1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997
REGISTRATION NO. 333-24737
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXECUTIVE RISK INC. EXECUTIVE RISK CAPITAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED
CHARTER) IN ITS TRUST AGREEMENT)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
6331 6331
(PRIMARY STANDARD INDUSTRIAL (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER) CLASSIFICATION CODE NUMBER)
06-1388171 06-6442501
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
------------------------
82 HOPMEADOW STREET
SIMSBURY, CONNECTICUT 06070-7683
(860) 408-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
ROBERT H. KULLAS
VICE CHAIRMAN AND CHIEF OPERATING OFFICER
EXECUTIVE RISK INC.
SIMSBURY, CT 06070-7683
(860) 408-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
------------------------
Copies to:
JAMES A. FITZPATRICK, JR., ESQ. CRAIG E. CHAPMAN, ESQ.
JONATHAN FREEDMAN, ESQ. BROWN & WOOD LLP
DEWEY BALLANTINE ONE WORLD TRADE CENTER
1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10048
NEW YORK, NEW YORK 10019-6092
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
- ----------------------------------------------------------------------------------------------------------------
8.675% Series B Capital Securities of
Executive Risk Capital Trust................. $125,000,000 100% $125,000,000 $37,878.79
- ----------------------------------------------------------------------------------------------------------------
8.675% Series B Junior Subordinated
Deferrable Interest Debentures of Executive
Risk Inc.(2).................................
- ----------------------------------------------------------------------------------------------------------------
Executive Risk Inc. Series B Guarantee with
respect to 8.675% Series B Capital
Securities(3)................................
- ----------------------------------------------------------------------------------------------------------------
Total.............................. $125,000,000(4) 100% $125,000,000(5) $37,878.79
================================================================================================================
(1) Estimated solely for the purpose of computing the registration fee.
(2) No separate consideration will be received for the 8.675% Series B Junior
Subordinated Deferrable Interest Debentures of Executive Risk Inc. (the "New
Junior Subordinated Debentures") distributed upon any liquidation of
Executive Risk Capital Trust.
(3) No separate consideration will be received for the Executive Risk Inc.
Series B Guarantee (the "New Guarantee") with respect to the 8.675% Series B
Capital Securities of Executive Risk Capital Trust (the "New Capital
Securities").
(4) This Registration Statement is deemed to cover rights of holders of New
Junior Subordinated Debentures under the Indenture, the rights of holders of
New Capital Securities under the Amended and Restated Declaration of Trust,
the rights of holders of New Capital Securities under the New Guarantee and
certain backup undertakings as described herein.
(5) Such amount represents the liquidation amount of the New Capital Securities
to be exchanged hereunder and the principal amount of New Junior
Subordinated Debentures that may be distributed to holders of New Capital
Securities upon any liquidation of Executive Risk Capital Trust.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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 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 21, 1997
PROSPECTUS
EXECUTIVE RISK CAPITAL TRUST
Offer to exchange its 8.675% Series B Capital Securities (Liquidation Amount
$1,000 per Capital Security) which have been registered under the Securities Act
of 1933 for any and all of its outstanding 8.675% Series A Capital Securities
(Liquidation Amount $1,000 per Capital Security) unconditionally guaranteed, to
the extent described herein, by
EXECUTIVE RISK INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MAY 22, 1997, UNLESS EXTENDED.
------------------------
Executive Risk Capital Trust, a trust formed under the laws of the State of
Delaware (the "Trust"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange up
to $125,000,000 aggregate Liquidation Amount of its 8.675% Series B Capital
Securities (the "New Capital Securities") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for a like Liquidation Amount of its outstanding 8.675% Series A Capital
Securities (the "Old Capital Securities"), of which $125,000,000 aggregate
Liquidation Amount is outstanding. Pursuant to the Exchange Offer, Executive
Risk Inc., a Delaware corporation (the "Company"), is also offering to exchange
(i) its guarantee of payments of cash distributions and payments on liquidation
of the Trust or redemption of the New Capital Securities (the "New Guarantee")
for a like guarantee in respect of the Old Capital Securities (the "Old
Guarantee") and (ii) its 8.675% Series B Junior Subordinated Deferrable Interest
Debentures due February 1, 2027 (the "New Junior Subordinated Debentures") in an
aggregate principal amount corresponding to the aggregate Liquidation Amount of
the New Capital Securities for a like aggregate principal amount of its 8.675%
Series A Junior Subordinated Deferrable Interest Debentures due February 1, 2027
(the "Old Junior Subordinated Debentures"), which New Guarantee and New Junior
Subordinated Debentures also have been registered under the Securities Act. The
Old Capital Securities, the Old Guarantee and the Old Junior Subordinated
Debentures are collectively referred to herein as the "Old Securities" and the
New Capital Securities, the New Guarantee and the New Junior Subordinated
Debentures are collectively referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to the
respective terms of the Old Securities, except that (i) the New Securities have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Old Securities, (ii) the New
Capital Securities will not contain the $100,000 minimum Liquidation Amount
transfer restriction, (iii) the New Capital Securities will not provide for any
increase in the Distribution (as defined herein) rate thereon, (iv) the New
Junior Subordinated Debentures will not contain the $100,000 minimum principal
amount transfer restriction and (v) the New Junior Subordinated Debentures will
not provide for any increase in the interest rate thereon. See "Description of
New Securities" and "Description of Old Securities." The New Capital Securities
are being offered for exchange in order to satisfy certain obligations of the
Company and the Trust under the Registration Rights Agreement dated as of
February 5, 1997 (the "Registration Rights Agreement") among the Company, the
Trust and the Initial Purchasers (as defined herein). In the event that the
Exchange Offer is consummated, any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer and the New Capital
Securities issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Declaration (as defined herein).
(Continued on the following page)
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO ALL
HOLDERS OF OLD CAPITAL SECURITIES ON APRIL 22, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL SECURITIES IN
THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 22, 1997.
3
(Continued from the previous page)
The New Capital Securities and the Old Capital Securities (collectively,
the "Capital Securities") represent preferred undivided beneficial interests in
the assets of the Trust. The Company is the owner of all of the beneficial
interests represented by common securities of the Trust (the "Common
Securities," and together with the Capital Securities, the "Trust Securities").
The Chase Manhattan Bank is the Property Trustee of the Trust. The Trust exists
for the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in the Junior Subordinated Debentures (as defined herein). The Junior
Subordinated Debentures will mature on February 1, 2027 (the "Stated Maturity
Date"). The Capital Securities will have a preference over the Common Securities
under certain circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise. See "Description of New
Securities--Description of New Capital Securities-- Subordination of Common
Securities."
As used herein, the term "Indenture" means the Indenture, dated as of
February 5, 1997, as amended and supplemented from time to time, between the
Company and The Chase Manhattan Bank, as Debenture Trustee (the "Debenture
Trustee"), and the term "Declaration" means the Amended and Restated Declaration
of Trust relating to the Trust, dated as of February 5, 1997, among the Company,
as Sponsor, The Chase Manhattan Bank, as Property Trustee (the "Property
Trustee"), Chase Manhattan Bank Delaware, as Delaware Trustee (the "Delaware
Trustee"), and the Administrative Trustees named therein (collectively, with the
Property Trustee and Delaware Trustee, the "Issuer Trustees"). In addition, as
the context may require, unless otherwise expressly stated, the term "Junior
Subordinated Debentures" includes the Old Junior Subordinated Debentures and the
New Junior Subordinated Debentures and the term "Guarantee" includes the Old
Guarantee and the New Guarantee.
Except as described herein, the Capital Securities will be represented by
global Capital Securities in fully registered form, deposited with a custodian
for and registered in the name of a nominee of The Depository Trust Company
("DTC"). Beneficial interests in such Capital Securities will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Beneficial interests in such Capital Securities will trade in
DTC's Same-Day Funds Settlement System and secondary market trading activity in
such interests will therefore settle in immediately available funds.
Holders of the Trust Securities will be entitled to receive cumulative cash
distributions accumulating from February 5, 1997, and payable semiannually in
arrears on February 1 and August 1 of each year, commencing August 1, 1997, at
the annual rate of 8.675% of the Liquidation Amount of $1,000 per Trust Security
("Distributions"). So long as no Debenture Event of Default (as defined herein)
has occurred and is continuing, the Company will have the right to defer
payments of interest on the Junior Subordinated Debentures at any time and from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity Date. Upon the expiration
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period, subject to the requirements
set forth in the Indenture. If and for so long as interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Trust
Securities will also be deferred and the Company will not be permitted, subject
to certain exceptions described herein, to declare or pay any cash distributions
with respect to the Company's capital stock (which includes common and preferred
stock) or to make any payment with respect to debt securities of the Company
that rank pari passu with or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated Debentures will
continue to accrue (and the amount of Distributions to which holders of the
Trust Securities are entitled will continue to accumulate) at the rate of 8.675%
per annum, compounded semi-annually, and holders of Trust Securities will be
required to accrue interest income for United States federal income tax
purposes. See "Description of New Securities--Description of New Junior
Subordinated Debentures--Option to Extend Interest Payment Date" and "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
The Company will, through the Guarantee, the guarantee agreement of the
Company relating to the Common Securities (the "Common Guarantee"), the
Declaration, the Junior Subordinated Debentures and the Indenture, taken
together, fully, irrevocably and unconditionally guarantee all of the Trust's
obligations under the
ii
4
(Continued from the previous page)
Trust Securities. See "Relationship Among the New Capital Securities, the New
Junior Subordinated Debentures and the New Guarantee--Full and Unconditional
Guarantee." The Old Guarantee, the Common Guarantee and the New Guarantee will
guarantee payments of Distributions and payments on liquidation of the Trust or
redemption of the Trust Securities, but in each case only to the extent that the
Trust holds funds on hand legally available therefor and has failed to make such
payments, as described herein. See "Description of New Securities--Description
of New Guarantee." If the Company fails to make a required payment on the Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the Trust Securities. The
Guarantee and the Common Guarantee will not cover any such payment when the
Trust does not have sufficient funds on hand legally available therefor. In such
event, a holder of Capital Securities may institute a legal proceeding directly
against the Company to enforce its rights in respect of such payment without
first instituting any legal proceeding against the Property Trustee or any other
person or entity. See "Description of New Securities--Description of New Junior
Subordinated Debentures--Enforcement of Certain Rights By Holders of New Capital
Securities." The obligations of the Company under the Guarantee, the Common
Guarantee and the Junior Subordinated Debentures will be unsecured and
subordinate and rank junior in right of payment to all Senior Indebtedness (as
defined in "Description of New Securities--Description of New Junior
Subordinated Debentures--Subordination"), which totaled approximately $70
million at December 31, 1996 and which amount was repaid by the Company with a
portion of the net proceeds from the sale of the Old Junior Subordinated
Debentures.
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued interest on, the Junior
Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole but not
in part, at any time prior to February 1, 2007, contemporaneously with the
optional prepayment of the Junior Subordinated Debentures, upon the occurrence
and continuation of a Special Event (as defined herein) at a redemption price
equal to the Special Event Prepayment Price (as defined below) (the "Special
Event Redemption Price"), and (iii) in whole or in part, on or after February 1,
2007, contemporaneously with the optional prepayment by the Company of the
Junior Subordinated Debentures, at a redemption price equal to the Optional
Prepayment Price (as defined below) (the "Optional Redemption Price"). Any of
the Maturity Redemption Price, the Special Event Redemption Price and the
Optional Redemption Price may be referred to herein as the "Redemption Price."
See "Description of New Securities--Description of New Capital
Securities--Redemption."
The Junior Subordinated Debentures will be prepayable prior to the Stated
Maturity Date at the option of the Company (i) on or after February 1, 2007, in
whole or in part, at a prepayment price (the "Optional Prepayment Price") equal
to 104.338% of the principal amount thereof on February 1, 2007, declining
ratably on each February 1 thereafter to 100% on or after February 1, 2017, plus
accrued interest thereon to the date of prepayment, or (ii) prior to February 1,
2007, in whole but not in part, upon the occurrence and continuation of a
Special Event, at a prepayment price (the "Special Event Prepayment Price")
equal to the greater of (a) 100% of the principal amount thereof or (b) the sum,
as determined by a Quotation Agent (as defined herein), of the present values of
the principal amount and premium payable with respect to an optional prepayment
of Junior Subordinated Debentures on February 1, 2007, together with scheduled
payments of interest on the Junior Subordinated Debentures from the prepayment
date to and including February 1, 2007, discounted to the prepayment date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate (as defined herein) plus, in either case, accrued
interest thereon to the date of prepayment. Either of the Optional Prepayment
Price or the Special Event Prepayment Price may be referred to herein as the
"Prepayment Price." See "Description of New Securities--Description of New
Junior Subordinated Debentures--Optional Prepayment" and "--Special Event
Prepayment."
The Company will have the right at any time to terminate the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, cause a Like Amount (as defined herein) of the Junior
Subordinated Debentures to be distributed to the holders of the Trust Securities
in liquidation of the Trust, subject to the Company having received an opinion
of counsel to the effect that such distribution will not be a taxable
iii
5
(Continued from the previous page)
event to holders of the Capital Securities. Unless the Junior Subordinated
Debentures are distributed to the holders of the Trust Securities, in the event
of a liquidation of the Trust under certain circumstances described herein,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, the holders of the Trust Securities generally will be entitled
to receive a Liquidation Amount of $1,000 per Trust Security plus accumulated
and unpaid Distributions thereon to the date of payment. See "Description of New
Securities-- Description of New Capital Securities--Liquidation of the Trust and
Distribution of Junior Subordinated Debentures."
------------------------
The Trust is making the Exchange Offer of the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, neither the Company nor the Trust has sought its own interpretive
letter and there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Company and the Trust believe that New Capital
Securities issued pursuant to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an "affiliate," as such term is defined in Rule 405 under the Securities Act
(an "Affiliate"), of the Company or the Trust or who intends to participate in
the Exchange Offer for the purpose of distributing New Capital Securities, or
any broker-dealer who purchased Old Capital Securities from the Trust for resale
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate of the Company or the Trust, (ii) any
New Capital Securities to be received by it are being acquired in the ordinary
course of its business, (iii) it has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Company and the Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer, to
furnish to the Company and the Trust (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended) on behalf of whom
such holder holds the Old Capital Securities to be exchanged in the Exchange
Offer. Each broker-dealer that receives New Capital Securities for its own
account pursuant to the Exchange Offer must acknowledge that it acquired the Old
Capital Securities for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Capital Securities. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on
iv
6
(Continued from the previous page)
the position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Company and the
Trust believe that broker-dealers who acquired Old Capital Securities for their
own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Capital Securities for a period ending 90
days after the Expiration Date (as defined herein) (subject to extension under
certain limited circumstances described below) or, if earlier, when all such New
Capital Securities have been disposed of by such Participating Broker-Dealer.
See "Plan of Distribution." However, a Participating Broker-Dealer who intends
to use this Prospectus in connection with the resale of New Capital Securities
received in exchange for Old Capital Securities pursuant to the Exchange Offer
must notify the Company or the Trust, or cause the Company or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer--Exchange Agent." Any
Participating Broker-Dealer who is an Affiliate of the Company or the Trust may
not rely on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. See "The Exchange Offer--Resales of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Company or the Trust of the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Company or the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Trust has given notice that the sale of the New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be. If the Company or the Trust
gives such notice to suspend the sale of the New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable), it shall
extend the 90-day period referred to above during which Participating Broker-
Dealers are entitled to use this Prospectus in connection with the resale of New
Capital Securities by the number of days during the period from and including
the date of the giving of such notice to and including the date when
Participating Broker-Dealers shall have received copies of the amended or
supplemented Prospectus necessary to permit resales of the New Capital
Securities or to and including the date on which the Company or the Trust has
given notice that the sale of New Capital Securities (or the New Guarantee or
the New Junior Subordinated Debentures, as applicable) may be resumed, as the
case may be.
------------------------
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently is no market.
Although the Initial Purchasers have informed the Company and the Trust that
they each currently
v
7
(Continued from the previous page)
intend to make a market in the New Capital Securities, they are not obligated to
do so, and any such market making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Capital Securities. The Company and the
Trust currently do not intend to apply for listing of the New Capital Securities
on any securities exchange or for inclusion in the NASDAQ Stock Market, the
Electronic Securities Market operated by the National Association of Securities
Dealers, Inc. ("NASDAQ").
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Declaration (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Company nor the Trust will have any further
obligation to such holders (other than under certain limited circumstances) to
provide for registration under the Securities Act of the Old Capital Securities
held by them. To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old
Capital Securities could be adversely affected. See "Risk Factors--Consequences
of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on May 22, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company or the Trust (in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended). Tenders of
Old Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Company or the Trust and to the terms and provisions of the
Registration Rights Agreement. Old Capital Securities may be tendered in whole
or in part having an aggregate Liquidation Amount of not less than $100,000 (100
Capital Securities) or any integral multiple of $1,000 Liquidation Amount (one
Capital Security) in excess thereof, provided that, if any Old Capital
Securities are tendered for exchange in part, the untendered Liquidation Amount
thereof must be $100,000 (100 Capital Securities) or any integral multiple of
$1,000 in excess thereof. The Company has agreed to pay all expenses of the
Exchange Offer. See "The Exchange Offer--Fees and Expenses." Holders of the Old
Capital Securities whose Old Capital Securities are accepted for exchange will
not receive Distributions on such Old Capital Securities and will be deemed to
have waived the right to receive any Distributions on such Old Capital
Securities accumulated from and including February 5, 1997. Accordingly, holders
of New Capital Securities as of the record date for the payment of Distributions
on August 1, 1997 will be entitled to receive Distributions accumulated from and
including February 5, 1997. See "The Exchange Offer--Distributions on New
Capital Securities."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
------------------------
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF
THIS DOCUMENT.
------------------------
vi
8
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE PURSUANT HERETO SHALL UNDER
ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PAGE
----
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Summary............................... 4
Risk Factors.......................... 10
Ratios of Earnings to Fixed Charges... 15
Use of Proceeds....................... 15
Capitalization........................ 16
Summary Financial Data................ 17
Executive Risk Capital Trust.......... 18
The Exchange Offer.................... 18
PAGE
----
Description of New Securities......... 27
Description of Old Securities......... 50
Relationship Among the New Capital
Securities, the New Junior
Subordinated Debentures and the New
Guarantee........................... 50
Certain Federal Income Tax
Consequences........................ 52
ERISA Considerations.................. 56
Plan of Distribution.................. 57
Legal Matters......................... 58
Experts............................... 58
vii
9
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. If available,
such reports and other information may also be accessed through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR") via
electronic means, including the Commission's web site on the Internet
(http://www.sec.gov). In addition, the Company's common stock, $.01 par value
per share ("Common Stock"), is listed on the New York Stock Exchange and such
material also is available for inspection at 20 Broad Street, New York, New York
10005.
No separate financial statements of the Trust have been included herein.
Neither the Company nor the Trust considers that such financial statements would
be material to holders of the Capital Securities because (i) all of the voting
securities of the Trust will be owned, directly or indirectly, by the Company, a
reporting company under the Exchange Act, (ii) the Trust has no independent
operations and exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in Junior Subordinated Debentures issued by the Company, and
(iii) the Company's obligations described herein to provide certain indemnities
in respect of, and be responsible for, certain costs, expenses, debts and
liabilities of the Trust under the Indenture and any supplemental indenture
thereto and pursuant to the Declaration of the Trust, the guarantee issued with
respect to Capital Securities issued by the Trust, the Junior Subordinated
Debentures purchased by the Trust and the related Indenture, taken together,
constitute a full and unconditional guarantee of payments due on the Capital
Securities. See "Description of New Securities -- Description of Junior
Subordinated Debentures" and "Description of New Securities -- Description of
New Guarantee."
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust expects to become subject to such
requirements upon the effectiveness of this Registration Statement, although it
intends to seek and expects to receive exemptions therefrom.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, the Trust
and the New Securities. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to Section 13 of the Exchange Act are incorporated into this Prospectus by
reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
and
(b) Current Report on Form 8-K filed on February 18, 1997.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the Exchange Offer shall be deemed to be
2
10
incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
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 by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. The Company will provide
without charge to any person to whom this Prospectus is delivered, on the
written or oral request of such person, a copy of any or all of the foregoing
documents incorporated by reference herein (other than exhibits not specifically
incorporated by reference into the texts of such documents). Requests for such
documents should be directed to: Executive Risk Inc., 82 Hopmeadow Street,
Simsbury, Connecticut 06070-7683 Attention: Robert V. Deutsch. Telephone
requests may be directed to Robert V. Deutsch at (860) 408-2000.
3
11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, contained elsewhere in or incorporated by reference into this
Prospectus.
EXECUTIVE RISK INC.
The Company is a specialty insurance holding company incorporated under the
laws of the State of Delaware. Through its subsidiaries, the Company develops,
markets and underwrites specialty line insurance products primarily throughout
the United States. UAP Executive Partners ("UPEX"), which is a joint venture
between the Company and Union des Assurances de Paris--Incendie-Accidents
("UAP"), a subsidiary of AXA-UAP Group, a major European insurance group,
markets directors and officers liability insurance ("D&O") internationally. The
Company's core business lines, from which it derives virtually all of its
premium revenues, are D&O and professional liability insurance, also known as
errors and omissions insurance ("E&O"). The Company's subsidiaries also offer
fidelity bonds and fiduciary liability insurance for corporations, employment
practices liability insurance for corporations and their employees, technology
maintenance and repair coverage for hospitals and clinics and healthcare
stop-loss arrangements for medical professionals.
Both D&O and E&O are designed to protect insureds against lawsuits and
associated legal defense expenses. In connection with D&O coverage of for-profit
corporations, the most severe liabilities generally derive from lawsuits by
stockholders against directors and officers for alleged failures to discharge
duties to the corporation or violations of federal securities laws. In the case
of not-for-profit organizations, the Company's coverage is most often implicated
in employment practices litigation. E&O is offered to non-executive
professionals, such as attorneys, psychologists and insurance agents, among
others, where the principal source of potential claims is dissatisfied clients
alleging breaches of professional standards or ethical violations. Fiduciary
bond coverages are intended primarily to protect those who invest and administer
benefit plan trusts, and fidelity bond coverages (or crime coverage) insure
against losses associated with employee defalcations and dishonesty. Employment
practices liability coverage, which is available to cover both the employing
organization and its supervisors, insures against losses associated with
employee claims such as sexual harassment, wrongful termination and
discriminatory treatment. The Company's two non-liability related products are
Systems Rx, a service contract and cost management product for owners of
high-tech diagnostic equipment and related healthcare technology, and the
recently introduced stop-loss policy for doctors enrolled in managed care
organizations that use the so-called "capitation" method for capping treatment
costs.
EXECUTIVE RISK CAPITAL TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to a declaration of trust and the filing of a certificate of trust with the
Delaware Secretary of State on January 24, 1997. The Trust is governed by the
Declaration executed by the Company, as Sponsor, The Chase Manhattan Bank, as
Property Trustee, Chase Manhattan Bank Delaware, as Delaware Trustee, and the
three individual Administrative Trustees named therein. The Trust's business and
affairs are conducted by the Issuer Trustees: the Property Trustee, the Delaware
Trustee, and the three individual Administrative Trustees who are employees or
officers of or affiliated with the Company. The Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) using the
proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures issued by the Company and (iii) engaging in only those
other activities necessary, advisable or incidental thereto (such as registering
the transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust, and payments under the Junior
Subordinated Debentures will be the sole revenue of the Trust. All of the Common
Securities are owned by the Company.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $125,000,000 aggregate Liquidation Amount of
New Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount
4
12
of Old Capital Securities. Old Capital Securities
may be tendered for exchange in whole or in part in
a Liquidation Amount of $100,000 (100 Capital
Securities) or any integral multiple of $1,000 (one
Capital Security) in excess thereof, provided that,
if any Old Capital Securities are tendered for
exchange in part, the untendered Liquidation Amount
thereof must be $100,000 (100 Capital Securities)
or any integral multiple of $1,000 in excess
thereof. The Company and the Trust are making the
Exchange Offer in order to satisfy their
obligations under the Registration Rights Agreement
relating to the Old Capital Securities. For a
description of the procedures for tendering Old
Capital Securities, see "The Exchange
Offer--Procedures for Tendering Old Capital
Securities."
Expiration Date............ 5:00 p.m., New York City time, on May 22, 1997,
unless the Exchange Offer is extended by the
Company or the Trust (in which case the Expiration
Date will be the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer--Terms of the Exchange Offer."
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain
conditions, which may be waived by the Company or
the Trust in its sole discretion. The Exchange
Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being
tendered. See "The Exchange Offer--Conditions to
the Exchange Offer."
Terms of the
Exchange Offer........... The Company and the Trust reserve the right in
their sole and absolute discretion, subject to
applicable law, at any time and from time to time,
to (i) delay the acceptance of the Old Capital
Securities for exchange, (ii) terminate the
Exchange Offer if certain specified conditions have
not been satisfied, (iii) extend the Expiration
Date of the Exchange Offer and retain all Old
Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw their
tendered Old Capital Securities, or (iv) waive any
condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Old Capital Securities may be withdrawn
at any time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to
the Exchange Agent in conformity with certain
procedures set forth below under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering
Old Capital Securities... Tendering holders of Old Capital Securities must
complete and sign a Letter of Transmittal in
accordance with the instructions contained therein
and forward the same by mail, facsimile or hand
delivery, together with any other required
documents, to the Exchange Agent, either with the
Old Capital Securities to be tendered or in
compliance with the specified procedures for
guaranteed delivery of Old Capital Securities.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Capital Securities registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person
promptly if they wish to tender Old Capital
Securities pursuant to the Exchange
5
13
Offer. See "The Exchange Offer--Procedures for
Tendering Old Capital Securities."
Letters of Transmittal and certificates
representing Old Capital Securities should not be
sent to the Company or the Trust. Such documents
should only be sent to the Exchange Agent.
Resales of New Capital
Securities............... The Company and the Trust are making the Exchange
Offer in reliance on the position of the staff of
the Division of Corporation Finance of the
Commission as set forth in certain interpretive
letters addressed to third parties in other
transactions. However, neither the Company nor the
Trust has sought its own interpretive letter and
there can be no assurance that the staff of the
Division of Corporation Finance of the Commission
would make a similar determination with respect to
the Exchange Offer as it has in such interpretive
letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject
to the two immediately following sentences, the
Company and the Trust believe that New Capital
Securities issued pursuant to this Exchange Offer
in exchange for Old Capital Securities may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Capital Securities are
acquired in the ordinary course of such holder's
business and that such holder is not participating,
and has no arrangement or understanding with any
person to participate, in a distribution (within
the meaning of the Securities Act) of such New
Capital Securities. However, any holder of Old
Capital Securities who is an Affiliate of the
Company or the Trust or who intends to participate
in the Exchange Offer for the purpose of
distributing the New Capital Securities, or any
broker-dealer who purchased the Old Capital
Securities from the Trust for resale pursuant to
Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c)
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or other transfer of such
Old Capital Securities unless such sale is made
pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own
account as a result of market-making or other
trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to
exchange Old Capital Securities for New Capital
Securities in the Exchange Offer will be required
to represent that (i) it is not an Affiliate of the
Company or the Trust, (ii) any New Capital
Securities to be received by it are being acquired
in the ordinary course of its business, (iii) it
has no arrangement or understanding with any person
to participate in a distribution (within the
meaning of the Securities Act) of such New Capital
Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and
does
6
14
not intend to engage in, a distribution (within the
meaning of the Securities Act) of such New Capital
Securities. Each broker-dealer that receives New
Capital Securities for its own account pursuant to
the Exchange Offer must acknowledge that it
acquired the Old Capital Securities for its own
account as the result of market-making activities
or other trading activities and must agree that it
will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale
of such New Capital Securities. The Letter of
Transmittal states that, by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on
the position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the Company
and the Trust believe that Participating
Broker-Dealers who acquired Old Capital Securities
for their own accounts as a result of market-making
activities or other trading activities may fulfill
their prospectus delivery requirements with respect
to the New Capital Securities received upon
exchange of such Old Capital Securities (other than
Old Capital Securities which represent an unsold
allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the
requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so
long as it contains a description of the plan of
distribution with respect to the resale of such New
Capital Securities. Accordingly, this Prospectus,
as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer
in connection with resales of New Capital
Securities received in exchange for Old Capital
Securities where such Old Capital Securities were
acquired by such Participating Broker-Dealer for
its own account as a result of market-making or
other trading activities. Subject to certain
provisions set forth in the Registration Rights
Agreement and to the limitations described below
under "The Exchange Offer--Resales of New Capital
Securities," the Company and the Trust have agreed
that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of such New Capital Securities for a period
ending 90 days after the Expiration Date (subject
to extension under certain limited circumstances)
or, if earlier, when all such New Capital
Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer who
is an Affiliate of the Company or the Trust may not
rely on such interpretive letters and must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. See "The Exchange
Offer--Resales of New Capital Securities."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is The Chase Manhattan Bank (the "Exchange
Agent"). The applicable addresses, and telephone
and facsimile numbers, of the Exchange Agent are
set forth in "The Exchange Offer--Exchange Agent"
and in the Letter of Transmittal.
Use of Proceeds............ Neither the Company nor the Trust will receive any
cash proceeds from the issuance of the New Capital
Securities offered hereby. See "Use of Proceeds."
7
15
Certain Federal Income Tax
Consequences............. Holders of Old Capital Securities should review the
information set forth under "Certain Federal Income
Tax Consequences" prior to tendering Old Capital
Securities in the Exchange Offer.
Certain ERISA
Considerations............. Prospective holders of the New Capital Securities
should review the information set forth under
"ERISA Considerations" prior to acquiring an
interest in the New Capital Securities.
THE NEW CAPITAL SECURITIES
Securities Offered......... Up to $125,000,000 aggregate Liquidation Amount of
the New Capital Securities which have been
registered under the Securities Act (Liquidation
Amount of $1,000 per New Capital Security). The New
Capital Securities will be issued, and the Old
Capital Securities were issued, under the
Declaration. The New Capital Securities and any Old
Capital Securities which remain outstanding after
consummation of the Exchange Offer will vote
together as a single class for purposes of
determining whether holders of the requisite
percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised
certain rights under the Declaration. See
"Description of New Securities--Description of New
Capital Securities--Voting Rights; Amendment of the
Declaration." The terms of the New Capital
Securities are identical in all material respects
to the terms of the Old Capital Securities, except
that the New Capital Securities have been
registered under the Securities Act and will not be
subject to the $100,000 minimum Liquidation Amount
transfer restriction and certain other transfer
restrictions applicable to the Old Capital
Securities and will not provide for any increase in
the Distribution rate thereon. See "The Exchange
Offer--Purpose of the Exchange Offer," "Description
of New Securities" and "Description of Old
Securities."
Distribution Dates......... February 1 and August 1 of each year, commencing
August 1, 1997.
Extension Periods.......... So long as no Debenture Event of Default has
occurred and is continuing, distributions on the
New Capital Securities will be deferred for the
duration of any Extension Period elected by the
Company with respect to the payment of interest on
the New Junior Subordinated Debentures. No
Extension Period will exceed 10 consecutive
semi-annual periods or extend beyond the Stated
Maturity Date. See "Description of New
Securities--Description of New Junior Subordinated
Debentures--Option to Extend Interest Payment Date"
and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue
Discount."
Ranking.................... The New Capital Securities will rank pari passu,
and payments thereon will be made pro rata, with
the Old Capital Securities and the Common
Securities except, with respect to the Common
Securities, in certain circumstances described
under "Description of New Securities--Description
of New Capital Securities--Subordination of Common
Securities." The New Junior Subordinated Debentures
will rank pari passu with the Old Junior
Subordinated Debentures and all other junior
subordinated debentures issued by the Company
(collectively, the "Other Debentures") which will
be issued and sold (if at all) to other trusts to
be established by the Company (if any), in each
case similar to the Trust (the "Other Trusts"), and
will be unsecured and subordinate and junior in
right of payment to all Senior Indebtedness to the
extent and in the manner set
8
16
forth in the Indenture. See "Description of New
Securities--Description of New Junior Subordinated
Debentures." The New Guarantee will rank pari passu
with the Old Guarantee and all other guarantees (if
any) to be issued by the Company with respect to
capital securities (if any) issued by Other Trusts
(collectively, the "Other Guarantees") and will
constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of
payment to all Senior Indebtedness to the extent
and in the manner set forth in the Guarantee
Agreement and, in the event of bankruptcy or
insolvency proceedings involving the Company, will
rank subordinate and junior in right of payment to
all liabilities (other than Other Guarantees) of
the Company, but senior to any obligations in
respect of any class of capital stock of the
Company. See "Description of New
Securities--Description of New Guarantee."
Redemption................. The Trust Securities are subject to mandatory
redemption in a Like Amount, (i) in whole but not
in part, on the Stated Maturity Date upon repayment
of the Junior Subordinated Debentures, (ii) in
whole but not in part, at any time prior to
February 1, 2007 contemporaneously with the
optional prepayment of the Junior Subordinated
Debentures by the Company upon the occurrence and
continuation of a Special Event and (iii) in whole
or in part, at any time on or after February 1,
2007 contemporaneously with the optional prepayment
by the Company of the Junior Subordinated
Debentures, in each case at the applicable
Redemption Price. See "Description of New
Securities--Description of New Capital
Securities--Redemption."
Voting Rights.............. Holders of Capital Securities will have limited
voting rights relating generally to the
modification of the Capital Securities and the
Guarantee and the exercise of the Trust's rights as
the holder of the Junior Subordinated Debentures.
Holders of Capital Securities will not be entitled
to appoint, remove or replace the Administrative
Trustees at any time or the Property Trustee or the
Delaware Trustee except upon the occurrence of
certain events described herein. See "Description
of New Securities--Description of New Capital
Securities--Voting Rights; Amendment of the
Declaration" and "--Removal of Issuer Trustees."
Rating..................... The New Capital Securities are expected to be rated
"BBB" by Standard & Poor's, a division of the
McGraw-Hill Companies, Inc., and "baa3" by Moody's
Investors Service, Inc.
Absence of Market for the
New Capital Securities... The New Capital Securities will be a new issue of
securities for which there currently is no market.
Although J.P. Morgan Securities Inc., Chase
Securities Inc. and Donaldson Lufkin & Jenrette
(the "Initial Purchasers") have informed the
Company and the Trust that they currently intend to
make a market in the New Capital Securities, they
are not obligated to do so, and any such market
making may be discontinued at any time without
notice. Accordingly, there can be no assurance as
to the development or liquidity of any market for
the New Capital Securities. The Trust and the
Company do not intend to apply for listing of the
New Capital Securities on any securities exchange
or for inclusion in NASDAQ. See "Plan of
Distribution."
9
17
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus and incorporated by reference herein,
the following factors in connection with the Exchange Offer and the New Capital
Securities offered hereby.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON DIVIDENDS
As a holding company, the Company's ability to meet debt service
obligations and pay operating expenses depends on receipt of sufficient funds
from its direct and indirect subsidiaries. The inability of the Company's
subsidiaries to pay dividends and other payments to the Company in an amount
sufficient to meet debt service obligations and pay operating expenses would
have a material adverse effect on the Company. The payment of dividends and the
making of other payments by the Company's insurance subsidiaries without prior
regulatory approval is subject to restrictions set forth in the insurance laws
and regulations of the states of domicile of those subsidiaries. The Company
currently does not expect such regulatory requirements to impair its ability to
meet interest payment obligations and to pay operating expenses in the future.
However, the Company can give no assurance that dividends will be declared or
paid by its subsidiaries or that the Company's insurance subsidiaries will be
able to obtain any regulatory approvals that may be required from time to time.
As of December 31, 1996, the Company's insurance subsidiaries had sufficient
capital and earnings to pay up to $13.8 million of dividends to the Company
during 1997 without prior regulatory approval.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by it for the
benefit of the holders of Capital Securities and the Junior Subordinated
Debentures will be unsecured and subordinate and rank junior in right of payment
to all present and future Senior Indebtedness of the Company and rank pari passu
with obligations to or rights of the Company's other general unsecured
creditors. In addition, in the case of a bankruptcy or insolvency proceeding
involving the Company, the Company's obligations under the Guarantee will rank
subordinate and junior in right of payment to all liabilities (other than Other
Guarantees) of the Company, but senior to any obligation in respect of any class
of capital stock of the Company. No payment may be made of the principal of, or
premium, if any, or interest on the Junior Subordinated Debentures, or in
respect of any redemption, retirement, purchase or other acquisition of any of
the Junior Subordinated Debentures, at any time when (i) there is a default in
the payment of the principal of, or premium, if any, or interest on or otherwise
in respect of any Senior Indebtedness, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise, or (ii) any event of default with
respect to any Senior Indebtedness has occurred and is continuing, or would
occur as a result of such payment on the Junior Subordinated Debentures or any
redemption, retirement, purchase or other acquisition of any of the Junior
Subordinated Debentures, permitting the holders of such Senior Indebtedness (or
a trustee on behalf of the holders thereof) to accelerate the maturity thereof.
At December 31, 1996, the aggregate principal amount of outstanding Senior
Indebtedness of the Company was approximately $70 million, which amount was
repaid by the Company with a portion of the net proceeds from the sale of the
Old Junior Subordinated Debentures. Because the Company is a holding company,
the right of the Company to participate in any distribution of assets of any
direct or indirect subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution) is subject to the prior
claims of creditors of that subsidiary, except to the extent that the Company
may itself be recognized as a creditor of that subsidiary. At December 31, 1996,
the direct and indirect subsidiaries of the Company had total liabilities
(excluding liabilities owed to the Company) of approximately $718.8 million. In
addition, because two of the Company's subsidiaries are insurance companies
subject to regulatory control by various state insurance departments, the
ability of such subsidiaries to pay dividends to the Company without prior
regulatory approval is limited by applicable laws and regulations. Accordingly,
the Junior Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries, and holders of
Junior Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. None of the Indenture, the
Guarantee, the Common Guarantee or the Declaration places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, or other
obligations, that may be incurred by the Company or any of its subsidiaries,
either in the
10
18
event of a highly leveraged transaction or otherwise. See "Description of New
Securities--Description of New Guarantee--Status of New Guarantee" and
"--Description of New Junior Subordinated Debentures-- Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company's making payments on the Junior Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to defer
payments of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity Date. Upon any such deferral, semi-annual
Distributions on the Capital Securities by the Trust will be deferred (and the
amount of Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the rate of 8.675% per
annum, compounded semi-annually, but not exceeding the interest rate then
accruing on the Junior Subordinated Debentures) from the relevant payment date
for such Distributions during any such Extension Period.
The Company may extend any existing Extension Period, provided that such
extension does not cause such Extension Period to exceed 10 consecutive
semi-annual periods or to extend beyond the Stated Maturity Date. Upon the
expiration of any Extension Period and the payment of all interest then accrued
and unpaid on the Junior Subordinated Debentures (together with interest thereon
at the annual rate of 8.675%, compounded semi-annually, to the extent permitted
by applicable law), the Company may elect to begin a new Extension Period,
subject to the above requirements. There is no limitation on the number of times
that the Company may elect to begin an Extension Period. See "Description of New
Securities--Description of New Capital Securities-- Distributions" and
"--Description of New Junior Subordinated Debentures--Option to Extend Interest
Payment Date."
Should the Company exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of Trust Securities will be required
to accrue income (as original issue discount ("OID")) in respect of the deferred
stated interest allocable to its Trust Securities for United States federal
income tax purposes, which will be allocated but not distributed to holders of
Trust Securities. As a result, during an Extension Period, each holder of
Capital Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash related
to such income from the Trust if the holder disposes of the Capital Securities
prior to the record date for the payment of Distributions thereafter. See
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount" and "--Sales of Capital Securities."
Should the Company elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures, the then-current market price of
the Capital Securities is likely to be affected adversely. A holder that
disposes of its Capital Securities during an Extension Period, therefore, might
not receive the same return on its investment as a holder that continues to hold
its Capital Securities. In addition, the mere existence of the Company's right
to defer payments of interest on the Junior Subordinated Debentures may cause
the market price of the Capital Securities to be more volatile than the market
prices of other securities on which OID accrues and that are not subject to such
deferral rights.
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT REDEMPTION
If a Tax Event (as defined herein) occurs, then the Company will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the Junior Subordinated Debentures to the minimum extent required in
order to allow for the payments of interest in respect of the Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the Junior Subordinated Debentures be less than 20
years from the date of original issuance thereof, or (ii) to terminate the Trust
(if not previously terminated). In either case, such maturity date shall be
advanced only if, in the opinion of counsel to the Company experienced in such
matters, after advancing the maturity date, interest paid on the Junior
Subordinated
11
19
Debentures will be deductible for United States federal income tax purposes (the
action referred to in either clause (i) or (ii) above being referred to herein
as a "Tax Event Maturity Advancement").
If a Tax Event occurs and in the opinion of counsel to the Company
experienced in such matters, there would in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined herein) would continue to exist, or, if an
Investment Company Event (as defined herein) occurs, then the Company will have
the right, within 90 days following the occurrence of such Tax Event or
Investment Company Event, as the case may be, at any time prior to February 1,
2007, to redeem the Junior Subordinated Debentures in whole (but not in part) in
the manner set forth under "Description of New Securities--Description of New
Junior Subordinated Debentures--Conditional Right to Advance Maturity and
Special Event Prepayment," and therefore to cause a mandatory redemption of the
Capital Securities prior to the Stated Maturity Date (the circumstances under
which the Company has the right to so redeem the Junior Subordinated Debentures
in connection with a Tax Event being referred to herein as a "Conditional Tax
Redemption Event"). Each of a Conditional Tax Redemption Event or an Investment
Company Event are sometimes referred to herein as a "Special Event."
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to terminate the Trust and,
after satisfaction of claims of creditors of the Trust as provided by applicable
law, to cause the Junior Subordinated Debentures to be distributed to the
holders of the Trust Securities. Under current United States federal income tax
law, a distribution of Junior Subordinated Debentures upon the dissolution of
the Trust would not be a taxable event to holders of the Capital Securities. If,
however, the Trust is characterized for United States federal income tax
purposes as an association taxable as a corporation at the time of dissolution
of the Trust, the distribution of the Junior Subordinated Debentures may
constitute a taxable event to holders of Capital Securities. Moreover, upon the
occurrence of a Special Event, a dissolution of the Trust in which holders of
the Capital Securities receive cash would be a taxable event to such holders.
See "Certain Federal Income Tax Consequences--Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of debt obligations, such as the New Junior
Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations have a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. If legislation similar to the Proposed Legislation were enacted, there
can be no assurance that it will not adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures. Such a
change could give rise to a Tax Event, which would permit the Company to cause a
redemption of the Trust Securities at the Special Event Redemption Price by
electing to prepay the Junior Subordinated Debentures at the Special Event
Prepayment Price. See "Certain Federal Income Tax Consequences--Proposed Tax
Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for New Capital
Securities or New Junior Subordinated Debentures distributed to the holders of
New Capital Securities if a termination of the Trust were to occur. Accordingly,
the New Capital Securities or the New Junior Subordinated Debentures may trade
at a discount from the price that the investor paid to purchase the Capital
Securities. Because holders of Capital Securities may receive Junior
Subordinated Debentures in liquidation of the Trust and because Distributions
are otherwise limited to payments on the Junior Subordinated Debentures,
prospective holders of New Capital Securities are also making an investment
decision with regard to the New Junior Subordinated Debentures and should
carefully review all the information regarding the New Junior Subordinated
Debentures contained herein. See "Description of New Securities--Description of
New Junior Subordinated Debentures."
12
20
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. The Chase
Manhattan Bank will also act as Property Trustee and as Debenture Trustee under
the Indenture. Chase Manhattan Bank Delaware will act as Delaware Trustee under
the Declaration. The Old Guarantee guarantees, and the New Guarantee will
guarantee, as the case may be, to the holders of the Capital Securities the
following payments, to the extent not paid by the Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand legally available therefor at such time,
(ii) the applicable Redemption Price with respect to any Capital Securities
called for redemption, to the extent that the Trust has funds on hand at that
time legally available therefor, and (iii) upon a voluntary or involuntary
termination and liquidation of the Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust has funds on
hand at that time legally available therefor and (b) the amount of assets of the
Trust remaining available for distribution to holders of the Capital Securities.
The holders of a majority in Liquidation Amount of the Capital Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the Guarantee Trustee.
Any holder of the Capital Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If the Company defaults on its obligation to pay amounts
payable under the Junior Subordinated Debentures, the Trust will not have
sufficient funds for the payment of Distributions or amounts payable on
redemption of the Capital Securities or otherwise, and, in such event, holders
of the Capital Securities will not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing and such event is attributable to the
failure of the Company to pay principal of or premium, if any, or interest on
the Junior Subordinated Debentures on the payment date on which such payment is
due and payable, then a holder of Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or premium, if any, or interest on such Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities of such holder without first instituting any
legal proceeding against the Property Trustee or any other person or entity (a
"Direct Action"). Notwithstanding any payments made to a holder of Capital
Securities by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of and premium, if any, and interest on
the Junior Subordinated Debentures, and the Company shall be subrogated to the
rights of the holder of such Capital Securities with respect to payments on the
Capital Securities to the extent of any payments made by the Company to such
holder in any Direct Action. Except as described herein, holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or to assert directly any
other rights in respect of the Junior Subordinated Debentures. See "Description
of New Securities--Description of New Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities,"
"--Description of New Junior Subordinated Debentures--Debenture Events of
Default" and "--Description of New Guarantee." The Declaration provides that
each holder of Capital Securities by acceptance thereof agrees to the provisions
of the Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the terms of the Capital Securities, the
dissolution, termination or liquidation of the Trust, and the exercise of the
Trust's rights as holder of Junior Subordinated Debentures. Holders of Capital
Securities will not be entitled to vote to appoint, remove or replace the
Property Trustee or the Delaware Trustee, and such voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence of
certain events described herein. The Issuer Trustees and the Company may amend
the Declaration without the consent of holders of Capital Securities to ensure
that the Trust will be classified for United States federal income tax purposes
as a grantor trust even if such action adversely affects the interests of such
holders. See "Description of New Securities-- Description of New Capital
Securities--Voting Rights; Amendment of the Declaration" and "--Removal of
Issuer Trustees."
13
21
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company and the Trust do not intend to register under
the Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Old Capital Securities are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Declaration. See "Description of New
Securities--Description of New Capital Securities-- Voting Rights; Amendment of
the Declaration."
The Old Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by June
30, 1997 and declared effective by August 4, 1997, the Distribution rate borne
by the Old Capital Securities, currently 8.675% per annum, commencing on August
5, 1997 will increase by 0.25% per annum until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Old Capital
Securities will not be entitled to any increase in the Distribution rate thereon
or any further registration rights under the Registration Rights Agreement,
except under limited circumstances. See "Description of Old Capital Securities."
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes the Old
Capital Securities are currently owned by, a relatively small number of
beneficial owners. The Old Capital Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the New Capital Securities. Although the New Capital
Securities generally may be resold or otherwise transferred by the holders (who
are not Affiliates of the Company or the Trust) without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities with no established trading market. Old Capital Securities
may be transferred by the holders thereof only in blocks having a Liquidation
Amount of not less than $100,000 (100 Old Capital Securities). New Capital
Securities may be transferred by the holders thereof in blocks having a
Liquidation Amount of $1,000 (one New Capital Security) or integral multiples
thereof. The Company and the Trust have been advised by the Initial Purchasers
that the Initial Purchasers presently intend to make a market in the New Capital
Securities. However, the Initial Purchasers are not obligated to do so and any
market-making activity with respect to the New Capital Securities may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Capital Securities or the Old Capital Securities or as to the liquidity
of or the trading market for the New Capital Securities or the Old Capital
Securities. If an active public market does not develop, the market price and
liquidity of the New Capital Securities may be adversely affected.
If a public trading market develops for the New Capital Securities, future
trading prices will depend on many factors, including, among other things,
prevailing interest rates, the Company's results and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the Company,
the New Capital Securities may trade at a discount.
14
22
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are Affiliates of the Company or the Trust may
publicly offer for sale or resell the New Capital Securities only in compliance
with the provisions of Rule 144 under the Securities Act or pursuant to another
effective registration statement.
Each broker-dealer that receives New Capital Securities for its own account
in exchange for Old Capital Securities, where such Old Capital Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Capital Securities. See "Plan of
Distribution."
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to
combined fixed charges of the Company for the respective periods indicated.
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges.................... 9.1 17.6 15.1 12.9 12.7
Ratio of Earnings to Fixed Charges,
Excluding Net Realized Capital Gains (Losses)....... 8.9 16.7 15.4 11.5 12.1
For purposes of computing the ratios of earnings to fixed charges for the
Company and its subsidiaries, earnings represent income before income taxes plus
fixed charges. Fixed charges have been calculated by adding gross interest
expense and that portion of rent expense deemed representative of the interest
factor in such rent expense. The Company's consolidated insurance company
subsidiaries are subject to certain regulatory restrictions on the payment of
dividends or advances to the Company. See "Risk Factors--Holding Company
Structure; Restrictions on Dividends."
USE OF PROCEEDS
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. In consideration for
issuing the New Capital Securities in exchange for Old Capital Securities as
described in this Prospectus, the Trust will receive Old Capital Securities in
like Liquidation Amount. The Old Capital Securities surrendered in exchange for
the New Capital Securities will be retired and cancelled.
The proceeds to the Trust (without giving effect to expenses of the
offering payable by the Company) from the offering of the Old Capital Securities
were $125,000,000. All of the proceeds from the sale of Old Capital Securities
were invested by the Trust in the Junior Subordinated Debentures. The Company
used approximately $70 million of the net proceeds from the sale of the Old
Junior Subordinated Debentures to repay all amounts outstanding under the term
loan portion of its existing credit facility, including $18.4 million to The
Chase Manhattan Bank, which is acting as the Property Trustee, the Debenture
Trustee, the Common Guarantee Trustee and the Guarantee Trustee and is an
affiliate of the Delaware Trustee. The remaining net proceeds from the sale of
the Old Junior Subordinated Debentures were used (i) to make contributions to
the surplus of its insurance subsidiaries and (ii) for general corporate
purposes. As of December 31, 1996, the Company's insurance subsidiaries had
total adjusted capital in excess of the risk-based capital regulatory action
level. The application of the proceeds of the offering of the Old Capital
Securities caused the Company's insurance subsidiaries also to exceed the
risk-based capital company action level, which is a higher standard.
15
23
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1996 and as adjusted to give effect to the consummation
of the offering of the Old Capital Securities and the application of the
proceeds thereof. The following data should be read in conjunction with the
financial information included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, which is incorporated herein by reference. See
"Incorporation of Certain Documents by Reference."
AS OF DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Long-term debt................................................ $ 70,000 $ --
Corporation-Obligated Mandatory Redeemable Capital Securities
of Trust Holding Solely Junior Subordinated Debentures...... -- 125,000
Stockholders' equity
Common stock(1)............................................. 104 104
Additional paid in capital.................................. 93,651 93,651
Unrealized gains on investments, net of tax................. 18,382 18,382
Currency translation adjustments............................ (186) (186)
Retained earnings........................................... 65,384 65,384
Treasury stock at cost...................................... (32,560) (32,560)
-------- --------
Total stockholders' equity.......................... 144,775 144,775
-------- --------
Total capitalization.......................................... $214,775 $ 269,775
======== ========
- ---------------
(1) Does not include (i) 1,465,294 shares of Common Stock issuable upon exercise
of employee stock options, (ii) 100,000 shares of Common Stock issuable upon
exercise of an option held by Aetna Inc. (the "Aetna Option"), (iii) 42,185
shares of Common Stock issuable upon exercise of options granted to
directors under the Company's Nonemployee Directors Option Plan, (iv) 40,100
shares of Common Stock issuable upon exercise of options granted to former
directors of the Company's wholly-owned subsidiary, Executive Re Inc., and
(v) any shares of Common Stock issuable pursuant to the Company's Stock
Incentive Plan and Performance Share Plan.
16
24
SUMMARY FINANCIAL DATA
The summary below should be read in connection with the financial
information included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Gross premiums written................................................. $332,085 $210,640 $130,199 $ 84,255 $ 82,667
Net premiums written................................................... 210,376 145,121 108,285 70,519 74,605
Net premiums earned.................................................... 155,784 116,434 94,961 69,014 71,926
Net investment income.................................................. 32,646 26,706 22,497 20,475 19,702
Net realized capital gains(losses)..................................... 1,047 1,588 (455) 1,964 869
Equity in earnings of ERMA............................................. 0 0 0 2,707 2,736
Other income (loss).................................................... 166 83 82 (364) 0
-------- -------- -------- -------- --------
Total revenues....................................................... 189,643 144,811 117,085 93,796 95,233
Loss and loss adjustment expenses...................................... 105,335 78,530 64,171 46,640 51,427
Policy acquisition costs............................................... 27,803 21,931 18,723 18,613 18,535
General and administrative costs....................................... 17,068 10,730 8,890 8,749 6,409
Long-term incentive compensation....................................... 187 1,458 1,009 1,100 0
Interest expense....................................................... 4,511 2,022 1,519 1,421 1,420
-------- -------- -------- -------- --------
Total expenses....................................................... 154,904 114,671 94,312 76,523 77,791
-------- -------- -------- -------- --------
Income before income taxes............................................. 34,739 30,140 22,773 17,273 17,442
Income tax expense..................................................... 6,634 4,854 3,533 2,360 2,870
-------- -------- -------- -------- --------
Income before cumulative effect of change in accounting for income
taxes................................................................ 28,105 25,286 19,240 14,913 14,572
Cumulative effect of change in accounting for income taxes............. 0 0 0 0 1,387
-------- -------- -------- -------- --------
Net income............................................................. $ 28,105 $ 25,286 $ 19,240 $ 14,913 $ 15,959
======== ======== ======== ======== ========
Earnings per common and common equivalent share(1)..................... $ 2.67 $ 2.11 $ 1.80 $ 3.53 $ 3.44
======== ======== ======== ======== ========
Weighted average shares outstanding.................................... 10,509 11,956 10,108 3,128 3,120
Earnings per common share--assuming full dilution(1)................... $ 2.67 $ 2.11 $ 1.69 $ 1.69 $ 1.66
======== ======== ======== ======== ========
Weighted average shares outstanding--assuming full dilution............ 10,542 11,978 11,365 9,238 9,230
BALANCE SHEET DATA:
Cash and invested assets............................................... $690,975 $549,852 $431,849 $371,596 $319,773
Total assets(2)........................................................ 941,247 687,837 516,747 420,382 361,149
Long-term debt......................................................... 70,000 25,000 25,000 25,000 25,000
Stockholders' equity(2)................................................ 144,775 177,725 130,854 114,837 92,473
OTHER DATA:
Loss Ratio........................................................... 67.6% 67.4% 67.6% 67.6% 71.5%
Expense Ratio........................................................ 28.8 28.1 29.1 39.6 34.7
-------- -------- -------- -------- --------
Combined Ratio....................................................... 96.4% 95.5% 96.7% 107.2% 106.2%
======== ======== ======== ======== ========
Ratio of net premiums written to statutory surplus(3)(4)............... 1.5x 1.2x 1.0x 0.7x 0.8x
Statutory surplus(3) (at end of period)................................ $138,405 $121,465 $107,401 $ 94,445 $ 91,689
Operating Margin(5).................................................... 20.3% 21.3% 21.1% 19.3% 19.3%
Ratio of debt to total capitalization.................................. 32.6% 12.3% 16.0% 17.9% 21.3%
- ---------------
(1) Per share information is based on income before cumulative effect of change
in accounting for income taxes. Earnings per common and common equivalent
share and earnings per common share--assuming full dilution based on net
income were $3.88 and $1.81, respectively, for the year ended December 31,
1992.
(2) For the years ended December 31, 1996, 1995, 1994 and 1993, respectively,
includes $11.7 million, $15.4 million, ($3.3) million and $12.4 million, net
of deferred taxes, in total assets and stockholders' equity from unrealized
gains (losses) pursuant to Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
(3) Statutory data has been derived from the financial statements of the
Insurance Subsidiaries prepared in accordance with Statutory Accounting
Practices.
(4) Ratios of net premiums written to statutory surplus are calculated on a
rolling twelve month basis.
(5) Consists of income before taxes, excluding interest expense, realized
capital gains (losses) and certain non-recurring expenses, divided by total
revenues, excluding realized capital gains (losses).
17
25
EXECUTIVE RISK CAPITAL TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust, dated as of January 24, 1997, executed by the
Company, as Sponsor, and the Delaware Trustee (the "Initial Declaration"), and
(ii) the filing of a certificate of trust with the Delaware Secretary of State
on January 24, 1997. The Initial Declaration was replaced by an Amended and
Restated Declaration of Trust (the "Declaration") executed on February 5, 1997
by the Company, as Sponsor, and the Issuer Trustees (as herein defined). The
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, which represent undivided beneficial interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities in the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary, advisable or incidental thereto. Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust and payments under the Junior
Subordinated Debentures will be the sole revenues of the Trust. All of the
Common Securities are owned by the Company. The Common Securities will rank pari
passu, and payments will be made thereon pro rata, with the Capital Securities,
except that upon the occurrence and during the continuance of an Event of
Default under the Declaration resulting from a Debenture Event of Default, the
rights of the Company as holder of the Common Securities to payments in respect
of Distributions and payments upon liquidation, redemption or otherwise will be
subordinated and rank junior to the rights of the holders of the Capital
Securities. See "Description of New Securities--Description of New Capital
Securities--Subordination of Common Securities." The Company has acquired Common
Securities in a Liquidation Amount equal to 3% of the total capital of the
Trust. The Trust has a term of 31 years, but may terminate earlier as provided
in the Declaration. The Trust's business and affairs will be conducted by the
Issuer Trustees appointed by the Company as the holder of the Common Securities.
The Issuer Trustees will be The Chase Manhattan Bank as the Property Trustee,
Chase Manhattan Bank Delaware as the Delaware Trustee, and three individual
trustees (the "Administrative Trustees"). The Chase Manhattan Bank, as Property
Trustee, will act as sole indenture trustee under the Declaration. The Chase
Manhattan Bank will also act as indenture trustee under the Guarantee and the
Indenture. See "Description of New Securities--Description of New Guarantee" and
"Description of New Securities-- Description of New Junior Subordinated
Debentures." The holder of the Common Securities of the Trust or, if an Event of
Default under the Declaration has occurred and is continuing, the holders of a
majority in Liquidation Amount of the Capital Securities, will be entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee. In
no event will the holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees; such voting rights will
be vested exclusively in the holder of the Common Securities. The duties and
obligations of each Issuer Trustee are governed by the Declaration. The Company
will pay, directly or indirectly, all fees, expenses, debts and obligations
(other than, except to the extent guaranteed by the Company with respect to
prepayments of principal, interest and premium, if any, the Trust Securities)
related to the Trust and the offering of the Capital Securities, including all
ongoing costs, expenses and liabilities of the Trust. The principal executive
office address and telephone number of the Trust are, respectively, c/o
Executive Risk Inc., 82 Hopmeadow Street, Simsbury, Connecticut 06070-7683 and
(860) 408-2000.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company and the Trust agreed to file and to
use their reasonable best efforts to cause to become effective with the
Commission a registration statement with respect to the exchange of the Old
Capital Securities for New Capital Securities. A copy of the Registration Rights
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Trust under the Registration Rights Agreement. The form and
terms of the New Capital Securities are the same as the form and terms of the
Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act, will not be subject to the $100,000 minimum
Liquidation Amount transfer restriction and certain other restrictions on
transfer applicable to the Old Capital Securities, and will not provide for any
increase in the
18
26
Distribution rate thereon. In that regard, the Old Capital Securities provide,
among other things, that, if a registration statement relating to the Exchange
Offer has not been filed by June 30, 1997 and declared effective by August 4,
1997, the Distribution rate borne by the Old Capital Securities, currently
8.675% per annum, commencing on August 5, 1997 will increase by 0.25% per annum
until the Exchange Offer is consummated. Upon consummation of the Exchange
Offer, holders of Old Capital Securities will not be entitled to any increase in
the Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Capital Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from such holder, or any person whose Old Capital
Securities are held of record by The Depository Trust Company ("DTC") who
desires to deliver such Old Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange promptly after
the Expiration Date (as defined herein) the Old Guarantee for the New Guarantee
and the Old Junior Subordinated Debentures, in an amount corresponding to the
aggregate Liquidation Amount of Old Capital Securities accepted for exchange,
for a like aggregate principal amount of the New Junior Subordinated Debentures.
The New Guarantee and New Junior Subordinated Debentures have been registered
under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $125,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly withdrawn
in accordance with the procedures described below. The Trust will issue,
promptly after the Expiration Date, an aggregate Liquidation Amount of up to
$125,000,000 of New Capital Securities in exchange for a like aggregate
Liquidation Amount of outstanding Old Capital Securities tendered and accepted
in connection with the Exchange Offer. Holders may tender their Old Capital
Securities in whole or in part in a Liquidation Amount of not less than $100,000
(100 Capital Securities) or any integral multiple of $1,000 Liquidation Amount
(one Capital Security) in excess thereof, provided that, if any Old Capital
Securities are tendered for exchange in part, the untendered Liquidation Amount
thereof must be $100,000 (100 Capital Securities) or any integral multiple of
$1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$125,000,000 aggregate Liquidation Amount of Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Declaration, but will not be entitled to any further registration rights under
the Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Company will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
19
27
NEITHER THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ISSUER
TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. EACH HOLDER OF OLD
CAPITAL SECURITIES MUST MAKE ITS OWN DECISION AS TO WHETHER TO TENDER PURSUANT
TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES
TO TENDER BASED ON SUCH HOLDER'S OWN FINANCIAL POSITION AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on May 22,
1997 unless the Exchange Offer is extended by the Company or the Trust (in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Company and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, to (i) delay the acceptance of the Old Capital Securities for exchange,
(ii) terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Trust determines, in its
sole and absolute discretion, that any of the events or conditions referred to
under "--Conditions to the Exchange Offer" have occurred or exist or have not
been satisfied, (iii) extend the Expiration Date of the Exchange Offer and
retain all Old Capital Securities tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old Capital Securities to withdraw
their tendered Old Capital Securities as described under "--Withdrawal Rights,"
and (iv) waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Company and the Trust to constitute a material change, or if the Company and the
Trust waive a material condition of the Exchange Offer, the Company and the
Trust will promptly disclose such amendment by means of a Prospectus supplement
that will be distributed to the holders of the Old Capital Securities, and the
Company and the Trust will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company and the Trust may choose to make any public
announcement and subject to applicable law, the Company and the Trust shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, including an
Agent's Message (as defined below) if the tendering holder has not delivered a
Letter of Transmittal, (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees or,
in the case of a book-entry transfer, an Agent's Message in lieu of the Letter
of Transmittal, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgement from the DTC
participant, which acknowledge-
20
28
ment states that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Trust and the Company may enforce such Letter
of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Trust will
be deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Trust for the purpose of receiving tenders of
Old Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital Securities,
Letters of Transmittal and related documents and transmitting New Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Old Capital Securities tendered pursuant to the Exchange
Offer is delayed (whether before or after the Trust's acceptance for exchange of
Old Capital Securities) or the Trust extends the Exchange Offer or is unable to
accept for exchange or exchange Old Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Trust's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Old Capital Securities and such
Old Capital Securities may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under "--Withdrawal
Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Old Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Capital Securities, that the Trust will acquire good,
marketable and unencumbered title to the tendered Old Capital Securities, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Capital Securities tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Trust or the Exchange
Agent to be necessary or desirable to complete the exchange, sale, assignment,
and transfer of the Old Capital Securities tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
Valid Tender. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at one of its addresses set
forth under "--Exchange Agent," and either (i) tendered Old Capital Securities
must be received by the Exchange Agent, or (ii) such Old Capital Securities must
be tendered pursuant to the procedures for book-entry transfer set forth below
and a book-entry confirmation, including an Agent's Message if the tendering
holder has not delivered a Letter of Transmittal, must be received by the
Exchange Agent, in each case on or prior to the Expiration Date, or (iii) the
guaranteed delivery procedures set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Old Capital
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry
21
29
delivery of the Old Capital Securities by causing DTC to transfer such Old
Capital Securities into the Exchange Agent's account at DTC in accordance with
DTC's procedures for transfers. However, although delivery of Old Capital
Securities may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must in any case be delivered to and received by the Exchange Agent
at its address set forth under "--Exchange Agent" on or prior to the Expiration
Date, or the guaranteed delivery procedure set forth below must be complied
with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such holder completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the Letter of Transmittal. In the case of (a)
or (b) above, such certificates for Old Capital Securities must be duly endorsed
or accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined therein):
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association (each of the foregoing, an "Eligible Institution"), unless
surrendered on behalf of such Eligible Institution. See Instruction 1 to the
Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile thereof
or Agent's Message in lieu thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of New Capital Securities might not be made to all
tendering holders at the same time, and will depend upon when Old Capital
Securities, book-entry confirmations with respect to Old Capital Securities and
other required documents are received by the Exchange Agent.
22
30
The Trust's acceptance for exchange of Old Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. The Company and the Trust reserve the absolute right, in their
sole and absolute discretion, to reject any and all tenders determined by them
not to be in proper form or the acceptance of which, or exchange for, may, in
the opinion of counsel to the Company and the Trust, be unlawful. No
alternative, conditional or contingent tenders will be accepted. The Company and
the Trust also reserve the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer as set forth under "--Conditions to
the Exchange Offer" or any condition or irregularity in any tender of Old
Capital Securities of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
The interpretation by the Company and the Trust of the terms and conditions
of the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Capital Securities will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. None of the Company, the Trust, any Affiliates
or assigns of the Company or the Trust, the Exchange Agent or any other person
shall be under any duty to give any notification of any irregularities in
tenders or incur any liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company
and the Trust, proper evidence satisfactory to the Company and the Trust, in
their sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Trust is making the Exchange Offer for the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Company nor the Trust sought
its own interpretive letter and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Company and the Trust believe that New
Capital Securities issued pursuant to this Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an Affiliate of the Company or the Trust or who intends to participate in the
Exchange Offer for the purpose of distributing New Capital Securities, or any
broker-dealer who purchased Old Capital Securities from the Trust for resale
pursuant to Rule 144A or any other available exemption under the Securities Act,
(a) will not be able to rely on the interpretations of the staff of the Division
of Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities unless
such sale is made pursuant to an exemption from such requirements. In addition,
as
23
31
described below, if any broker-dealer holds Old Capital Securities acquired for
its own account as a result of market-making or other trading activities and
exchanges such Old Capital Securities for New Capital Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate of the Company or the Trust, (ii) any
New Capital Securities to be received by it are being acquired in the ordinary
course of its business, (iii) it has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Company and the Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer, to
furnish to the Company and the Trust (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of Rule
13d-3 under the Exchange Act) on behalf of whom such holder holds the Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives New Capital Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Old Capital Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Capital Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Company and the Trust believe
that Participating Broker-Dealers who acquired Old Capital Securities for their
own accounts as a result of market-making activities or other trading activities
may fulfill their prospectus delivery requirements with respect to the New
Capital Securities received upon exchange of such Old Capital Securities (other
than Old Capital Securities which represent an unsold allotment from the
original sale of the Old Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities where such Old Capital Securities were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Company and the Trust have agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 90 days after the Expiration Date (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Company or the Trust, or cause
the Company or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under "--Exchange
Agent." Any Participating Broker-Dealer who is an Affiliate of the Company or
the Trust may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who tenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message in lieu
thereof, that, upon receipt of notice from the Company or the Trust of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Capital
24
32
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Company or the Trust has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer or the Company or the Trust has given notice that
the sale of the New Capital Securities (or the New Guarantee or the New Junior
Subordinated Debentures, as applicable) may be resumed, as the case may be. If
the Company or the Trust gives such notice to suspend the sale of the New
Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable), it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Capital Securities by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales of
the New Capital Securities or to and including the date on which the Company or
the Trust has given notice that the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "--Exchange Agent" on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Capital Securities to be withdrawn, the
aggregate Liquidation Amount of Old Capital Securities to be withdrawn, and (if
certificates for such Old Capital Securities have been tendered) the name of the
registered holder of the Old Capital Securities as set forth on the Old Capital
Securities, if different from that of the person who tendered such Old Capital
Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the serial numbers shown on
the particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering Old
Capital Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Capital Securities may not be rescinded. Old
Capital Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described
above under "--Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Company, the Trust, any Affiliates or assigns of the Company or the
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Capital Securities
which have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive Distributions on such Old Capital Securities and
will be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and including February 5, 1997. Holders of
New Capital Securities as of the record date for the payment of Distributions on
August 1, 1997 will be entitled to receive Distributions accumulated from and
including February 5, 1997.
25
33
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Trust will not be required
to accept for exchange, or to exchange, any Old Capital Securities for any New
Capital Securities, and, as described below, may terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any conditions to or amend the Exchange Offer, if any of
the following conditions has occurred or exists or has not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an Affiliate of the
Company or the Trust) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Capital Securities are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any
person to participate in the distribution of such New Capital Securities;
or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company or the Trust, threatened for that purpose or any governmental
approval has not been obtained, which approval the Company or the Trust
shall, in its sole discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
If the Company or the Trust determines in its sole and absolute discretion
that any of the foregoing events or conditions has occurred or exists or has not
been satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company or the Trust will promptly
disclose such waiver or amendment by means of a Prospectus supplement that will
be distributed to the registered holders of the Old Capital Securities and will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
By Registered or Certified Mail: By Hand or Overnight Delivery:
-------------------------------- ---------------------------------
The Chase Manhattan Bank The Chase Manhattan Bank
450 West 33rd Street, 15th Floor 450 West 33rd Street, 15th Floor
New York, New York 10001 New York, New York 10001
Attention: Global Trust Services Attention: Global Trust Services
Sheik Wiltshire, Sheik Wiltshire,
Second Vice President Second Vice President
Confirm By Telephone:
(212) 946-3082
Facsimile Transmissions:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 946-8161
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
26
34
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Capital Securities, and in handling or tendering
for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither the Company nor the Trust will make any payment to brokers, dealers
or other nominees soliciting acceptances of the Exchange Offer.
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF NEW CAPITAL SECURITIES
Pursuant to the terms of the Declaration, the Trust has issued the Old
Capital Securities and the Common Securities and will issue the New Capital
Securities pursuant to the Exchange Offer. The New Capital Securities will
represent preferred undivided beneficial interests in the assets of the Trust
and the holders of the New Capital Securities and the Old Capital Securities
will be entitled to a preference over the Common Securities in certain
circumstances with respect to Distributions and amounts payable on redemption of
the Trust Securities or liquidation of the Trust. See "--Subordination of Common
Securities." The Declaration has been qualified under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). This summary of certain provisions
of the New Capital Securities and the Declaration does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Declaration, including the definitions therein of
certain terms.
GENERAL
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) will be limited to $125,000,000 aggregate Liquidation Amount
at any one time outstanding. The New Capital Securities will rank pari passu,
and payments will be made thereon pro rata, with the Old Capital Securities and
the Common Securities except as described under "--Subordination of Common
Securities" below. Legal title to the Junior Subordinated Debentures will be
held by the Property Trustee in trust for the benefit of the holders of the
Capital Securities and the Common Securities. The New Guarantee will not
guarantee payment of Distributions or amounts payable on redemption of the New
Capital Securities or liquidation of the Trust when the Trust does not have
funds on hand legally available for such payments. See "--Description of New
Guarantee."
DISTRIBUTIONS
Distributions on the New Capital Securities will be cumulative, will
accumulate from February 5, 1997 and will be payable semi-annually in arrears on
February 1 and August 1 of each year, commencing August 1, 1997, at the annual
rate of 8.675% of the Liquidation Amount to the holders of the New Capital
Securities on the relevant record dates. The record dates will be the fifteenth
day prior to the relevant Distribution Date (as defined herein). The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and for any period less than a full calendar month,
on the basis of the actual number of days elapsed in such month. In the event
that any date on which Distributions are payable on the New Capital
27
35
Securities is not a Business Day (as defined herein), payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect to any
such delay), in each case with the same force and effect as if made on such date
(each date on which Distributions are payable in accordance with the foregoing,
a "Distribution Date"). The term "Business Day" shall mean any day other than a
Saturday or a Sunday or a day on which banking institutions in New York, New
York or Wilmington, Delaware are authorized or required by law or executive
order to remain closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to elect to
defer the payment of interest on the New Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. Upon any such election, semi-annual
Distributions on the New Capital Securities will be deferred by the Trust during
such Extension Period. Distributions to which holders of the New Capital
Securities are entitled during any Extension Period will accumulate additional
Distributions thereon at the rate per annum of 8.675% thereof, compounded
semi-annually from the relevant Distribution Date, but not exceeding the
interest rate then accruing on the New Junior Subordinated Debentures. The term
"Distributions" as used herein shall include any such additional Distributions.
During any Extension Period, the Company may extend such Extension Period,
provided that such extension does not cause the Extension Period to exceed 10
consecutive semi-annual periods or to extend beyond the Stated Maturity Date.
Upon the expiration of any Extension Period and the payment of all amounts then
due, and subject to the foregoing limitations, the Company may elect to begin a
new Extension Period. The Company must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of any
Extension Period or any extension thereof at least five Business Days prior to
the earlier of (i) the date the Distributions on the New Capital Securities
would have been payable except for the election to begin or extend such
Extension Period and (ii) the date the Administrative Trustees are required to
give notice to any securities exchange or to holders of the New Capital
Securities of the record date or the date such Distributions are payable, but in
any event not less than five Business Days prior to such record date. There is
no limitation on the number of times that the Company may elect to begin an
Extension Period. See "--Description of New Junior Subordinated
Debentures--Option to Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
During any Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal of or
premium, if any, or interest on or repay, repurchase or redeem any debt
securities of the Company (including Other Debentures) that rank pari passu with
or junior in right of payment to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company (including Other Guarantees) if
such guarantee ranks pari passu with or junior in right of payment to the Junior
Subordinated Debentures (other than (a) dividends or distributions in shares of,
or options, warrants or rights to subscribe for or purchase shares of, common
stock of the Company, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (e) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(f) issuances of common stock of the Company upon exercise of the Aetna Option
and (g) purchases or issuances of common stock in connection with any of the
Company's stock option, stock purchase, stock loan or other benefit plans for
its directors, officers or employees or any of the Company's dividend
reinvestment plans, in each case as now existing or hereafter established or
amended).
Although the Company may in the future exercise its option to defer
payments of interest on the New Junior Subordinated Debentures, the Company has
no such current intention.
28
36
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust invested the proceeds from the issuance and sale
of the Trust Securities. See "--Description of New Junior Subordinated
Debentures--General." If the Company does not make interest payments on the New
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the New Capital Securities. The payment of
Distributions on the New Capital Securities (if and to the extent the Trust has
funds on hand legally available for the payment of such Distributions) will be
guaranteed by the Company on a limited basis as set forth herein under
"--Description of New Guarantee."
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT REDEMPTION
If a Tax Event (as defined herein) occurs, then the Company will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the New Junior Subordinated Debentures to the minimum extent required in
order to allow for payments of interest in respect of the New Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the New Junior Subordinated Debentures be less than 20
years from the date of original issuance thereof, or (ii) to terminate the Trust
(if not previously terminated). In either case, such maturity date shall be
advanced only if, in the opinion of counsel to the Company experienced in such
matters, after advancing the maturity date, interest paid on the New Junior
Subordinated Debentures will be deductible for United States federal income tax
purposes (the action referred to in either clause (i) or (ii) above being
referred to herein as a "Tax Event Maturity Advancement").
If a Tax Event occurs and in the opinion of counsel to the Company
experienced in such matters, there would in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined herein) would continue to exist, or, if an
Investment Company Event (as defined herein) occurs, then the Company will have
the right, within 90 days following the occurrence of such Tax Event or
Investment Company Event, as the case may be, at any time prior to February 1,
2007 to prepay the New Junior Subordinated Debentures in whole (but not in part)
in the manner set forth under "--Description of New Junior Subordinated
Debentures--Conditional Right to Advance Maturity and Special Event Prepayment,"
and therefore to cause a mandatory redemption of the New Capital Securities
prior to the Stated Maturity Date (the circumstances under which the Company has
the right to so redeem the New Junior Subordinated Debentures in connection with
a Tax Event being referred to herein as a "Conditional Tax Redemption Event").
Each of a Conditional Tax Redemption Event or an Investment Company Event are
sometimes referred to herein as a "Special Event."
REDEMPTION
Upon the repayment on the Stated Maturity Date or prepayment prior to the
Stated Maturity Date of the New Junior Subordinated Debentures, the proceeds
from such repayment or prepayment shall be applied by the Property Trustee to
redeem a Like Amount (as defined below) of the Trust Securities, upon not less
than 30 nor more than 60 days' notice of a date of redemption (the "Redemption
Date") at the applicable Redemption Price, which shall be equal to (i) in the
case of the repayment of the New Junior Subordinated Debentures on the Stated
Maturity Date, the Maturity Redemption Price (equal to the principal of and
accrued interest on the New Junior Subordinated Debentures), (ii) in the case of
the optional prepayment of the New Junior Subordinated Debentures prior to
February 1, 2007 upon the occurrence and continuation of a Special Event, the
Special Event Redemption Price (equal to the Special Event Prepayment Price in
respect of the New Junior Subordinated Debentures) and (iii) in the case of the
optional prepayment of the New Junior Subordinated Debentures on or after
February 1, 2007, the Optional Redemption Price (equal to the Optional
Prepayment Price in respect of the New Junior Subordinated Debentures). See
"--Description of New Junior Subordinated Debentures--Optional Prepayment" and
"--Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be paid in accordance with their
terms and (ii) with respect to a distribution of Junior Subordinated Debentures
upon the liquidation of the Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Junior Subordinated Debentures are distributed.
29
37
The Company will have the option to prepay the New Junior Subordinated
Debentures, (i) in whole or in part, on or after February 1, 2007, at the
applicable Optional Prepayment Price and (ii) in whole but not in part, at any
time prior to February 1, 2007, upon the occurrence of a Special Event, at the
Special Event Prepayment Price.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, cause the New Junior Subordinated Debentures to be distributed
to the holders of the Trust Securities in liquidation of the Trust. Such right
is conditioned on the Administrative Trustees having received an opinion of
counsel to the effect that such distribution will not be a taxable event to
holders of New Capital Securities.
The Trust shall automatically dissolve and its affairs shall be wound up
upon the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holders of the Trust Securities, if the Company,
as Sponsor, has given written direction to the Property Trustee to dissolve the
Trust (which direction is optional and, except as described above, wholly within
the discretion of the Company, as Sponsor) and provided that the distribution is
conditioned on the receipt of an opinion of counsel to the effect that the
holders of New Capital Securities will not recognize any gain or loss for United
States federal income tax purposes; (iii) redemption of all of the Trust
Securities as described under "--Redemption" above; (iv) expiration of the term
of the Trust; and (v) the entry of an order for the dissolution of the Trust by
a court of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv) or (v) of
the preceding paragraph, the Trust shall be liquidated by the Administrative
Trustees as expeditiously as the Administrative Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, to the holders of the Trust Securities a
Like Amount of the New Junior Subordinated Debentures, unless such distribution
is determined by the Property Trustee not to be practicable, in which event such
holders will be entitled to receive out of the assets of the Trust legally
available for distribution to holders, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, an amount equal to the
aggregate of the Liquidation Amount plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets on hand legally available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Capital Securities and the Common Securities shall be paid on a pro
rata basis, except that if a Debenture Event of Default has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities. See "--Subordination of Common Securities." If an early dissolution
occurs as described in clause (v) above, the New Junior Subordinated Debentures
will be subject to optional prepayment, in whole but not in part, on or after
February 1, 2007.
If the Company elects not to prepay the Junior Subordinated Debentures
prior to maturity in accordance with their terms and either elects not to or is
unable to liquidate the Trust and distribute the Junior Subordinated Debentures
to holders of the Trust Securities, the Trust Securities will remain outstanding
until the repayment of the Junior Subordinated Debentures on the Stated Maturity
Date.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each holder of Trust
Securities will receive a registered certificate or certificates representing
the Junior Subordinated Debentures to be delivered upon such distribution and
(iii) Trust Securities will be deemed to represent Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Company will issue to such holder, and the Debenture
Trustee will authenticate, a certificate representing such Junior Subordinated
Debentures.
There can be no assurance as to the market prices for the New Capital
Securities or the New Junior Subordinated Debentures that may be distributed in
exchange for the Trust Securities if a dissolution and
30
38
liquidation of the Trust were to occur. Accordingly, the New Capital Securities
that an investor may purchase, or the New Junior Subordinated Debentures that
the investor may receive on dissolution and liquidation of the Trust, may trade
at a discount to the price that the investor paid to purchase the New Capital
Securities.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the New Junior Subordinated Debentures. Any redemption of Trust
Securities shall be made and the applicable Redemption Price shall be payable on
the Redemption Date only to the extent that the Trust has funds legally
available for the payment of such applicable Redemption Price. See also
"--Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the New Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the New Capital
Securities held by The Depository Trust Company ("DTC") or its nominees, the
Property Trustee will pay or cause the Paying Agent to pay the applicable
Redemption Price to DTC. See "--Form, Denomination, Book-Entry Procedures and
Transfer." With respect to the New Capital Securities held in certificated form,
the Property Trustee, to the extent funds are legally available, will pay or
cause the Paying Agent to pay the applicable Redemption Price to the holders
thereof upon surrender of their certificates evidencing the New Capital
Securities. See "--Payment and Paying Agency" below. Distributions payable on or
prior to the Redemption Date shall be payable to the holders of such New Capital
Securities on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds irrevocably deposited with
the Property Trustee to pay the Redemption Price of the New Capital Securities
called for redemption, then upon the date of such deposit, all rights of the
holders of the New Capital Securities will cease, except the right of the
holders of the New Capital Securities to receive the applicable Redemption
Price, but without interest on such Redemption Price, and the New Capital
Securities will cease to be outstanding. In the event that any Redemption Date
is not a Business Day, then the applicable Redemption Price payable on such date
will be paid on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the applicable
Redemption Price is improperly withheld or refused and not paid either by the
Trust or by the Company pursuant to the Guarantee as described under
"--Description of New Guarantee," (i) Distributions on New Capital Securities
called for redemption will continue to accumulate at the then applicable rate,
from the Redemption Date originally established by the Trust to the date such
applicable Redemption Price is actually paid, and (ii) the actual payment date
will be the Redemption Date for purposes of calculating the applicable
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Junior Subordinated Debentures,
on and after the Redemption Date, Distributions will cease to accumulate on the
Trust Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and the Common Securities, as applicable, shall be made pro rata
based on the Liquidation Amount of the Capital Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or applicable Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions on all of the outstanding
Capital Securities for all Distribution periods terminating on or prior thereto
or, in the case of Capital Securities called for redemption on a Redemption Date
on or prior thereto, the
31
39
full amount of the Redemption Price therefor, shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or Redemption Price of, the
Capital Securities then due and payable.
In the case of any Event of Default, the Company as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Capital Securities and not on behalf of the
Company as holder of the Common Securities, and only the holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "--Description of New
Junior Subordinated Debentures--Debenture Events of Default") constitutes an
"Event of Default" under the Declaration.
Within ten Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company, as Sponsor, unless such Event of
Default shall have been cured or waived. The Company, as Sponsor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Declaration.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"--Liquidation of the Trust and Distribution of New Junior Subordinated
Debentures" and "--Subordination of Common Securities" above.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment of
a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Declaration.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Issuer Trustee shall
be a party, or any corporation succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, shall be the successor of such
Issuer Trustee under the Declaration, provided such corporation shall be
otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge or convert with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below and under "-- Liquidation of the Trust and
Distribution of New Junior Subordinated Debentures" above. The Trust may, at the
request of the Company, as Sponsor, with the consent of the Administrative
Trustees but without the consent of the Property Trustee, the Delaware Trustee
or holders of the Capital Securities, merge or convert with or into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to a trust
organized as such
32
40
under the laws of any State; provided, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Trust with respect to the
Capital Securities or (b) substitutes for the Capital Securities other
securities having substantially the same terms as the Capital Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Capital Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) the Company expressly appoints
a trustee of such successor entity possessing the same powers and duties as the
Property Trustee with respect to the Junior Subordinated Debentures, (iii) the
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Capital Securities are then listed, if any, (iv) such
merger, conversion, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Capital Securities (including any Successor
Securities) or, if so rated, the Junior Subordinated Debentures, to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, conversion, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect (other than with respect to a dilution of
such holder's interest in the new entity), (vi) such successor entity has a
purpose identical to that of the Trust, (vii) prior to such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Capital Securities (including any Successor Securities) in any material respect
(other than with respect to a dilution of such holder's interest in the new
entity), (b) following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such successor
entity will be required to register as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
(c) following such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Trust (or any successor entity) will continue
to be classified as a grantor trust for United States federal income tax
purposes, and (viii) the Company or any permitted successor or assignee owns all
of the common securities of such successor entity and guarantees the obligations
of such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge or convert with or into, or be
replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge or convert with or into, or replace it
if such consolidation, amalgamation, merger, conversion, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "--Mergers, Conversions, Consolidations,
Amalgamations or Replacements of the Trust" above and "--Description of New
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Declaration, the holders of the New Capital Securities will have no voting
rights.
The Declaration may be amended from time to time by the Company and the
Issuer Trustees, without the consent of the holders of the Trust Securities (i)
to cure any ambiguity, correct or supplement any provisions in the Declaration
that may be inconsistent with any other provision of the Declaration, or to add
any other provisions with respect to matters or questions arising under the
Declaration, which shall not be inconsistent with the other provisions of the
Declaration, or (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Trust Securities are outstanding or to ensure that the
Trust will not be required to register as an "investment company" under the
Investment Company Act; provided, however, that in the case of clause (i), such
action shall not adversely affect in any material respect the interests of the
holders of the Trust Securities, and any amendments of the Declaration shall
become effective when notice thereof is given to the holders of the Trust
Securities. The Declaration may be amended by the Issuer Trustees and the
Company (i) with the consent of holders representing a majority (based upon
Liquidation Amount) of the
33
41
outstanding Trust Securities, and (ii) upon receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect the Trust's status as a grantor trust for United States federal income
tax purposes or the Trust's exemption from status as an "investment company"
under the Investment Company Act, provided that, without the consent of each
holder of Trust Securities, the Declaration may not be amended to (i) change the
amount or timing of any Distribution or other payment on or in respect of the
Trust Securities or otherwise adversely affect the amount of any Distribution or
other payment required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive certain past defaults under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior Subordinated
Debentures or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in Liquidation Amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior approval
of each holder of the Capital Securities. The Issuer Trustees shall not revoke
any action previously authorized or approved by a vote of the holders of the
Capital Securities except by subsequent vote of such holders. The Property
Trustee shall notify each holder of Capital Securities of any notice of default
with respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of such holders of the Capital Securities, prior to taking
any of the foregoing actions, the Issuer Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of New Capital Securities may be given at
a meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of New Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of New Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of New Capital Securities will be
required for the Trust to redeem and cancel the New Capital Securities in
accordance with the Declaration.
Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The New Capital Securities initially will be represented by one or more New
Capital Securities certificates in registered, global form (collectively, the
"Global New Capital Securities" and together with the Old Capital Securities in
registered global form, the "Global Capital Securities"). The Global New Capital
Securities will be deposited upon issuance with the Property Trustee as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Capital Securities in certificated form
except in the limited circumstances described below.
34
42
Depositary Procedures
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants with portions of the Liquidation Amount of
the Global Capital Securities and (ii) ownership of such interests in the Global
Capital Securities will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Capital Securities).
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Capital Securities in certificated form and will
not be considered the registered owners or holders thereof under the Declaration
for any purpose.
Payments in respect of the Global Capital Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Declaration. Under the terms of the
Declaration, the Property Trustee will treat the persons in whose names the
Capital Securities, including the Global Capital Securities, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Capital Securities, or for maintaining, supervising or reviewing any of
DTC's records or any Participant's or Indirect Participant's records relating to
the beneficial interests in the Global Capital Securities or (ii) any other
matter relating to the actions and practices of DTC or any of its Participants
or Indirect Participants. DTC has advised the Trust and the Company that its
current practice, upon receipt of any payment in respect of securities such as
the Global New Capital Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Global
Capital Securities will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Property Trustee,
the Trust or the Company. Neither the Trust nor the Company nor the Property
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Global Capital Securities, and the
Trust or the Company and the Property Trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee for all
purposes.
Except for trades involving only Euroclear and Cedel participants,
interests in the Global Capital Securities will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
35
43
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparts in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global New Capital Securities in DTC, and making or receiving
payment in accordance with normal procedures for same day funds settlement
applicable to DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global New Capital Security from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. Cash received in Euroclear or
Cedel as a result of sales of interest in a Global New Capital Security by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of New Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global Capital Securities are credited and only in respect of such portion of
the Liquidation Amount of the New Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Declaration, DTC reserves the right to exchange
the Global Capital Securities for New Capital Securities in certificated form
and to distribute such New Capital Securities to its Participants.
The information in this section concerning DTC , Euroclear and Cedel and
their book-entry systems has been obtained from sources that the Trust and the
Company believe to be reliable, but neither the Trust nor the Company takes
responsibility for the accuracy thereof.
Exchange of Global New Capital Securities for Certificated New Capital
Securities
A Global New Capital Security is exchangeable for New Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global New Capital
Security and the Trust thereupon fails to appoint a successor Depositary within
90 days or (y) has ceased to be a clearing agency registered under the Exchange
Act, (ii) the Company in its sole discretion elects to cause the issuance of the
New Capital Securities in certificated form or (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default under the Declaration. In addition,
beneficial interests in a Global New Capital Security may be exchanged for
certificated New Capital Securities upon request but only upon at least 20 days
prior written notice given to the Property Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases, certificated New Capital
Securities delivered in exchange for any Global New Capital Security or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the Depositary (in
accordance with its customary procedures), unless the Property Trustee
determines otherwise in compliance with applicable law.
PAYMENT AND PAYING AGENCY
Payments in respect of the New Capital Securities held in global form shall
be made to the Depositary, which shall credit the relevant accounts of holders
of New Capital Securities held at the Depositary on the applicable Distribution
Dates or in respect of the New Capital Securities that are not held by the
Depositary, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address shall appear on the New Capital
Securities register. The paying agent (the "Paying Agent") shall initially be
the Property
36
44
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrative Trustees and the Company. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee
and the Company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and the
Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the New
Capital Securities.
Registration of transfers of the New Capital Securities will be effected
without charge by or on behalf of the Trust but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the New Capital Securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after such Event of Default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. The Property Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if repayment or adequate indemnity is not reasonably
assured to the Property Trustee.
Affiliates of the Property Trustee currently provide commercial banking and
other services to the Company. See "Plan of Distribution."
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act of 1940, as amended, or classified as an association
taxable as a corporation for United States federal income tax purposes and so
that the Junior Subordinated Debentures will be treated as indebtedness of the
Company for United States federal income tax purposes. In this connection, the
Company and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
Declaration, that the Company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Trust Securities.
Holders of the Trust Securities have no pre-emptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued, and the New Junior
Subordinated Debentures will be issued, as separate series under the Indenture.
The Indenture has been qualified under the Trust Indenture Act. This summary of
certain terms and provisions of the New Junior Subordinated Debentures and the
Indenture does not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, some of which are not otherwise defined herein,
are qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act.
37
45
GENERAL
Concurrently with the issuance of the Old Capital Securities, the Trust
invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Old Junior Subordinated Debentures issued
by the Company. Pursuant to the Exchange Offer, the Company will exchange the
Old Junior Subordinated Debentures, in an amount corresponding to the Old
Capital Securities accepted for exchange, for a like aggregate principal amount
of the New Junior Subordinated Debentures promptly after the Expiration Date.
The New Junior Subordinated Debentures will bear interest at the annual
rate of 8.675% of the principal amount thereof, payable semi-annually in arrears
on February 1 and August 1 of each year (each, an "Interest Payment Date"),
commencing August 1, 1997, to the person in whose name each New Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the fifteenth day prior to the relevant payment date. It is
anticipated that, until the liquidation, if any, of the Trust, each New Junior
Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Trust Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months and, for any period less than a full calendar month, on the basis
of the actual number of days elapsed in such month. In the event that any date
on which interest is payable on the New Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), with the same force and effect as
if made on the date such payment was originally payable. Accrued interest that
is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate per
annum of 8.675% thereof, compounded semi-annually. The term "interest", as used
herein, shall include semi-annual interest payments, interest on semi-annual
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined herein), as applicable.
The New Junior Subordinated Debentures will be issued in denominations of
$1,000 and integral multiples thereof. The New Junior Subordinated Debentures
will mature on February 1, 2027 (the "Stated Maturity Date"), except as
described below.
The New Junior Subordinated Debentures will rank pari passu with the Old
Junior Subordinated Debentures and all Other Debentures and will be unsecured
and subordinate and rank junior in right of payment to the extent and in the
manner set forth in the Indenture to all Senior Indebtedness. See
"--Subordination" below. The Company is a holding company and almost all of the
operating assets of the Company and its consolidated subsidiaries are owned by
such subsidiaries. The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company, the Company's ability to meet debt service
obligations and pay operating expenses depends on receipt of sufficient funds in
the form of dividends, surplus debenture payments and tax sharing payments from
its direct and indirect subsidiaries. The inability of the Company's direct and
indirect subsidiaries to pay dividends and make other payments to the Company in
an amount sufficient to meet debt service obligations and pay operating expenses
would have a material adverse effect on the Company and the Trust. The payment
of dividends and the making of other payments by the Company's insurance
subsidiaries without prior regulatory approval is subject to restrictions set
forth in the insurance laws and regulations of the states of domicile of those
subsidiaries. The Company currently does not expect such regulatory requirements
to impair its ability to meet interest payment obligations and to pay operating
expenses in the future. However, the Company can give no assurance that
dividends will be declared or paid by its subsidiaries or that the Company's
insurance subsidiaries will be able to obtain any regulatory approvals that may
be required from time to time. As of December 31, 1996, the Company's direct and
indirect insurance subsidiaries had sufficient capital and earnings to pay up to
$13.8 million of dividends to the Company during 1997 without prior regulatory
approval. In addition, payment of dividends to the Company by the insurance
subsidiaries is subject to ongoing review by insurance regulators and is subject
to various statutory limitations and in certain circumstances requires approval
by insurance regulatory authorities. Because the Company is a holding company,
the right of the Company to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of the subsidiary, except to the extent
the Company may itself be recognized as a creditor of that subsidiary.
Accordingly, the New Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of New Junior Subordinated Debentures should look only
to the assets of the Company for payments on the New Junior
38
46
Subordinated Debentures. The Indenture does not limit the incurrence or issuance
of other secured or unsecured debt of the Company, including Senior
Indebtedness, or other obligations. See "--Subordination" below.
FORM, REGISTRATION AND TRANSFER
If the New Junior Subordinated Debentures are distributed to the holders of
the New Capital Securities, the New Junior Subordinated Debentures may be
represented by one or more global certificates registered in the name of Cede &
Co. as the nominee of DTC. The depositary arrangements for such New Junior
Subordinated Debentures are expected to be substantially similar to those in
effect for the New Capital Securities. For a description of DTC and the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "--Description of New
Capital Securities--Form, Denomination, Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, and any interest on New Junior
Subordinated Debentures will be made at the office of the Debenture Trustee in
The City of New York or at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made, except in the case of New Junior
Subordinated Debentures in global form, (i) by check mailed to the address of
the Person entitled thereto as such address shall appear in the register for New
Junior Subordinated Debentures or (ii) by transfer to an account maintained by
the Person entitled thereto as specified in such register, provided that proper
transfer instructions have been received by the relevant Record Date. Payment of
any interest on any New Junior Subordinated Debenture will be made to the Person
in whose name such New Junior Subordinated Debenture is registered at the close
of business on the record date for such interest, except in the case of
defaulted interest. The Company may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent; however the Company will
at all times be required to maintain a Paying Agent in each Place of Payment for
the New Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, or interest on any New Junior Subordinated Debenture and
remaining unclaimed for two years after such principal and premium, if any, or
interest has become due and payable shall, at the request of the Company, be
repaid to the Company and the holder of such New Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Indenture at any time during the term
of the New Junior Subordinated Debentures to defer the payment of interest at
any time or from time to time for a period not exceeding 10 consecutive,
semi-annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity Date. At the end of an
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest then accrued at the annual rate of 8.675%, compounded
semi-annually, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of New Junior Subordinated
Debentures (and holders of the Trust Securities while Trust Securities are
outstanding) will be required to accrue interest income for United States
federal income tax purposes prior to the receipt of cash attributable to such
income. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
During any Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company (including any Other Debentures) that rank pari passu
with or junior in right of payment to the New Junior Subordinated Debentures or
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any subsidiary of the
39
47
Company (including any Other Guarantees) if such guarantee ranks pari passu with
or junior in right of payment to the New Junior Subordinated Debentures (other
than (a) dividends or distributions in shares of or options, warrants or rights
to subscribe for or purchase shares of, common stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of the Company's capital
stock, (e) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (f) issuances of common
stock of the Company upon exercise of the Aetna Option and (g) purchases or
issuances of common stock under any of the Company's stock option, stock
purchase, stock loan or other benefit plans for its directors, officers or
employees or any of the Company's dividend reinvestment plans, in each case as
now existing or hereafter established or amended).
Prior to the expiration of any Extension Period, the Company may further
extend such Extension Period, provided that such extension does not cause such
Extension Period to exceed 10 consecutive semi-annual periods or to extend
beyond the Stated Maturity Date. Upon the expiration of any Extension Period and
the payment of all amounts then due on any Interest Payment Date, the Company
may elect to begin a new Extension Period, subject to the above requirements. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Company must give the Property Trustee, the Administrative Trustees
and the Debenture Trustee notice of its election of any Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of (i) the
date the Distributions on the Trust Securities would have been payable except
for the election to begin or extend such Extension Period or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or to holders of New Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than five Business Days
prior to such record date. The Debenture Trustee shall give notice of the
Company's election to begin or extend a new Extension Period to the holders of
the Capital Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period.
OPTIONAL PREPAYMENT
The New Junior Subordinated Debentures will be prepayable, in whole or in
part, at the option of the Company on or after February 1, 2007 (the "Initial
Optional Prepayment Date"), at a prepayment price (the "Optional Prepayment
Price") equal to the percentage of the outstanding principal amount of the New
Junior Subordinated Debentures specified below, plus, in each case, accrued
interest thereon to the date of prepayment if prepaid during the 12-month period
beginning February 1 of the years indicated below:
YEAR PERCENTAGE
-------------------------------------------------- ----------
2007.............................................. 104.338%
2008.............................................. 103.904%
2009.............................................. 103.470%
2010.............................................. 103.036%
2011.............................................. 102.603%
2012.............................................. 102.169%
2013.............................................. 101.735%
2014.............................................. 101.301%
2015.............................................. 100.868%
2016.............................................. 100.434%
---
2017 and thereafter............................... 100.000%
===
40
48
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT PREPAYMENT
If a Tax Event (as defined herein) occurs, then the Company will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the New Junior Subordinated Debentures to the minimum extent required in
order to allow for the payments of interest in respect of the New Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the New Junior Subordinated Debentures be less than 20
years from the date of original issuance thereof, or (ii) to terminate the Trust
(if not previously terminated) and advance the Stated Maturity Date of the New
Junior Subordinated Debentures to the minimum extent required in order to allow
for the payments of interest to continue to be tax deductible. In either case,
such maturity date shall be advanced only if, in the opinion of counsel to the
Company experienced in such matters, after advancing the maturity date, interest
paid on the New Junior Subordinated Debentures will be deductible for United
States federal income tax purposes (the action referred to in either clause (i)
or (ii) above being referred to herein as a "Tax Event Maturity Advancement").
If a Special Event (as defined below) shall occur and be continuing, the
Company may, at its option, prepay the New Junior Subordinated Debentures in
whole (but not in part) at any time prior to the Initial Optional Prepayment
Date and within 90 days of the occurrence of such Special Event, at a prepayment
price (the "Special Event Prepayment Price") equal to the greater of (i) 100% of
the principal amount of such New Junior Subordinated Debentures to be prepaid or
(ii) the sum, as determined by a Quotation Agent, of the present values of the
principal amount and premium payable with respect to an optional prepayment of
New Junior Subordinated Debentures on February 1, 2007, together with scheduled
payments of interest on the New Junior Subordinated Debentures from the
prepayment date to and including the Initial Optional Prepayment Date discounted
to the prepayment date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in each
case, accrued but unpaid interest thereon to the date of prepayment.
"Special Event" means either a Conditional Tax Redemption Event (as defined
under "--Description of New Capital Securities--Conditional Right to Advance
Maturity and Special Event Redemption") or an Investment Company Event, as the
case may be.
"Tax Event" means the receipt by the Company and the Trust of an opinion,
requested by the Company, of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein or as
a result of any official administrative written decision or pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is made on or
after the Issue Date, there is more than an insubstantial risk that (i) the
Trust is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, or (ii) interest payable by the Company on
the Junior Subordinated Debentures is not, or within 90 days of the date of such
opinion will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will be within 90
days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges (each of the circumstances
referred to in clauses (i), (ii) and (iii) being an "Adverse Tax Consequence").
"Investment Company Event" means that the Company and the Trust shall have
received an opinion, requested by the Company, of counsel experienced in
practice under the Investment Company Act to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in Investment Company Act Law"), there
is more than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act, which Change in Investment Company Act Law becomes effective on or
after the Issue Date.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date, in each case calculated on
the third Business Day preceding such prepayment
41
49
date, plus in each case (a) 1.25% if such prepayment date occurs on or prior to
February 5, 1997 and (b) .50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term to the Stated Maturity Date of the New Junior Subordinated Debentures that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the New Junior Subordinated
Debentures.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Debenture Trustee after consultation with the Company. "Reference Treasury
Dealer" means: (i) J.P. Morgan Securities Inc. and respective successors;
provided, however, that if the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury Dealer, and (ii) any
other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Company.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the rate per annum equal to the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15 (519)" or any successor publication which
is published weekly by the Federal Reserve Board and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Initial Optional Prepayment Date (or if no maturity is within three
months before or after the maturity corresponding to the Initial Optional
Prepayment Date, yields for the two published maturities most closely
corresponding to the Initial Optional Prepayment Date shall be interpolated, and
the Adjusted Treasury Rate shall be interpolated or extrapolated from such
yields on a straight-line basis, rounding to the nearest month) or (ii) if such
release (or any successor release) is not published or does not contain such
prices on such Business Day, (A) the average of three Reference Treasury Dealer
Quotations for such prepayment date, after excluding the highest and lowest such
Reference Treasury Dealer Quotations, or (B) if the Debenture Trustee obtains
fewer than three such Reference Treasury Dealer Quotations, the average of all
such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
"Additional Sums" means such additional amounts that may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties or other governmental charges to which
the Trust has become subject as a result of a Tax Event.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of New Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Company defaults
in payment of the prepayment price, on and after the prepayment date interest
ceases to accrue on such New Junior Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the New Junior Subordinated Debentures the Additional
Sums.
CERTAIN COVENANTS OF THE COMPANY
The Company will also covenant that it will not, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company (including Other Debentures) that rank pari passu with
or junior in right of payment to the New Junior Subordinated Debentures or (iii)
make any
42
50
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company (including under Other Guarantees)
if such guarantee ranks pari passu or junior in right of payment to the New
Junior Subordinated Debentures (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, common stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (e) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(f) issuances of common stock of the Company, upon exercise of the Aetna Option,
and (g) purchases or issuances of common stock in connection with any of the
Company's stock option, stock purchase, stock loan or other benefit plans for
its directors, officers or employees or any of the Company's dividend
reinvestment plans, in each case as now existing or hereafter established or
amended) if at such time (1) there shall have occurred any event of which the
Company has actual knowledge that (a) is, or with the giving of notice or the
lapse of time, or both, would be, a Debenture Event of Default and (b) in
respect of which the Company shall not have taken reasonable steps to cure, or
(2) if such New Junior Subordinated Debentures are held by the Trust, the
Company shall be in default with respect to its payment of any obligations under
the New Guarantee or (3) the Company shall have given notice of its election of
an Extension Period, or any extension thereof, as provided in the Indenture and
shall not have rescinded such notice, and such Extension Period, or any
extension thereof, shall have commenced.
For so long as the Trust Securities remain outstanding, the Company will
covenant (i) to directly or indirectly maintain 100 percent ownership of the
Common Securities of the Trust; provided, however, that any permitted successor
of the Company under the Indenture may succeed to the Company's ownership of
such Common Securities, (ii) to use its reasonable efforts to cause the Trust
(a) to remain a statutory business trust, except in connection with the
distribution of Junior Subordinated Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (b) to continue not to be classified
as an association taxable as a corporation or a partnership for United States
federal income tax purposes and (iii) to use its reasonable efforts to cause
each holder of Trust Securities to be treated as owning an undivided beneficial
interest in the Junior Subordinated Debentures.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures at the time outstanding, to modify the Indenture in a
manner affecting the rights of the holders of the Junior Subordinated
Debentures; provided that no such modification shall without the consent of the
holders of each outstanding Junior Subordinated Debenture so affected (i) change
the Stated Maturity Date, or reduce the principal amount thereof or any amount
payable upon prepayment thereof, or reduce the rate or extend the time of
payment of interest thereon, except pursuant to the Company's right under the
Indenture to defer the payment of interest as provided therein (see "--Option to
Extend Interest Payment Date"), or make the principal of, or interest or premium
on, the Junior Subordinated Debentures payable in any coin or currency other
than that provided in the Junior Subordinated Debentures, or impair or affect
the right of any holder of Junior Subordinated Debentures to institute suit for
the payment thereof or the right of prepayment, if any, at the option of the
holder, without the consent of the holder of each Security so affected, or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures, the
holders of which are required to consent to any such modification of the
Indenture.
43
51
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the New Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures or any Other Debentures, when due (subject to the deferral of
any due date in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon redemption, by declaration of acceleration maturity or
otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures;
or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal of the Junior Subordinated Debentures due and payable immediately
upon a Debenture Event of Default. The holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures may annul
such declaration and waive the default if the default (other than the nonpayment
of the principal of the Junior Subordinated Debentures which has become due
solely by such acceleration) has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default except a default
in the payment of principal of or premium, if any, on or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and premium, if any, and principal due otherwise than by acceleration
has been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior Subordinated
Debenture.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of a
Debenture Event of Default from the holders of Junior Subordinated Debentures
(except a Debenture Event of Default in payment of principal of, or interest or
premium on, the Junior Subordinated Debentures) if the Debenture Trustee
considers it in the interest of such holders to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF NEW CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay principal of or
interest or premium, if any, on the New Junior Subordinated Debentures on the
due date, a holder of New Capital Securities may institute a Direct Action. The
Company may not amend the Indenture to remove the foregoing right to bring a
Direct Action without the prior written consent of the holders of all of the New
Capital Securities. Notwithstanding any payments made to a holder of New Capital
Securities by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of (or premium, if any) or interest on the
New Junior Subordinated Debentures, and the Company shall be subrogated to the
rights of the holder of such New Capital Securities with respect to payments on
the New Capital Securities to the extent of any payments made by the Company to
such holder in any Direct Action.
44
52
The holders of the New Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the New Junior Subordinated Debentures unless there
shall have occurred an Event of Default under the Declaration. See
"--Description of New Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, CONVERSION, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
or convert into any other Person or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any Person, and no
Person shall consolidate with or merge or convert into the Company or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to the Company, unless: (i) in case the Company consolidates with or
merges or converts into another Person or conveys or transfers its properties
and assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes the Company's obligations
on the Junior Subordinated Debentures; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as prescribed in
the Indenture are met.
The general provisions of the Indenture do not afford holders of the New
Junior Subordinated Debentures protection in the event of a highly leveraged
transaction, a change of control of the Company or other transaction involving
the Company that may adversely affect holders of the New Junior Subordinated
Debentures.
SATISFACTION AND DISCHARGE
The Indenture generally provides that when, among other things, all New
Junior Subordinated Debentures not previously delivered to the Debenture Trustee
for cancellation (i) have become due and payable or (ii) will become due and
payable at maturity within one year, and the Company deposits or causes to be
deposited with the Debenture Trustee funds, in trust, for the purpose and in an
amount sufficient to pay and discharge the entire indebtedness on the New Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal and interest to the date of the deposit or to
the Stated Maturity Date, as the case may be, then the Indenture will cease to
be of further effect (except as to the Company's obligations to pay all other
sums due pursuant to the Indenture and to provide the officers' certificates and
opinions of counsel described therein), and the Company will be deemed to have
satisfied and discharged the Indenture.
DEFEASANCE AND DISCHARGE
The Indenture provides that the Company will be deemed to have been
discharged from its obligations with respect to all outstanding Junior
Subordinated Debentures ("defeasance") at any time prior to maturity, when the
Company has deposited or caused to be deposited with the trustee or Defeasance
Agent (as defined in the Indenture), as trust funds in trust, specifically
pledged as security for, and dedicated solely to the benefit of the holders of
Junior Subordinated Debentures, (i) U.S. dollars in an amount, or (ii) U.S.
Government obligations which through the payment of interest and principal in
accordance with their terms, will provide money, in an amount, or a combination
of (i) and (ii), sufficient to pay and discharge each installment of principal
of (and premium, if any) and interest on the outstanding Junior Subordinated
Debentures on the dates such installments of principal, premium and interest are
due in accordance with the terms of the Junior Subordinated Debentures. Such a
trust may be established with respect to the Junior Subordinated Debentures only
upon the satisfaction of certain conditions specified in the Indenture,
including without limitation, the delivery by the Company to the Trustee and
Defeasance Agent of an opinion of counsel with respect to certain U.S. federal
income tax matters as specified in the Indenture. Upon defeasance and discharge,
the Indenture will cease to be of further effect with respect to the Junior
Subordinated Debentures and the holders of the Junior Subordinated Debentures
shall look only to the deposited funds or obligations for payment.
Notwithstanding the foregoing, certain obligations and rights under the
Indenture with respect to registration of transfer and exchange of Junior
Subordinated Debentures, replacement of destroyed, lost or stolen Junior
Subordinated Debentures, compensation, reimbursement and indemnification of the
Trustee, return to the Company by the Trustee of unpaid money deposited with
45
53
the Trustee or any paying agent, and certain other administrative provisions
will survive defeasance and discharge.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full in respect of such Senior
Indebtedness before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full in respect
of such Senior Indebtedness before the holders of Junior Subordinated Debentures
will be entitled to receive or retain any payment in respect of the Junior
Subordinated Debentures.
No payments on account of principal or premium, if any, or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Indebtedness, or an event of default with respect to any Senior Indebtedness
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Senior Indebtedness", means, with respect to the Company and its
Subsidiaries: (a) all liabilities, obligations and indebtedness for borrowed
money, whether or not evidenced by bonds, debentures, notes or other similar
instruments, (b) all obligations to pay the deferred purchase price of property
or services (other than trade payables due and arising in the ordinary course of
business), (c) all Capital Lease Obligations (as defined in the Indenture), (d)
all debt of any other Person (as defined in the Indenture) secured by a Lien (as
defined in the Indenture) on any asset of the Company or any of its
Subsidiaries, (e) all Contingent Obligations, (f) all obligations, contingent or
otherwise, relating to the face amount of letters of credit, whether or not
drawn, and banker's acceptances, but excluding any obligation relating to an
undrawn letter of credit if the undrawn letter of credit is issued in connection
with a liability for which a reserve has been established by the Company or the
applicable Subsidiary in accordance with United States generally accepted
accounting principles, and (g) all obligations incurred pursuant to Hedging
Agreements which are due and payable; provided, that the term Senior
Indebtedness shall not include the Junior Subordinated Debentures, the
Guarantees or other Qualified Debt Obligations.
"Contingent Obligation" means, with respect to the Company and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take or pay, or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, that the term Contingent
Obligation shall not include (i) obligations under insurance or reinsurance
policies, or (ii) endorsements for collection or deposit in the ordinary course
of business.
"Qualified Debt Obligations" means, without duplication, (a) debt
securities of the Company, provided that the terms of any such debt security (i)
permit the deferral of principal and interest payments for a period of up to
five years (but not beyond the maturity date), as elected by the Company, (ii)
have a maturity for payment of principal of not less than ten (10) years after
the date of issuance, and (iii) include provisions making the debt security
expressly subordinate to all other debt of the Company; (b) preferred securities
issued by a Subsidiary,
46
54
the sole purpose of which is to issue such preferred securities and invest the
proceeds thereof in debt securities of the type described in clause (a) above,
and which preferred securities are payable solely out of the proceeds of
payments on account of such debt securities; and (c) the obligations recorded on
the consolidated balance sheet of the Company and its Subsidiaries with respect
to debt securities of the type described in clause (a) above and preferred
securities of the type described in clause (b) above.
By reason of such subordination, in the event of an insolvency, creditors
of the Company who are holders of Senior Indebtedness, as well as certain
general creditors of the Company, may recover more, ratably, than the holders of
the New Junior Subordinated Debentures. Additionally, the Company currently
conducts substantially all of its operations through subsidiaries, and the
holders of New Junior Subordinated Debentures will be structurally subordinated
to the creditors of the Company's subsidiaries. See "Risk Factors--Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures."
The Indenture places no limitation on the amount of additional secured or
unsecured debt, including Senior Indebtedness, or other obligations, that may be
incurred by the Company. The Company expects from time to time to incur
additional indebtedness and obligations, including Senior Indebtedness.
GOVERNING LAW
The Indenture and the New Junior Subordinated Debentures will be governed
by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an indenture trustee
under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of New Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
The Debenture Trustee and its affiliates currently provide general
financing and banking and other services to the Company. See "Plan of
Distribution."
DESCRIPTION OF NEW GUARANTEE
The Old Guarantee was executed and delivered by the Company concurrently
with the issuance by the Trust of the Old Capital Securities for the benefit of
the holders from time to time of the Old Capital Securities. Promptly after the
Expiration Date, the New Guarantee will be issued by the Company for the benefit
of the holders from time to time of the New Capital Securities. The New
Guarantee has been qualified under the Trust Indenture Act. The Chase Manhattan
Bank will act as guarantee trustee ("Guarantee Trustee") under the New
Guarantee. This summary of certain provisions of the New Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the New Guarantee, including the
definitions therein of certain terms, and the Trust Indenture Act. The Guarantee
Trustee will hold the New Guarantee for the benefit of the holders of the
Capital Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the New Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
New Capital Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the New Guarantee: (i) any accumulated
and unpaid Distributions required to be paid on New Capital Securities, to the
extent the Trust has funds on hand at
47
55
such time legally available therefor, (ii) the Redemption Price with respect to
any New Capital Securities called for redemption, to the extent that the Trust
has funds on hand at such time legally available therefor, or (iii) upon a
voluntary or involuntary termination and liquidation of the Trust (unless the
New Junior Subordinated Debentures are distributed to holders of the New Capital
Securities), the lesser of (a) the Liquidation Distribution and (b) the amount
of assets of the Trust remaining available for distribution to holders of New
Capital Securities. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the New Capital Securities or by causing the Trust to pay such
amounts to such holders.
The New Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided therein and, in the event of
bankruptcy or insolvency proceedings involving the Company, will rank
subordinate and junior in right of payment to all liabilities (other than Other
Guarantees) of the Company, but senior to any obligations in respect of any
class of capital stock of the Company. See "--Status of New Guarantee" below.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise is subject to the prior
claims of creditors of that subsidiary, except to the extent the Company may
itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the New Guarantee will be effectively subordinated
to all existing and future liabilities of the Company's direct and indirect
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. See "--Description of New Junior Subordinated
Debentures--General." The New Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness, whether under the Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company will, through the New Guarantee, the Declaration, the New
Junior Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guarantee all of the Trust's obligations under
the New Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the New Capital Securities. See "Relationship Among
the New Capital Securities, the New Junior Subordinated Debentures and the New
Guarantee."
STATUS OF NEW GUARANTEE
The New Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior
Indebtedness in the same manner as New Junior Subordinated Debentures, except in
the event of bankruptcy or insolvency proceedings involving the Company, in
which case the New Guarantee will rank subordinate and junior in right of
payment to all liabilities (other than Other Guarantees) of the Company.
The New Guarantee will rank pari passu with the Old Guarantee and with all
Other Guarantees issued by the Company. The New Guarantee will constitute a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the Company to enforce its rights
under the New Guarantee without first instituting a legal proceeding against any
other person or entity). The New Guarantee will be held for the benefit of the
holders of the New Capital Securities. The New Guarantee will not be discharged
except by payment of the Guarantee Payments in full to the extent not paid by
the Trust or upon distribution to the holders of the New Capital Securities of
the New Junior Subordinated Debentures. The New Guarantee places no limitation
on the amount of additional secured or unsecured debt, including Senior
Indebtedness, or other obligations, that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness and
obligations, including Senior Indebtedness.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the New Capital Securities (in which case no prior
approval will be required), the New Guarantee may not be amended without the
prior approval of the holders of a majority of the Liquidation Amount of such
outstanding New
48
56
Capital Securities. The manner of obtaining any such approval will be as set
forth under "--Description of New Capital Securities--Voting Rights; Amendment
of the Declaration." All guarantees and agreements contained in the New
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the New Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the New Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder. The
holders of a majority in Liquidation Amount of the New Capital Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the New
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the New Guarantee.
Any holder of the New Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the New
Guarantee.
CERTAIN COVENANTS OF THE COMPANY
In the New Guarantee the Company will covenant that, so long as any New
Capital Securities remain outstanding, the Company shall not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on, or repay or repurchase or redeem any debt
securities of the Company (including any Other Debentures) that rank pari passu
with or junior in right of payment to the New Junior Subordinated Debentures or
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any subsidiary of the Company (including Other
Guarantees) if such guarantee ranks pari passu or junior in right of payment to
the New Junior Subordinated Debentures (other than (a) dividends or
distributions in shares of, or options, warrants, rights to subscribe for or
purchase shares of, common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the New
Guarantee, (d) as a result of a reclassification of the Company's capital stock
or the exchange or the conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (e)
the purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (f) issuances of common stock of the
Company upon exercise of the Aetna Option and (g) purchases or issuances of
common stock in connection with any of the Company's stock option, stock
purchase, stock loan or other benefit plans for its directors, officers or
employees or any of the Company's dividend reinvestment plans, in each case as
now existing or hereafter established or amended), if at such time (i) there
shall have occurred any event of which the Company has actual knowledge that (a)
is, or with the giving of notice or the lapse of time, or both, would be an
event of default under the New Guarantee and (b) in respect of which the Company
shall not have taken reasonable steps to cure, (ii) if such New Junior
Subordinated Debentures are held by the Property Trustee, the Company shall be
in default with respect to its payment of any obligations under the New
Guarantee or (iii) the Company shall have given notice of its election of the
exercise of its right to extend the interest payment period pursuant to the
Indenture and any such extension shall be continuing.
TERMINATION OF THE NEW GUARANTEE
The New Guarantee will terminate and be of no further force and effect upon
full payment of the applicable Redemption Price of the New Capital Securities,
upon full payment of the Liquidation Amount payable upon liquidation of the
Trust or upon distribution of New Junior Subordinated Debentures to the holders
of the New
49
57
Capital Securities. The New Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the New Capital
Securities must restore payment of any sums paid under the New Capital
Securities or the New Guarantee.
GOVERNING LAW
The New Guarantee will be governed by, and construed in accordance with,
the internal laws of the State of New York.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the continuance of a default with
respect to a New Guarantee, will undertake to perform only such duties as are
specifically set forth in such New Guarantee and, after default, must exercise
the same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs. Subject to such provisions, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by the New
Guarantee at the request of any holder of New Capital Securities, unless offered
reasonable indemnity against the costs, expenses and liabilities which might be
incurred thereby. The Guarantee Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if it reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
The Guarantee Trustee and its affiliates currently provide general
financing and banking and other services to the Company. See "Plan of
Distribution."
DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all material respects to
the New Securities, except that (i) the Old Securities have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the applicable Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except under limited circumstances), (ii) the New Capital Securities will not
contain the $100,000 minimum Liquidation Amount transfer restriction and certain
other restrictions on transfer applicable to Old Capital Securities, (iii) the
New Capital Securities will not provide for any increase in the Distribution
rate thereon, (iv) the New Junior Subordinated Debentures will not contain the
$100,000 minimum principal amount transfer restriction and (v) the New Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. The Old Securities provide that, in the event that a registration
statement relating to the Exchange Offer has not been filed by June 30, 1997 and
been declared effective by August 4, 1997 or, in certain limited circumstances,
in the event a shelf registration statement (the "Shelf Registration Statement")
with respect to the resale of the Old Capital Securities is not declared
effective by August 4, 1997, then interest will accrue (in addition to the
stated interest rate on the Old Junior Subordinated Debentures) at the rate of
0.25% per annum on the principal amount of the Old Junior Subordinated
Debentures and Distributions will accrue (in addition to the stated Distribution
rate on the Old Capital Securities) at the rate of 0.25% per annum on the
Liquidation Amount of the Old Capital Securities, for the period from the
occurrence of such event until such time as such required Exchange Offer is
consummated or any required Shelf Registration Statement is effective. The New
Securities are not, and upon consummation of the Exchange Offer the Old
Securities will not be, entitled to any such additional interest or
Distributions. Accordingly, holders of Old Capital Securities should review the
information set forth under "Risk Factors--Certain Consequences of a Failure to
Exchange Old Capital Securities" and "Description of New Securities."
RELATIONSHIP AMONG THE NEW CAPITAL SECURITIES, THE
NEW JUNIOR SUBORDINATED DEBENTURES AND THE NEW GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the New Capital
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the
50
58
Company as and to the extent set forth under "Description of New
Securities--Description of New Guarantee." Taken together, the Company's
obligations under the New Junior Subordinated Debentures, the Indenture, the
Declaration and the New Guarantee will provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the New Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the New Capital Securities. If and to the extent that
the Company does not make the required payments on the New Junior Subordinated
Debentures, the Trust will not have sufficient funds to make the related
payments, including Distributions, on the New Capital Securities. The New
Guarantee will not cover any such payment when the Trust does not have
sufficient funds on hand legally available therefor. In such event, the remedy
of a holder of New Capital Securities is to institute a Direct Action. The
obligations of the Company under the New Guarantee will be subordinate and
junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
New Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the New Capital Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the New
Junior Subordinated Debentures will be equal to the sum of the Liquidation
Amount or Redemption Price, as applicable, of the New Capital Securities and
Common Securities; (ii) the interest rate and interest and other payment dates
on the New Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) the Company
shall pay for any and all costs, expenses and liabilities of the Trust except
the Trust's obligations to holders of Trust Securities under the Declaration;
and (iv) the Declaration provides that the Trust is not authorized to engage in
any activity that is not consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF NEW CAPITAL SECURITIES
A holder of any New Capital Security may institute a legal proceeding
directly against the Company to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
Trust or any other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Declaration. However, in the
event of payment defaults under, or acceleration of, Senior Indebtedness, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the New Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on New Junior Subordinated
Debentures would constitute an Event of Default under the Declaration.
LIMITED PURPOSE OF THE TRUST
The New Capital Securities will represent preferred undivided beneficial
interests in the assets of the Trust, and the Trust exists for the sole purpose
of issuing and selling the Trust Securities, using the proceeds from the sale of
the Trust Securities to acquire the Junior Subordinated Debentures and engaging
in only those other activities necessary, advisable or incidental thereto. A
principal difference between the rights of a holder of a New Capital Security
and a holder of a New Junior Subordinated Debenture is that a holder of a New
Junior Subordinated Debenture will be entitled to receive from the Company the
principal amount of and premium, if any, and interest on New Junior Subordinated
Debentures held, while a holder of New Capital Securities is entitled to receive
Distributions from the Trust (or, in certain circumstances, from the Company
under the New Guarantee) if and to the extent the Trust has funds on hand
legally available for the payment of such Distributions.
51
59
RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary termination and liquidation
of the Trust, the holders of the Trust Securities will be entitled to receive,
out of assets held by the Trust, the Liquidation Distribution in cash. See
"Description of New Securities--Description of New Capital
Securities--Liquidation of the Trust and Distribution of New Junior Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of the
Company, the Property Trustee, as holder of the New Junior Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated in
right of payment to all Senior Indebtedness as set forth in the Indenture, but
entitled to receive payment in full of principal (and premium, if any) and
interest, before any stockholders of the Company receive payments or
distributions. Since the Company will be the guarantor under the New Guarantee
and will agree to pay for all costs, expenses and liabilities of the Trust
(other than the Trust's obligations to the holders of its Trust Securities), the
positions of a holder of New Capital Securities and a holder of New Junior
Subordinated Debentures relative to other creditors and to stockholders of the
Company in the event of liquidation or bankruptcy of the Company are expected to
be similar, although, in the event of bankruptcy or insolvency proceedings
involving the Company, the Company's obligations under the New Guarantee will
rank subordinate and junior in right of payment to all liabilities (other than
Other Guarantees) of the Company but senior to any obligations in respect of any
class of capital stock of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Dewey Ballantine, counsel to the Company and the Trust
("Tax Counsel"), the following is a summary of certain of the material United
States federal income tax consequences of the purchase, ownership and
disposition of Capital Securities held as capital assets. It does not deal with
special classes of holders such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, or persons that will hold the
Capital Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Capital Securities. Further, it does not include any description
of any alternative minimum tax consequences or the tax laws of any state or
local government or of any foreign government that may be applicable to the
Capital Securities. This summary is based on the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations thereunder, the administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. An opinion of counsel is not
binding on the Internal Revenue Service (the "IRS") or the courts. No rulings
have been or are expected to be sought from the IRS with respect to any of these
issues and no assurance can be given that the opinions expressed herein will not
be challenged by the IRS.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for New Capital Securities should
not be a taxable event to holders for United States federal income tax purposes.
The exchange of Old Capital Securities for New Capital Securities pursuant to
the Exchange Offer should not be treated as an "exchange" for United States
federal income tax purposes because the New Capital Securities should not be
considered to differ materially in kind or extent from the Old Capital
Securities and because the exchange will occur by operation of the terms of the
Old Capital Securities. If, however, the exchange of the Old Capital Securities
for the New Capital Securities were treated as an exchange for United States
federal income tax purposes, such exchange should constitute a recapitalization
for United States federal income tax purposes. Accordingly, the New Capital
Securities should have the same issue price as the Old Capital Securities, and a
holder should have the same adjusted tax basis and holding period in the New
Capital Securities as the holder had in the Old Capital Securities immediately
before the exchange.
52
60
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
Tax Counsel has rendered its opinion that, under current law and assuming
full compliance with the terms of the Indenture and certain other documents, and
based on certain facts and assumptions contained in such opinion, the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of the Company.
CLASSIFICATION OF THE TRUST
Tax Counsel has rendered its opinion that, under current law and assuming
full compliance with the terms of the Declaration and the Indenture and certain
other documents, and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Capital Securities will be considered the owner of an undivided interest in the
Junior Subordinated Debentures, and each holder will be required to include in
its gross income any interest or OID with respect to its allocable share of
those Junior Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations applicable to debt instruments
issued on or after August 13, 1996, a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with OID. The Company believes that the likelihood of its exercising
its option to defer payments of interest is "remote" since exercising that
option would prevent the Company from declaring dividends on any class of its
equity securities. Accordingly, the Company intends to take the position that
the Junior Subordinated Debentures will not be considered to be issued with OID
and that stated interest on the Junior Subordinated Debentures generally will be
taxable to a holder as ordinary income at the time it is paid or accrued in
accordance with such holder's method of accounting. If the option to defer the
payment of interest was determined not to be "remote", the Junior Subordinated
Debentures would be treated as having been originally issued with OID. In such
event, all of a holder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for on an economic accrual basis
regardless of such holder's method of tax accounting and actual distributions of
stated interest would not be reported as taxable income.
Under the regulations, if the Company were to exercise its option to defer
payments of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior Subordinated
Debentures remain outstanding. In such event, all of a holder's taxable interest
income with respect to the Junior Subordinated Debentures would thereafter be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting and actual distributions of stated interest would not be reported
as taxable income. Consequently, a holder of Capital Securities would be
required to include in gross income OID even though the Company would not make
actual cash payments during an Extension Period.
The regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to that of the Company.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
MARKET DISCOUNT
The resale of a New Junior Subordinated Debenture may be affected by the
"market discount" provisions of the Code. For this purpose, the market discount
on a New Junior Subordinated Debenture will generally be equal to the amount, if
any, by which the stated redemption price at maturity of the New Junior
Subordinated Debenture immediately after its acquisition exceeds the holder's
tax basis in the debenture. Subject to a de minimis exception, these provisions
generally require a holder of a New Junior Subordinated Debenture acquired at a
market discount to treat as ordinary income any gain recognized on the
disposition of such New Junior
53
61
Subordinated Debenture to the extent of the "accrued market discount" on such
New Junior Subordinated Debenture at the time of disposition. In general, market
discount on a New Junior Subordinated Debenture will be treated as accruing on a
straight-line basis over the term of such New Junior Subordinated Debenture, or,
at the election of the holder, under a constant yield method.
In addition, any holder of a New Junior Subordinated Debenture acquired at
a market discount may be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the New
Junior Subordinated Debenture until the New Junior Subordinated Debenture is
disposed of in a taxable transaction. The foregoing rule will not apply if the
holder elects to include accrued market discount in income currently.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities. Under current law, such a distribution, for
United States federal income tax purposes, would be treated as a nontaxable
event to each holder, and each holder would receive an aggregate tax basis in
the Junior Subordinated Debentures equal to such holder's aggregate tax basis in
its Capital Securities. A holder's holding period for the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Junior Subordinated Debentures would constitute a taxable
event to holders of Capital Securities and a holder's holding period in Junior
Subordinated Debentures would begin on the date such Junior Subordinated
Debentures were received.
In certain circumstances described herein (see "Description of New
Securities -- Description of New Capital Securities"), the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Capital Securities, and a holder could
recognize gain or loss as if it sold such redeemed Capital Securities for cash.
See "--Sales of Capital Securities" below.
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between the holder's adjusted tax basis in the Capital Securities
and the amount realized on the sale of such Capital Securities (other than with
respect to accrued and unpaid interest which has not yet been included in
income, which will be treated as ordinary income). A holder's adjusted tax basis
in the Capital Securities generally will be the initial purchase price increased
by any OID previously includable in such holder's gross income to the date of
disposition and decreased by any payments received on the Capital Securities in
respect of OID. Such gain or loss generally will be a capital gain or loss and
generally will be a long-term capital gain or loss if the Capital Securities
have been held for more than one year.
The Capital Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest or OID with respect to the
underlying Junior Subordinated Debentures. A holder who uses the accrual method
of accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) who disposes of
such holder's Capital Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest or
OID on the Junior Subordinated Debentures through the date of disposition in
income as ordinary income and to add such amount to such holder's adjusted tax
basis in such holder's pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include all unpaid interest or OID
previously included in income), a holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
54
62
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of debt obligations, such as the New Junior
Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations have a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. If legislation similar to the Proposed Legislation were enacted, there
can be no assurance that it will not adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures. Such a
change could give rise to a Tax Event, which would permit the Company to cause a
redemption of the Trust Securities at the Special Event Redemption Price by
electing to prepay the Junior Subordinated Debentures at the Special Event
Prepayment Price. See "Description of New Securities -- Description of New
Junior Subordinated Debentures -- Conditional Right to Advance Maturity and
Special Event Prepayment."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust (i) that is not a citizen
or individual resident of the United States for United States federal income tax
purposes or a corporation or partnership created or organized in or under the
laws of the United States or any political subdivision thereof or (ii) that is a
foreign estate or a foreign trust as defined in the Code.
Under present United States federal income tax laws payments by the Trust
or any of its paying agents to any holder of a Capital Security that is a United
States Alien Holder will not be subject to United States federal withholding
tax; provided that, (a) the beneficial owner of the Capital Security does not
actually or constructively own 10 percent or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (b) the
beneficial owner of the Capital Security is not a controlled foreign corporation
that is related to the Company through stock ownership, (c) the payments are not
received by a bank on an extension of credit made pursuant to a loan agreement
entered into in the ordinary course of its trade or business, and (d) either (A)
the beneficial owner of the Capital Security certifies to the Trust or its
agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Capital
Security in such capacity, certifies to the Trust or its agent, under penalties
of perjury, that such statement has been received from the beneficial owner by
it or by a Financial Institution between it and the beneficial owner and
furnishes the Trust or its agent with a copy thereof. A United States Alien
Holder of a Capital Security will not be subject to United States federal
withholding tax on any gain realized upon the sale or other disposition of a
Capital Security.
As discussed above, changes in legislation affecting the United States
federal income tax treatment of the Junior Subordinated Debentures are possible,
and could adversely affect the ability of the Company to deduct interest payable
on the Junior Subordinated Debentures. Like the Proposed Legislation, it could
adversely affect United States Alien Holders by characterizing income derived
from the Junior Subordinated Debentures as dividends which generally would be
subject to withholding tax when paid to a United States Alien Holder, rather
than as interest which, as discussed above, is generally exempt from tax in the
hands of a United States Alien Holder.
On April 22, 1996, the IRS issued proposed regulations relating to
withholding on and reporting amounts paid to Non-United States Holders. The
regulations would unify current certification procedures and forms and clarify
reliance standards effective for payments made after December 31, 1997. The
proposed regulations are subject to change before adoption in final form.
A United States Alien Holder that holds Capital Securities in connection
with the active conduct of a United States trade or business will be subject to
income tax on all income and gains recognized with respect to the holder's
proportionate share of the Junior Subordinated Debentures.
55
63
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Form 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (an "ERISA Plan") considering an acquisition of New Capital
Securities (or interest therein) from a holder of such New Capital Securities
should consider the fiduciary standards of ERISA in the context of the ERISA
Plan's particular circumstances before authorizing the investment in the New
Capital Securities. Among other factors, the fiduciary should consider whether
such an investment is in accordance with the documents governing the ERISA Plan
and whether the investment is appropriate for the ERISA Plan in view of its
overall investment policy and diversification of its portfolio.
Certain provisions of ERISA and the Code prohibit ERISA Plans, as well as
individual retirement accounts and Keogh plans subject to section 4975 of the
Code (collectively, "Plans"), from engaging in certain transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the Plan. The U.S.
Department of Labor has issued a final regulation (the "Regulation") with regard
to whether the underlying assets of an entity in which employee benefit plans
acquire equity interests are deemed to be plan assets.
Under such Regulation, for purposes of ERISA and section 4975 of the Code,
the assets of the Trust would be deemed to be "plan assets" of a Plan whose
assets were used to purchase Capital Securities if the Capital Securities were
considered to be equity interests in the Trust and no exception to plan asset
status were applicable under the Regulation.
If the assets of the Trust were deemed to be plan assets of Plans that are
holders of the Capital Securities, a Plan's investment in the Capital Securities
might be deemed to constitute a delegation under ERISA of the duty to manage
plan assets by a fiduciary investing in Capital Securities. In addition, the
Company might be considered a "party in interest" or "disqualified person" with
respect to Plans whose assets were used to acquire Capital Securities. If this
were the case, an investment in Capital Securities by a Plan might constitute
or, in the course of the operation of the Trust, give rise to a prohibited
transaction under ERISA or the Code. In particular, it is likely that, under
such circumstances, a prohibited "extension of credit" to the Company would be
considered to occur under ERISA and the Code.
Because of the possibility that the assets of the Trust would be considered
plan assets of Plans whose assets were invested in the New Capital Securities,
and the likelihood that under such circumstances a prohibited extension of
credit would occur, the New Capital Securities may not be purchased or held by
any Plan or any person investing "plan assets" of any Plan, unless such
purchaser or holder is eligible for the exemptive relief available under
Prohibited Transaction Class Exemption ("PTCE") 96-23 (for certain transactions
determined by
56
64
in-house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions
involving insurance company separate accounts) or PTCE 84-14 (for certain
transactions determined by independent qualified asset managers). The
certificates representing the New Capital Securities will bear a legend to the
effect that the holder of the New Capital Security or any interest therein
represents and acknowledges that (a) it is not a Plan and is not purchasing such
securities (or interest therein) on behalf of or with "plan assets" of any Plan
or (b) its purchase and holding of the Capital Securities (or interest therein)
is eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is important that any person considering
the purchase of New Capital Securities (or interest therein) with Plan assets
consult with its counsel regarding the consequences under ERISA and the Code of
the acquisition and ownership of New Capital Securities (or interest therein)
and the availability of exemptive relief under the class exemptions listed
above. In John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank, 114 S.Ct. 517 (1993), the Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be "plan assets" for ERISA
purposes under certain circumstances. Employee benefit plans which are
governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA) generally are not subject to
ERISA's requirements.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Company and the Trust have agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of such
New Capital Securities for a period ending 90 days after the Expiration Date
(subject to extension under certain limited circumstances described herein) or,
if earlier, when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. However, a Participating Broker-Dealer who intends
to use this Prospectus in connection with the resale of New Capital Securities
received in exchange for Old Capital Securities pursuant to the Exchange Offer
must notify the Company or the Trust, or cause the Company or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer--Exchange Agent." See
"The Exchange Offer--Resales of New Capital Securities."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. New Capital Securities
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
57
65
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Chase Manhattan Bank (the Property Trustee, the Debenture Trustee, the
Common Guarantee Trustee, the Guarantee Trustee and an affiliate of the Delaware
Trustee, and referred to hereinafter as the "Bank") was a lender under the term
loan portion of the Company's credit facility and received $18.4 million from
the Company as the Bank's portion of the Company's repayment, using
approximately $70 million of the net proceeds from the sale of the Old Junior
Subordinated Debentures, of the outstanding term loan balance. The Bank and its
affiliates currently provide and may in the future provide general financing and
commercial banking and other services to the Company.
LEGAL MATTERS
The validity of the New Guarantee and the New Junior Subordinated
Debentures will be passed upon for the Company and the Trust by Dewey
Ballantine, New York, New York. James A. FitzPatrick, Jr., Secretary of the
Company, is a member of Dewey Ballantine. Certain matters relating to United
States federal income tax considerations will be passed upon for the Company and
the Trust by Dewey Ballantine, New York, New York. Certain matters of Delaware
law relating to the validity of the New Capital Securities will be passed upon
on behalf of the Trust by Richards, Layton & Finger, special Delaware counsel to
the Trust.
EXPERTS
The consolidated financial statements of the Company and subsidiaries
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, have been incorporated herein by reference
in reliance upon the reports set forth therein of Ernst & Young LLP, independent
auditors, and upon the authority of such firm as experts in accounting and
auditing.
58
66
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of
directors' fiduciary duty of care. The Company's Amended and Restated
Certificate of Incorporation limits the liability of the Company's directors to
the Company or its stockholders to the fullest extent permitted by the Delaware
statute as in effect from time to time. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in the Delaware law, or (iv) for any
transactions from which the director derived an improper personal benefit.
The Amended and Restated Certificate of Incorporation of the Company
provides that the Company shall indemnify its officers and directors and former
officers and directors to the fullest extent permitted by the General
Corporation Law of the State of Delaware. Pursuant to the provisions of Section
145 of the General Corporation Law of the State of Delaware, the Company has the
power to indemnify any person who was or is a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the Company) by reason of the fact
that he or she is or was a director, officer, employee, or agent of the Company,
against any and all expenses, judgments, fines and amounts paid in settlement,
actually and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify applies only if such person acted in good
faith and in a manner he or she reasonably believed to be in the best interest,
or not opposed to the best interest, of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
The Company's officers and directors are also covered by a directors and
officers liability insurance policy issued by a third party.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has 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 the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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, the Company 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.
II-1
67
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
- -------
4.1* Indenture of Executive Risk Inc. relating to the Junior Subordinated Debentures
4.2* Form of Certificate of New Junior Subordinated Debenture (included as Exhibit A to
Exhibit 4.1)
4.3* Certificate of Trust of Executive Risk Capital Trust
4.4* Declaration of Trust of Executive Risk Capital Trust
4.5* Amended and Restated Declaration of Trust for Executive Risk Capital Trust
4.6* Form of New Capital Security Certificate for Executive Risk Capital Trust (included
as Exhibit A-1 to Exhibit 4.5)
4.7* Form of New Guarantee of Executive Risk Inc. relating to the New Capital Securities
4.8* Registration Rights Agreement
5.1 Opinion and consent of Dewey Ballantine to Executive Risk Inc. as to legality of
the New Junior Subordinated Debentures and the New Guarantee to be issued by
Executive Risk Inc.
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to legality of
the New Capital Securities to be issued by Executive Risk Capital Trust
8 Opinion of Dewey Ballantine, special tax counsel, as to certain federal income tax
matters
12* Computation of ratio of earnings to fixed charges
23.1 Consent of Ernst & Young LLP
23.2 Consent of Dewey Ballantine (included in Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
23.4 Consent of Dewey Ballantine (included in Exhibit 8)
24* Power of Attorney of certain officers and directors of Executive Risk Inc.
25.1* Form T-1 Statement of Eligibility of The Chase Manhattan Bank to act as trustee
under the Indenture
25.2* Form T-1 Statement of Eligibility of The Chase Manhattan Bank to act as trustee
under the Amended and Restated Declaration of Trust of Executive Risk Capital Trust
25.3* Form T-1 Statement of Eligibility of The Chase Manhattan Bank under the New
Guarantee for the benefit of the holders of New Capital Securities of Executive
Risk Capital Trust
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Registrant's annual report pursuant to Section 13(a) or Section
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 this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of each
undersigned Registrant pursuant to the foregoing provisions, or otherwise, each
Registrant has 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 each undersigned Registrant
of expenses incurred or paid by a director, officer of controlling person of
each 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, each Registrant will, unless in the opinion of its
counsel the matter has been settled by
II-2
68
the 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.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Executive Risk
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-4 and has duly caused this Amendment No. 1
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Simsbury and State of Connecticut, on
the 21st day of April, 1997.
EXECUTIVE RISK INC.
By /s/ ROBERT H. KULLAS
------------------------------------
Robert H. Kullas, Vice Chairman and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- ----------------
* Chairman, Director and Chief April 21, 1997
- ------------------------------------------ Executive Officer (Principal
LeRoy A. Vander Putten Executive Officer)
/s/ ROBERT H. KULLAS Vice Chairman, Director and Chief April 21, 1997
- ------------------------------------------ Operating Officer
Robert H. Kullas
* President, Director and Chief April 21, 1997
- ------------------------------------------ Underwriting Officer
Stephen J. Sills
* Director April 21, 1997
- ------------------------------------------
Gary G. Benanav
* Director April 21, 1997
- ------------------------------------------
John G. Crosby
* Director April 21, 1997
- ------------------------------------------
Patrick A. Gerschel
* Director April 21, 1997
- ------------------------------------------
Peter Goldberg
* Director April 21, 1997
- ------------------------------------------
Barbara G. Cohen
* Director April 21, 1997
- ------------------------------------------
Michael D. Rice
* Director April 21, 1997
- ------------------------------------------
Joseph D. Sargent
II-4
70
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- ----------------
* Executive Vice President, Chief April 21, 1997
- ------------------------------------------ Financial Officer and Chief
Robert V. Deutsch Actuary (Principal Financial and
Accounting Officer)
(*) By: /s/ ROBERT H. KULLAS
- ------------------------------------------
Name: Robert H. Kullas
Attorney-in-Fact
II-5
71
Pursuant to the requirements of the Securities Act of 1933, Executive Risk
Capital Trust certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-4 and has duly caused this Amendment
No. 1 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Simsbury, and State of
Connecticut, on the 21st day of April, 1997.
EXECUTIVE RISK CAPITAL TRUST
By: /s/ ROBERT V. DEUTSCH
--------------------------------------
Robert V. Deutsch,
as Administrative Trustee
By: /s/ ROBERT H. KULLAS
--------------------------------------
Robert H. Kullas,
as Administrative Trustee
By: /s/ JEFFREY H. KOENIG
--------------------------------------
Jeffrey H. Koenig,
as Administrative Trustee
II-6
72
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
4.1* Indenture of Executive Risk Inc. relating to the Junior Subordinated Debentures
4.2* Form of Certificate of New Junior Subordinated Debenture (included as Exhibit A to
Exhibit 4.1)
4.3* Certificate of Trust of Executive Risk Capital Trust
4.4* Declaration of Trust of Executive Risk Capital Trust
4.5* Amended and Restated Declaration of Trust for Executive Risk Capital Trust
4.6* Form of New Capital Security Certificate for Executive Risk Capital Trust (included
as Exhibit A-1 to Exhibit 4.5)
4.7* Form of New Guarantee of Executive Risk Inc. relating to the New Capital Securities
4.8* Registration Rights Agreement
5.1 Opinion and consent of Dewey Ballantine to Executive Risk Inc. as to legality of the
New Junior Subordinated Debentures and the New Guarantee to be issued by Executive
Risk Inc.
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to legality of the
New Capital Securities to be issued by Executive Risk Capital Trust
8 Opinion of Dewey Ballantine, special tax counsel, as to certain federal income tax
matters
12* Computation of ratio of earnings to fixed charges
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Dewey Ballantine (included in Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
23.4 Consent of Dewey Ballantine (included in Exhibit 8)
24* Power of Attorney of certain officers and directors of Executive Risk Inc.
25.1* Form T-1 Statement of Eligibility of The Chase Manhattan Bank to act as trustee under
the Indenture
25.2* Form T-1 Statement of Eligibility of The Chase Manhattan Bank to act as trustee under
the Amended and Restated Declaration of Trust of Executive Risk Capital Trust
25.3* Form T-1 Statement of Eligibility of The Chase Manhattan Bank under the New Guarantee
for the benefit of the holders of New Capital Securities of Executive Risk Capital
Trust
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
- ---------------
* Previously filed.