forth in the Pledge Agreement.
Date:
---------------------- ---------------------------------
By:
------------------------------
Name:
Title:
Signature Guarantee:
-------------
Please print name and address:
- ------------------------- -------------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- -------------------------
Address
- -------------------------
B. DELIVERY INSTRUCTIONS
- -------------------------
In the event of a Failed Remarketing, Trust
- ------------------------- Preferred Securities which are in physical
form should be delivered to the person(s)
set forth below and mailed to the address
set forth below.
Name(s)
------------------------------------
A. PAYMENT INSTRUCTIONS (Please Print)
Address
------------------------------------
Proceeds of the remarketing should (Please Print)
be paid by check in the name of
the person(s) set forth below and -------------------------------------------
mailed to the address set forth
below. -------------------------------------------
(Zip Code)
Name(s)
--------------------------- -------------------------------------------
(Please Print) (Tax Identification or Social
Security Number)
Address
--------------------------- In the event of a Failed Remarketing, Trust
(Please Print) Preferred Securities which are in
book-entry form should be credited to the
- ---------------------------------- account at The Depositary Trust Company set
forth below.
- ----------------------------------
------------------
- ---------------------------------- DTC Account Number
(Zip Code)
Name of Account Party:
- ---------------------------------- --------------
(Tax Identification or Social
Security Number)
<PAGE> 52
EXHIBIT D
INSTRUCTION TO CUSTODIAL AGENT REGARDING
WITHDRAWAL FROM REMARKETING
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
Attention: Corporate Trust Administration Department
Re: Trust Preferred Securities of Philadelphia
Consolidated Holding Corp. (the "Company"),
and PCHC Financing I
The undersigned hereby notifies you in accordance with Section
4.6(c) of the Pledge Agreement, dated as of April __, 1998 (the "Pledge
Agreement") among the Company, yourselves, as Collateral Agent, Securities
Intermediary and Custodial Agent and The First National Bank of Chicago, as
Purchase Contract Agent and as attorney-in-fact for the Holders of Income
PRIDES and Growth PRIDES from time to time, that the undersigned elects to
withdraw the $_____ aggregate stated liquidation amount of Trust Preferred
Securities delivered to the Custodial Agent on ___ 16, 2001 for remarketing
pursuant to Section 4.6(c) of the Pledge Agreement. The undersigned hereby
instructs you to return such Trust Preferred Securities to the undersigned in
accordance with the undersigned's instructions. With this notice, the
Undersigned hereby agrees to be bound by the terms and conditions of Section
4.6(c) of the Pledge Agreement. Capitalized terms used herein but not defined
shall have the meaning set forth in the Pledge Agreement.
Date:
---------------------- ---------------------------------
By:
------------------------------
Name:
Title:
Signature Guarantee:
-------------
<PAGE> 53
Please print name and address:
- --------------------------- -------------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- ---------------------------
Address
- ---------------------------
- ---------------------------
- ---------------------------
A. DELIVERY INSTRUCTIONS
In the event of a Failed Remarketing, Trust
Preferred Securities which are in physical form
should be delivered to the person(s) set forth
below and mailed to the address set forth below.
Name(s)
-----------------------------------------
(Please Print)
Address
-----------------------------------------
(Please Print)
- ------------------------------------------------
- ------------------------------------------------
(Zip Code)
- ------------------------------------------------
(Tax Identification or Social Security Number)
In the event of a Failed Remarketing, Trust Pre-
ferred Securities which are in book-entry form
should be credited to the account at The Deposi-
tary Trust Company set forth below.
-------------------
DTC Account Number
Name of Account Party:
--------------
<PAGE> 1
Exhibit 4.13
FORM OF REMARKETING AGREEMENT
FORM OF REMARKETING AGREEMENT, dated as of April __, 1998 (the
"Remarketing Agreement") by and between Philadelphia Consolidated Holding Corp.,
a Pennsylvania corporation (the "Company"), PCHC Financing I, a Delaware
statutory business trust (the "Trust"),The First National Bank of Chicago, a
national banking association, not individually but solely as Purchase Contract
Agent and as attorney-in-fact of the holders of Purchase Contracts (each as
defined in the Purchase Contract Agreement (as defined herein)), and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Remarketing Agent").
WITNESSETH:
WHEREAS, the Company will issue an aggregate Stated Amount
$___________ of its FELINE PRIDES (the "FELINE PRIDES") under the Purchase
Contract Agreement, dated as of April __, 1998, by and between the Purchase
Contract Agent and the Company (the "Purchase Contract Agreement"); and
WHEREAS, the Trust will issue concurrently in connection with
the issuance of the FELINE PRIDES ________ __% Trust Originated Preferred
Securities (the "Trust Preferred Securities") in an aggregate stated liquidation
amount of $___________ under the Amended and Restated Declaration of Trust,
dated as of April __, 1998, by and among the Company, the Regular Trustees, the
Delaware Trustee and the Institutional Trustee (the "Declaration"); and
WHEREAS, the FELINE PRIDES will initially consist of
___________ units referred to as "Income PRIDES" and _________ units referred to
as "Growth PRIDES."
WHEREAS, the sole assets of the Trust, $__________ aggregate
principal amount of ____% Debentures due ______ 16, 2003 (the "Debentures") of
the Company will be purchased by the Trust from the Company with the proceeds of
the sale of the Trust Preferred Securities and the proceeds of the sale of the
common securities of the Trust (the "Common Securities" and, together with the
Trust Preferred Securities, the "Trust Securities"); and
WHEREAS, the Trust Preferred Securities (or upon a dissolution
of the Trust and the distribution of the Debentures as described in the
Declaration, such Debentures) will be pledged pursuant to the Pledge Agreement
(the "Pledge Agreement"), dated as of April __, 1998, by and between the
Company, The Chase Manhattan Bank, as collateral agent (the "Collateral Agent")
and the Purchase Contract Agent, to secure an Income PRIDES holder's obligations
under the related Purchase Contract on the Purchase Contract Settlement Date;
and
WHEREAS, the Trust Preferred Securities or the Debentures, as
the case may be, of such Trust Preferred Security or Debenture holders electing
to have their Trust Preferred Securities or Debentures remarketed, or of such
Income PRIDES holders who have elected not to settle the Purchase Contracts
related to their Income PRIDES from the proceeds of a Cash Settlement and who
have not early settled their Purchase Contracts, will be remarketed by the
<PAGE> 2
Remarketing Agent on the third Business Day immediately preceding the Purchase
Contract Settlement Date; and
WHEREAS, the applicable distribution rate on the Trust
Preferred Securities (and, thus, the interest rate on the Debentures) that
remain outstanding on and after the Purchase Contract Settlement Date will be
reset on the third Business Day immediately preceding the Purchase Contract
Settlement Date, to the Reset Rate to be determined by the Reset Agent as the
rate that such Trust Preferred Securities (and, thus the Debentures) should bear
in order to have an approximate market value of 100.5% of the aggregate stated
liquidation amount of the Trust Preferred Securities or the aggregate principal
amount of the Debentures on the third Business Day immediately preceding the
Purchase Contract Settlement Date, provided that in the determination of such
Reset Rate, the Company may limit the Reset Spread (a component of the Reset
Rate) to be no higher than 200 basis points (2%); and
WHEREAS, the Company has requested Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to act as
the Reset Agent and as the Remarketing Agent, and as such to perform the
services described herein; and
WHEREAS, Merrill Lynch is willing to act as Reset Agent and
Remarketing Agent and as such to perform such duties on the terms and conditions
expressly set forth herein;
NOW, THEREFORE, for and in consideration of the covenants
herein made, and subject to the conditions herein set forth, the parties hereto
agree as follows:
Section 1. Definitions. Capitalized terms used and not defined
in this Agreement shall have the meanings assigned to them in the Purchase
Contract Agreement or, if not therein stated, the Declaration or the Pledge
Agreement.
Section 2. Appointment and Obligations of Remarketing Agent.
The Company hereby appoints Merrill Lynch and Merrill Lynch hereby accepts such
appointment, (i) as the Reset Agent to determine in consultation with the
Company, in the manner provided for in the Declaration with respect to the Trust
Securities and the Indenture with respect to the Debentures, the Reset Rate,
that in the opinion of the Reset Agent, will, when applied to the Trust
Securities (and, thus, the Debentures), enable a Trust Security (and, thus, a
Debenture), to have an approximate market value of approximately 100.5% of the
aggregate stated liquidation amount in the case of such Trust Security and the
aggregate principal amount in the case of such Debenture, and (ii) as the
exclusive Remarketing Agent to remarket the Trust Preferred Securities, or the
Debentures, as the case may be, provided that the Company may limit such Reset
Rate to be no higher than the rate on the Two-Year Benchmark Treasury plus 200
basis points (2%), as the case may be, of such Trust Preferred Security or
Debenture holders electing to have their Trust Preferred Securities or
Debentures remarketed, or of such Income PRIDES holders who have not early
settled the related Purchase Contracts and have failed to notify the Purchase
Contract Agent, on or prior to the fifth Business Day immediately preceding the
Purchase Contract Settlement Date, of their intention to settle the related
Purchase Contracts through Cash Settlement, for settlement on the Purchase
Contract Settlement Date, pursuant to the Remarketing Underwriting Agreement
with the Company, the Trust and the Purchase Contract Agent, substantially in
the form attached hereto as Exhibit A (with such changes as the Company, the
Purchase Contract Agent and the Remarketing Agent may agree
2
<PAGE> 3
upon, it being understood that changes may be necessary in the representations,
warranties, covenants and other provisions of the Remarketing Underwriting
Agreement due to changes in law or facts and circumstances). Pursuant to the
Remarketing Underwriting Agreement, the Remarketing Agent, either as the sole
remarketing underwriter or as the representative of a syndicate including the
Remarketing Agent and one or more other remarketing underwriters designated by
the Remarketing Agent, will agree, subject to the terms and conditions set forth
therein, that the Remarketing Agent and any such other remarketing underwriters
will purchase severally the Trust Preferred Securities or the Debentures, as the
case may be, to be sold by the holder or holders of Trust Preferred Securities
or Income PRIDES on the third Business Day immediately preceding the Purchase
Contract Settlement Date and use their reasonable efforts to remarket such Trust
Preferred Securities or the Debentures, as the case may be, (such purchase and
remarketing being hereinafter referred to as the "Remarketing"), at a price of
approximately 100.5% of such Trust Preferred Securities aggregate stated
liquidation amount plus any accrued and unpaid distributions (including any
deferred distributions) and in the case of Debentures, at a price of
approximately 100.5% of such Debentures aggregate principal amount plus any
accrued and unpaid interest (including any deferred interest). Notwithstanding
the preceding sentence, the Remarketing Agent shall not remarket any Trust
Preferred Securities or Debentures, as the case may be, for a price less than
100% of the aggregate stated liquidation amount or aggregate principal amount of
such Trust Preferred Securities or Debentures, respectively, plus accumulated
and unpaid distributions or accrued and unpaid interest, as the case may be. The
proceeds of such remarketing shall be paid to the Collateral Agent in accordance
with Section 4.6 of the Pledge Agreement and Section 5.4 of the Purchase
Contract Agreement (each of which Sections are incorporated herein by
reference).
Section 3. Fees. With respect to the Remarketing, the
Remarketing Agent shall retain as Remarketing Fee an amount not exceeding 25
basis points (.25%), of the aggregate stated liquidation amount of the
remarketed securities from any amount received in connection with such
Remarketing in excess of the aggregate stated liquidation amount or aggregate
principal amount of such remarketed Trust Preferred Securities or Debentures
plus any accrued and unpaid (including deferred) distributions or any accrued
and unpaid interest (including any deferred interest), as the case may be. In
addition, the Reset Agent shall receive from the Company a reasonable and
customary fee as the Reset Agent Fee (the "Reset Agent Fee"); provided, however,
that if the Remarketing Agent shall also act as the Reset Agent, then the Reset
Agent shall not be entitled to receive any such Reset Agent Fee. Payment of such
Reset Agent Fee shall be made by the Company on the third Business Day
immediately preceding the Purchase Contract Settlement Date in immediately
available funds or, upon the instructions of the Reset Agent by certified or
official bank check or checks or by wire transfer.
Section 4. Replacement and Resignation of Remarketing Agent.
(a) The Company may in its absolute discretion replace Merrill Lynch as the
Remarketing Agent and/or as the Reset Agent in its capacity hereunder by giving
notice prior to 3:00 p.m., New York City time, on the eleventh Business Day
immediately prior to the Purchase Contract Settlement Date. Any such replacement
shall become effective upon the Company's appointment of a successor to perform
the services that would otherwise be performed hereunder by the Remarketing
Agent and/or the Reset Agent. Upon providing such notice, the Company shall use
all reasonable efforts to appoint such a successor and to enter into a
remarketing agreement with such successor as soon as reasonably practicable.
3
<PAGE> 4
(b) Merrill Lynch may resign at any time and be discharged
from its duties and obligations hereunder as the Remarketing Agent and/or as the
Reset Agent by giving notice prior to 3:00 p.m., New York City time, on the
eleventh Business Day immediately prior to the Purchase Contract Settlement
Date. Any such resignation shall become effective upon the Company's appointment
of a successor to perform the services that would otherwise be performed
hereunder by the Remarketing Agent and/or the Reset Agent. Upon receiving notice
from the Remarketing Agent and/or the Reset Agent that it wishes to resign
hereunder, the Company shall appoint such a successor and enter into a
remarketing agreement with it as soon as reasonably practicable.
Section 5. Dealing in the Securities. The Remarketing Agent,
when acting hereunder or under the Remarketing Underwriting Agreement or acting
in its individual or any other capacity, may, to the extent permitted by law,
buy, sell, hold or deal in any of the Trust Preferred Securities or Debentures,
as the case may be. With respect to any Trust Preferred Securities or
Debentures, as the case may be, owned by it, the Remarketing Agent may exercise
any vote or join in any action with like effect as if it did not act in any
capacity hereunder. The Remarketing Agent, in its individual capacity, either as
principal or agent, may also engage in or have an interest in any financial or
other transaction with the Company as freely as if it did not act in any
capacity hereunder.
Section 6. Registration Statement and Prospectus. In
connection with the Remarketing, if and to the extent required (in the opinion
of counsel for either the Remarketing Agent or the Company) by applicable law,
regulations or interpretations in effect at the time of such Remarketing, the
Company shall use its reasonable efforts to have a registration statement
relating to the Trust Preferred Securities effective under the Securities Act of
1933 by the third Business Day immediately preceding the Purchase Contract
Settlement Date, shall furnish a current prospectus and/or prospectus supplement
to be used in such Remarketing by the remarketing underwriter or underwriters
under the Remarketing Underwriting Agreement, and shall pay all expenses
relating thereto.
Section 7. Conditions to the Remarketing Agent's Obligations.
(a) The obligations of the Remarketing Agent and any other remarketing
underwriters to purchase and remarket the Trust Preferred Securities or the
Debentures, as the case may be, shall be subject to the terms and conditions of
the Remarketing Underwriting Agreement.
(b) If at any time during the term of this Agreement, any
Indenture Event of Default or Declaration Event of Default, or event that with
the passage of time or the giving of notice or both would become an Indenture
Event of Default or Declaration Event of Default, has occurred and is continuing
under the Indenture or the Declaration, then the obligations and duties of the
Remarketing Agent under this Agreement shall be suspended until such default or
event has been cured. The Company will cause the Indenture Trustee and the
Institutional Trustee to give the Remarketing Agent notice of all such defaults
and events of which the Trustee is aware.
Section 8. Termination of Remarketing Agreement. This
Agreement shall terminate as to the Remarketing Agent on the effective date of
its replacement pursuant to Section 4(a) hereof or pursuant to Section 4(b)
hereof. Notwithstanding any such termination, the obligations set forth in
Section 3 hereof shall survive and remain in full force and effect until all
amounts payable under said Section 3 shall have been paid in full.
4
<PAGE> 5
Section 9. Remarketing Agent's Performance; Duty of Care. The
duties and obligations of the Remarketing Agent hereunder shall be determined
solely by the express provisions of this Agreement and the Remarketing
Underwriting Agreement.
Section 10. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Section 11. Term of Agreement. Unless otherwise terminated in
accordance with the provisions hereof and except as otherwise provided herein,
this Agreement shall remain in full force and effect from the date hereof until
the first day thereafter on which no Trust Preferred Securities are outstanding.
Section 12. Successors and Assigns. The rights and obligations
of the Company hereunder may not be assigned or delegated to any other person
without the prior written consent of Merrill Lynch as the Remarketing Agent
and/or as the Reset Agent. The rights and obligations of Merrill Lynch as the
Remarketing Agent and/or as the Reset Agent hereunder may not be assigned or
delegated to any other person without the prior written consent of the Company.
This Agreement shall inure to the benefit of and be binding upon the Company and
Merrill Lynch as the Remarketing Agent and/or as the Reset Agent and their
respective successors and assigns. The terms "successors" and "assigns" shall
not include any purchaser of Securities merely because of such purchase.
Section 13. Headings. Section headings have been inserted in
this Agreement as a matter of convenience of reference only, and it is agreed
that such section headings are not a part of this Agreement and will not be used
in the interpretation of any provision of this Agreement.
Section 14. Severability. If any provision of this Agreement
shall be held or deemed to be or shall, in fact, be invalid, inoperative or
unenforceable as applied in any particular case in any or all jurisdictions
because it conflicts with any provisions of any constitution, statute, rule or
public policy or for any other reason, such circumstances shall not have the
effect of rendering the provision in question invalid, inoperative or
unenforceable in any other case, circumstances or jurisdiction, or of rendering
any other provision or provisions of this Agreement invalid, inoperative or
unenforceable to any extent whatsoever.
Section 15. Counterparts. This Agreement may be executed in
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same document.
Section 16. Amendments. This Agreement may be amended by any
instrument in writing signed by the parties hereto.
Section 17. Notices. Unless otherwise specified, any notices,
requests, consents or other communications given or made hereunder or pursuant
hereto shall be made in writing or transmitted by any standard form of
telecommunication, including telephone, telegraph or telecopy, and confirmed in
writing. All written notices and confirmations of notices by telecommunication
shall be deemed to have been validly given or made when delivered or mailed,
registered or certified mail, return receipt requested and postage prepaid. All
such notices, requests, consents or
5
<PAGE> 6
other communications shall be addressed as follows: if to the Company, to
Philadelphia Consolidated Holding Corp., One Bala Plaza, Suite 100, Bala
Cynwyd, PA 19004, Attention: Craig Keller, Chief Financial Officer and
Secretary; if to the Remarketing Agent or Reset Agent (if Merrill Lynch & Co. is
the Remarketing Agent or the Reset Agent), to c/o Merrill Lynch & Co. at Merrill
Lynch World Headquarters, World Financial Center, North Tower, New York, New
York 10281, Attention: Tony Ursano, Director, with a copy to Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, NY 10022, Attention: John
Osborn; and if to the Purchase Contract Agent, to The First National Bank of
Chicago, Corporate Trust Services Division, One First National Plaza, Suite
0126, Chicago IL 60670-0126, or to such other address as any of the above shall
specify to the other in writing.
6
<PAGE> 7
IN WITNESS WHEREOF, each of the Company and the Remarketing
Agent has caused this Agreement to be executed in its name and on its behalf by
one of its duly authorized officers as of the date first above written.
PHILADELPHIA CONSOLIDATED
HOLDING CORP.
By:
------------------------------------
Name:
Title:
PCHC FINANCING I
By:
------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED
By:
------------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO
not individually but solely as Purchase
Contract Agent and as attorney-in-fact
for the holders of the Purchase Contracts
By:
------------------------------------
Name:
Title:
7
<PAGE> 8
Exhibit A to
Remarketing Agreement
FORM OF REMARKETING UNDERWRITING AGREEMENT
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner, & Smith
Incorporated (the "Remarketing Underwriter") hereby agrees to purchase the
securities (the "Securities") as set forth in Schedule I hereto, that have been
tendered by the holders of the Income PRIDES for sale on _____ 16, 2001.
1. Definitions. Capitalized terms used and not defined in this
Agreement shall have the meanings assigned to them in the purchase contract
agreement (the "Purchase Contract Agreement"), the pledge agreement (the "Pledge
Agreement"), the underwriting agreement (the "Underwriting Agreement"), the
amended and restated declaration of trust (the "Declaration") and the indenture
(the "Indenture"), each as identified in Schedule I hereto.
2. Registration Statement and Prospectus. If required (in the
opinion of counsel to either the Remarketing Underwriter or the Company) by
applicable law, the Company and the Trust have filed with the Securities and
Exchange Commission, and there has become effective, a registration statement on
Form S-3 (No. 333- _____), including a prospectus, relating to the Securities.
Such registration statement, as amended to the date of this Agreement, is
hereinafter referred to as the "Registration Statement", the prospectus included
in the Registration Statement is hereinafter referred to as the "Basic
Prospectus" and the Basic Prospectus, as amended or supplemented to the date of
this Agreement to relate to the Securities and to the remarketing of the
Securities, is hereinafter referred to as the "Final Prospectus" (including in
each case all documents incorporated by reference).
3. Provisions Incorporated by Reference.
(a) Subject to Section 3(b), the provisions of the
Underwriting Agreement shall be incorporated, as applicable into this Agreement
and made applicable to the obligations of the Remarketing Underwriter, except as
explicitly amended hereby.
(b) With respect to the provisions of the Underwriting
Agreement incorporated herein, for the purposes hereof, (i) all references
therein to the "Underwriter" or "Underwriters" or the "Representative" or
"Representatives", as the case may be, shall be deemed to refer to the
Remarketing Underwriter; (ii) all references therein to the "Securities" which
are the subject thereof shall be deemed to refer to the Securities as defined
herein; (iii) all references therein to the "Closing Date" shall be deemed to
refer to the Remarketing Closing Date specified in Schedule I hereto (the
"Remarketing Closing Date"); (iv) all references therein to the "Registration
Statement" the "Basic Prospectus" and the "Final Prospectus" shall be deemed to
refer to the Registration Statement, the Basic Prospectus and the Final
Prospectus, respectively, as defined herein.
4. Purchase and Sale; Remarketing Underwriting Fee. Subject to
the terms and conditions and in reliance upon the representations and warranties
herein set forth or incorporated herein, the Remarketing Underwriter agrees to
purchase from the registered holder or holders thereof in the manner specified
in Section 5 hereof, the principal amount of Securities set forth in Schedule I
<PAGE> 9
hereto at a purchase price not less than 100% of such Securities, aggregate
stated liquidation amount or aggregate principal amount, as the case may be,
plus any accrued and unpaid distributions or interest, as applicable, thereon.
In connection therewith, the registered holder or holders thereof agree, in the
manner specified in Section 5 hereof, to pay to the Remarketing Underwriter a
Remarketing underwriting Fee equal to an amount not exceeding 25 basis points
(.25%), from any amount received in connection from such Remarketing in excess
of the aggregate stated liquidation amount or aggregate principal amount, as the
case may be, of the Securities.
5. Delivery and Payment. Delivery of payment for the remarketed
Securities and payment of the Remarketing Underwriting Fee shall be made on the
Remarketing Closing Date at the location and time specified in Schedule I hereto
(or such later date not later than five business days after such date as the
Remarketing representatives shall designate), which date and time may be
postponed by agreement between the Remarketing Underwriter, the Company, the
Trust and the [registered holder or holders thereof]. Delivery of the remarketed
Securities and payment of the Remarketing [Underwriting] Fee shall be made to
the Remarketing Underwriter [to or upon the order of the [registered holder or
holders of the Remarketed Securities] by certified or official bank check or
checks drawn on or by a New York Clearing House bank and payable in immediately
available funds] [in immediately available funds by wire transfer to an account
or accounts designated by the [Company] [Trustee] [registered holder or holders
of the remarketed Securities]] or, if the remarketed Securities are represented
by a Global Security, by any method of transfer agreed upon by the Remarketing
Underwriter and the Depositary for the Securities under the Declaration or
Indenture, as applicable.
[It is understood that any registered holder or, if the Securities are
represented by a Global Security, any beneficial owner, that has an account at
the Remarketing Underwriter and tenders its Securities through such account will
not be required to pay any fee or commission to the Remarketing Underwriter.]
If the Securities are not represented by a Global Security,
certificates for the Securities shall be registered in such names and
denominations as the Remarking Representatives may request not less than three
full business days in advance of the Remarketing Closing Date, and the Company,
the Trust and the [registered holder or holders thereof] agree to have such
certificates available for inspection, packaging and checking by the Remarketing
Underwriter in New York, New York not later than 1:00 p.m. on the Business Day
prior to the Remarketing Closing Date.
6. Notices. Unless otherwise specified, any notices, requests,
consents or other communications given or made hereunder or pursuant hereto
shall be made in writing or transmitted by any standard form of
telecommunication, including telephone, telegraph or telecopy, and confirmed in
writing. All written notices and confirmations of notices by telecommunication
shall be deemed to have been validly given or made when delivered or mailed,
registered or certified mail, return receipt requested and postage prepaid. All
such notices, requests, consents or other communications shall be addressed as
follows: if to the Company, to Philadelphia Consolidated Holding Corp., One Bala
Plaza, Suite 100, Bala Cynwyd, PA 19004, Attention: Craig Keller, Chief
Financial Officer; if to the Remarketing Agent or Reset Agent, to c/o Merrill
Lynch & Co. at Merrill Lynch World Headquarters, World Financial Center, North
Tower, New York, New York 10281, Attention: Tony Ursano, Director, with a copy
to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New
York 10022, Attention: John Osborn; and if to the Purchase Contract Agent, to
The First
A-2
<PAGE> 10
National Bank of Chicago, Corporate Trust Services Division, One First National
Plaza, Suite 0126, Chicago IL 60670-0126, or to such other address as any of the
above shall specify to the other in writing.
A-3
<PAGE> 11
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Remarketing Underwriters.
Very truly yours,
PHILADELPHIA CONSOLIDATED HOLDING CORP.
By:
------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED
By:
------------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO not individually but solely as Purchase
Contract Agent and as attorney-in-fact for the holders of the Purchase Contracts
By:
------------------------------------
Name:
Title:
A-4
<PAGE> 12
SCHEDULE I
Purchase Contract Agreement, dated as of
April __, 1998 by and between
Philadelphia Consolidated Holding Corp., a Pennsylvania corporation, and
The First National Bank of Chicago, a national banking
association
Pledge Agreement dated as of April __, 1998
by and between Philadelphia Consolidated Holding Corp. , a Pennsylvania
corporation, The First National Bank of Chicago,
a national banking association, and
the Chase Manhattan Bank
Amended and Restated Declaration of Trust dated as of April __, 1998 of PCHC
Financing I, a Delaware business trust
Indenture dated as of April __, 1998
by and between Philadelphia Consolidated Holding Corp., a Pennsylvania
corporation, and The First National Bank of Chicago
First Supplemental Indenture, dated as of April __,
1998 by and between Philadelphia Consolidated Holding Corp., a Pennsylvania
corporation, and The First National Bank of Chicago
Registration Statement No. 333- _______
Title of Securities: ___% Trust Originated Preferred
Securities of PCHC Financing I
Principal Amount of Securities: $
Underwriting Agreement, dated as of April __, 1998, among PCHC Financing I, and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
Remarketing [Underwriting] Fee: % ($ )
Remarketing Closing Date, Time and Location:
A-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in this
registration statement of Philadelphia Consolidated Holding Corp. on Form S-3 of
our reports dated February 6, 1998, on our audits of the consolidated financial
statements and financial statement schedules of Philadelphia Consolidated
Holding Corp. and Subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
April 15, 1998
