As filed with the Securities and Exchange Commission on November 27, 2002
Registration No. 333-88482
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ACE LIMITED
(Exact name of registrant as specified in its charter)
Cayman Islands 98-0091805
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
ACE Global Headquarters Ed Ota, Esq.
17 Woodbourne Avenue ACE INA Holdings Inc.
Hamilton, HM 08, Bermuda Two Liberty Place
(441) 295-5200 1601 Chestnut Street
(Address, including zip Philadelphia,
code, and telephone Pennsylvania 19103
number, including area (215) 640-1000
code, of Registrant's
principal executive
offices)
(Name, address, including
zip code, and telephone
number, including area
code, of agent for
service)
ACE INA HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2457246
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
Two Liberty Place Ed Ota, Esq.
1601 Chestnut Street ACE INA Holdings Inc.
Philadelphia, Two Liberty Place
Pennsylvania 19103
(215) 640-1000 1601 Chestnut Street
(Address, including zip Philadelphia,
code, and telephone Pennsylvania 19103
number, including
area code, of
Registrant's principal
executive offices) (215) 640-1000
(Name, address, including
zip code, and telephone
number,
including area code, of
agent for service)
ACE CAPITAL TRUST III
ACE CAPITAL TRUST IV
(Exact name of registrant as specified in its charter)
Delaware Each Applied For
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
c/o ACE INA Holdings Inc. Ed Ota, Esq.
Two Liberty Place ACE INA Holdings Inc.
1601 Chestnut Street Two Liberty Place
Philadelphia, 1601 Chestnut Street
Pennsylvania 19103
(215) 640-1000 Philadelphia,
Pennsylvania 19103
(Address, including zip (215) 640-1000
code, and telephone (Name, address, including
number, including zip code, and telephone
area code, of number, including area
Registrant's principal code, of agent for
executive offices) service)
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Copies to:
Peter N. Mear Edward S. Best
General Counsel and Mayer, Brown, Rowe & Maw
Secretary, ACE Limited 190 South LaSalle Street
ACE Global Headquarters Chicago, Illinois
17 Woodbourne Avenue 60603-3441
Hamilton, HM 08, Bermuda (312) 782-0600
(441) 295-5200
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Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
maximum
Proposed maximum aggregate
Title of Each Class of Amount to be aggregate offering offering Amount of
Securities to be Registered (1) Registered(1)(2) price per unit (2) price (2) registration fee
- -----------------------------------------------------------------------------------------------------------------
Ordinary Shares of ACE Limited (3)...........
Preferred Shares of ACE Limited (4)..........
Depositary Shares of ACE Limited (5).........
Debt Securities of ACE Limited (6)...........
Warrants to Purchase Ordinary or Preferred
Shares of ACE Limited......................
Warrants to Purchase Debt Securities of
ACE Limited................................
Stock Purchase Contracts of ACE Limited......
Stock Purchase Units of ACE Limited (7)......
Debt Securities of ACE INA Holdings Inc.
(6)........................................
Preferred Securities of ACE Capital Trust III
Preferred Securities of ACE Capital Trust
IV.........................................
Guarantee of Debt Securities of ACE INA
Holdings Inc. by ACE Limited (8)...........
Guarantee of Preferred Securities of ACE
Capital Trust III and ACE Capital Trust
IV by ACE Limited and specified backup
undertakings (9)...........................
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Total........................................ $1,500,000,000 100% $1,500,000,000 $138,000(10)
- -----------------------------------------------------------------------------------------------------------------
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(1) An indeterminate number or amount of ordinary shares, preferred shares,
depositary shares, debt securities, warrants, stock purchase contracts and
stock purchase units of ACE Limited, debt securities of ACE INA Holdings
Inc. and preferred securities of ACE Capital Trust III and ACE Capital
Trust IV as may from time to time be issued at indeterminate prices, with
an aggregate initial offering price not to exceed $1,500,000,000 or the
equivalent thereof in foreign currencies or currency units, or if any debt
securities are issued with original issue discount, the greater amount as
shall result in an aggregate offering prices of $1,500,000,000. Certain
debt securities of ACE INA Holdings Inc. may be issued and sold to either
or both of ACE Capital Trust III or ACE Capital Trust IV in connection with
the issuance of preferred securities by either or both of the ACE Trusts,
in which event, these debt securities may later be distributed to the
holders of the applicable preferred securities upon a dissolution of ACE
Capital Trust III and/or ACE Capital Trust IV and the distribution of the
ACE Trust's assets. Securities registered, referred to as the offered
securities, may be sold separately, together or as units with other offered
securities.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(o) of the rules and regulations under the Securities
Act of 1933, which permits the registration fee to be calculated on the
basis of the maximum offering price of all the securities listed, the table
does not specify by each class information as to the amount to be
registered, proposed maximum offering price per unit or proposed maximum
aggregate offering price. Unless otherwise indicated in an amendment to
this filing, no separate consideration will be received for ordinary
shares, preferred shares or debt securities that are issued by ACE Limited
or ACE INA Holdings Inc. upon conversion or exchange of debt securities,
preferred shares or depositary shares registered under this registration
statement.
(3) Also includes the presently indeterminate number of ordinary shares as may
be issued by ACE Limited (a) upon conversion of or exchange for any debt
securities or preferred shares that provide for conversion or exchange into
ordinary shares, (b) upon exercise of warrants to purchase ordinary shares
or (c) pursuant to stock purchase contracts.
(4) Also includes the presently indeterminate number of preferred shares as may
be issued by ACE Limited (a) upon conversion of or exchange for any debt
securities that provide for conversion or exchange into preferred shares,
(b) upon exercise of warrants to purchase preferred shares or (c) pursuant
to stock purchase contracts.
(5) To be represented by depositary receipts representing an interest in all or
a specified portion of an ordinary share or preferred share.
(6) Subject to note (1), an indeterminate principal amount of debt securities,
which may be senior or subordinated.
(7) Each stock purchase unit consists of (a) a stock purchase contract under
which the holder, upon settlement, will purchase an indeterminate number of
ordinary shares and (b) a beneficial interest in debt securities, preferred
securities or debt obligations of third parties purchased with the proceeds
from the sale of the stock purchase units. Each beneficial interest will be
pledged to secure the obligation of the holder to purchase the ordinary
shares. No separate consideration will be received for the stock purchase
contract or the related beneficial interests.
(8) No separate consideration will be received for the guarantees of the debt
securities issued by ACE INA Holdings Inc.
(9) No separate consideration will be received for the guarantees of the
preferred securities issued by ACE Capital Trust III or ACE Capital Trust
IV. The guarantees include the rights of holders of the preferred
securities under the guarantees and backup undertakings, comprised of
obligations of ACE Limited under the ACE INA subordinated indenture and any
supplemental indentures thereto and under the applicable trust agreement to
provide indemnities in respect of, and be responsible for certain costs,
expenses, debts and liabilities of, each of ACE Capital Trust III and ACE
Capital Trust IV, each as described in this registration statement. All
obligations under the applicable trust agreement, including indemnity
obligations, are included in the back-up undertakings.
(10) Pursuant to Rule 457(p) under the Securities Act of 1933, the amount of
the registration fee payable hereunder has been offset by $30,438.74 of
filing fees paid in respect of $127,358,750 of unsold securities
previously registered under the registrant's registration statement on
form S-3 (No. 333-78841).
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The registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on the date as the commission, acting pursuant to
Section 8(a), may determine.
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The information in this prospectus supplement and accompanying prospectus is
not complete and may be changed. This prospectus supplement and accompanying
prospectus are not an offer to sell these securities and are not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 27, 2002.
PROSPECTUS
$1,500,000,000
ACE Limited
Ordinary Shares, Preferred Shares, Depositary Shares, Debt Securities,
Warrants to Purchase Ordinary Shares, Warrants to Purchase Preferred Shares,
Warrants to Purchase Debt Securities, Stock Purchase Contracts and
Stock Purchase Units
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ACE INA Holdings Inc.
Debt Securities
Fully and Unconditionally Guaranteed by
ACE Limited
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ACE Capital Trust III
ACE Capital Trust IV
Preferred Securities
Guaranteed to the Extent Provided in this Prospectus by
ACE Limited
ACE, ACE INA or the applicable ACE Trust will provide the specific terms of
these securities in supplements to this prospectus. The prospectus supplements
may also add, update or change information contained in this prospectus. You
should read this prospectus and any supplements carefully before you invest.
-----------------
ACE's ordinary shares are traded on the New York Stock Exchange under the
symbol "ACE."
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
This prospectus may not be used to consummate sales of offered securities
unless accompanied by a prospectus supplement.
The date of this prospectus is , 2002.
TABLE OF CONTENTS
About This Prospectus....................................................... 2
ACE Limited................................................................. 3
ACE INA..................................................................... 3
The ACE Trusts.............................................................. 3
Use of Proceeds............................................................. 4
Ratio of Earnings to Fixed Charges and Preferred Share Dividends of ACE..... 4
General Description of the Preferred Securities............................. 5
Description of ACE Capital Stock............................................ 5
Description of the Depositary Shares........................................ 21
Description of ACE Debt Securities.......................................... 23
Description of ACE INA Debt Securities and ACE Guarantee.................... 38
Description of the Warrants to Purchase Ordinary Shares or Preferred Shares. 58
Description of the Warrants to Purchase Debt Securities..................... 60
Description of Preferred Securities......................................... 61
Description of Preferred Securities Guarantees.............................. 73
Description of Stock Purchase Contracts and Stock Purchase Units............ 78
Plan of Distribution........................................................ 79
Legal Opinions.............................................................. 81
Experts..................................................................... 81
Enforcement of Civil Liabilities Under United States Federal Securities Laws 81
Where You Can Find More Information......................................... 82
You should rely only on the information contained or incorporated by
reference in this prospectus or any supplement. None of ACE, ACE INA or either
ACE Trust has authorized anyone else to provide you with different information.
ACE, ACE INA and the ACE Trusts are offering these securities only in states
where the offer is permitted. You should not assume that the information in
this prospectus or any supplement is accurate as of any date other than the
date on the front of those documents. ACE's business, financial condition,
results of operations and prospects may have changed since that date.
Except as expressly provided in an underwriting agreement, no offered
securities may be offered or sold in the Cayman Islands or Bermuda, although
offers may be made to persons in Bermuda from outside Bermuda. Offers may only
be accepted from persons resident in Bermuda, for Bermuda exchange control
purposes, where these offers have been delivered outside of Bermuda. Persons
resident in Bermuda, for Bermuda exchange control purposes, may require the
prior approval of the Bermuda Monetary Authority in order to acquire any
offered securities.
In this prospectus, references to "dollars" and "$" are to United States
currency, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that ACE, ACE INA and
the ACE Trusts filed with the Securities and Exchange Commission utilizing a
"shelf" registration process, relating to the ordinary shares, preferred
shares, depositary shares, debt securities, debt securities guarantee,
warrants, stock purchase contracts, stock purchase units, preferred securities
and preferred securities guarantees described in this prospectus. Under this
shelf process, any or all of ACE, ACE INA and the ACE Trusts may sell the
securities described in this prospectus in one or more offerings up to an
aggregate initial offering price by all of ACE, ACE INA and the ACE Trusts of
$1,500,000,000. This prospectus provides you with a general description of the
securities ACE, ACE INA or an ACE Trust may offer. This prospectus does not
contain all of the information set forth in the registration statement as
permitted by the rules and regulations of the SEC. For additional information
regarding ACE, ACE INA, the ACE Trusts and the offered securities, please refer
to the registration statement. Each time
2
ACE, ACE INA or an ACE Trust sells securities, it will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
ACE LIMITED
ACE Limited is a holding company incorporated with limited liability in the
Cayman Islands. ACE Limited maintains its business offices in Bermuda. Through
our various subsidiaries, we provide a broad range of insurance and reinsurance
products to insureds worldwide through operations in the United States and
almost 50 other countries. At December 31, 2001, we had total assets of $37.1
billion and shareholders' equity of $6.1 billion. We derive our revenue
principally from premiums, fees and investment income. We operate through four
business segments:
. Insurance--North American;
. Insurance--Overseas General;
. Global Reinsurance; and
. Financial Services.
ACE was incorporated in August 1985. ACE's principal executive offices are
located at ACE Global Headquarters, 17 Woodbourne Avenue, Hamilton, HM 08,
Bermuda, and its telephone number is (441) 295-5200.
ACE INA
ACE INA is an indirect subsidiary of ACE that was formed in December 1998 to
acquire and hold the international and domestic property and casualty
businesses of CIGNA Corporation. ACE INA is a U.S. holding company and has no
direct operations. ACE INA's principal asset is the capital stock of its
insurance subsidiaries.
The principal executive offices of ACE INA are located at Two Liberty Place,
1601 Chestnut Street, Philadelphia, Pennsylvania 19103, and its telephone
number is (215) 640-1000.
THE ACE TRUSTS
ACE Capital Trust III is a statutory business trust created under Delaware
law pursuant to (1) a trust agreement executed by ACE, as original sponsor of
the ACE Trust, and the ACE trustees for the ACE Capital Trust III and (2) the
filing of a certificate of trust with the Delaware Secretary of State on May
19, 1999. On August 5, 1999, ACE assigned its rights and obligations as sponsor
of ACE Capital Trust III to ACE INA. ACE Capital Trust IV is a statutory
business trust created under Delaware law pursuant to (1) a trust agreement
executed by ACE INA, as sponsor of the ACE Capital Trust IV, and the ACE
trustees for the ACE Trust and (2) the filing of a certificate of trust with
the Delaware Secretary of State on May 14, 2002. Each trust agreement will be
amended and restated in its entirety substantially in the form filed as an
exhibit to the registration statement of which this prospectus forms a part.
Each restated trust agreement will be qualified as an indenture under the Trust
Indenture Act of 1939. Each ACE Trust exists for the exclusive purposes of:
. issuing and selling the preferred securities and common securities that
represent undivided beneficial interests in the assets of the ACE Trust,
. using the gross proceeds from the sale of the preferred securities and
common securities to acquire a particular series of ACE INA subordinated
debt securities, and
. engaging in only those other activities necessary, convenient or
incidental to the issuance and sale of the preferred securities and
common securities and purchase of the ACE INA subordinated debt
securities.
ACE INA will directly or indirectly own all of the common securities of each
ACE Trust. The common securities of an ACE Trust will rank equally, and
payments will be made thereon pro rata, with the preferred securities of that
ACE Trust. However, if an event of default under the restated trust agreement
resulting from an event of default under the ACE INA subordinated debt
securities held by the ACE Trust has occurred and is continuing, the rights of
the holder of the common securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the preferred securities. Unless otherwise disclosed
in the applicable prospectus supplement, ACE INA will, directly or indirectly,
acquire common securities in an aggregate liquidation amount equal to at least
3% of the total capital of each ACE Trust. Each of the ACE Trusts is a legally
separate entity, and the assets of one are not available to satisfy the
obligations of the other.
3
The following is true for each ACE Trust unless otherwise disclosed in the
related prospectus supplement:
. each ACE Trust has a term of approximately 55 years but may dissolve
earlier;
. each ACE Trust's business and affairs will be conducted by the trustees,
referred to collectively as the ACE trustees, appointed by ACE INA, as
the holder of all of the common securities;
. ACE INA, as the holder of the common securities, will be entitled to
appoint, remove or replace any of, or increase or reduce the number of,
the ACE trustees;
. the duties and obligations of the ACE trustees will be governed by the
restated trust agreement of the ACE Trust;
. two of the ACE trustees, referred to as the administrative trustees, of
each ACE Trust will be persons who are employees or officers of or
affiliated with ACE INA;
. one ACE trustee of each ACE Trust will be a financial institution that is
not affiliated with ACE INA and has a minimum amount of combined capital
and surplus of not less than $50,000,000, and is referred to as the
property trustee. The property trustee shall act as both the property
trustee and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act;
. one ACE trustee of each ACE Trust, which may be the property trustee if
it otherwise meets the requirements of applicable law, will have its
principal place of business or reside in the State of Delaware and is
referred to as the Delaware trustee;
. ACE will pay all fees and expenses related to each ACE Trust and the
offering of the preferred securities and common securities.
The office of the Delaware trustee for each ACE Trust in the State of
Delaware is located at c/o Bank One Delaware, Inc., Three Christina Centre, 201
North Walnut Street, Wilmington, Delaware 19801. The principal executive
offices for each of the ACE Trusts are located at c/o ACE INA Holdings Inc.,
Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19103. The
telephone number of each of the ACE Trusts is (215) 640-1000.
USE OF PROCEEDS
Unless otherwise disclosed in the applicable prospectus supplement, ACE and
ACE INA intend to use the net proceeds from the sale of the offered securities
for general corporate purposes, which may include repayment of indebtedness,
expansion of our net underwriting capacity and acquisitions. Each ACE Trust
will invest all proceeds received from the sale of its preferred securities and
common securities in a particular series of subordinated debt securities of ACE
INA. ACE INA will use these funds for general corporate purposes, which may
include repayment of indebtedness, expansion of our net underwriting capacity
and acquisitions.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS OF ACE
For purposes of computing the following ratios, earnings consist of net
income before income tax expense, excluding interest costs capitalized, plus
fixed charges to the extent that these charges are included in the
determination of earnings. Fixed charges consist of interest costs, including
interest costs capitalized, plus one-third of minimum rental payments under
operating leases, which are estimated by management to be the interest factor
of these rentals.
Nine Months Three Months
Ended Fiscal Year Ended Ended Year Ended
September, December 31, December 31, September 30,
----------- ----------------- ----------- -------------
2002 2001 2000 1999 1998 1997 1998 1997
----------- ---- ---- ---- ----- ----- ----- -----
Ratio of Earnings to Fixed Charges..... 2.7x (1) 3.6x 4.1x 48.4x 72.5x 22.4x 40.7x
Ratio of Earnings to Combined Fixed
Charges and Preferred Share Dividends 2.6x (1) 3.6x 4.1x 48.4x 72.5x 22.4x 40.7x
- --------
(1) Earnings for the year ended December 31, 2001 were insufficient to cover
fixed charges by $17.4 million.
The ACE Trusts had no operations during the periods set forth above.
4
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
ACE may, from time to time, offer under this prospectus, separately or
together:
. ordinary shares,
. preferred shares, which may be represented by depositary shares as
described below,
. unsecured senior or subordinated debt securities,
. warrants to purchase ordinary shares,
. warrants to purchase preferred shares,
. warrants to purchase debt securities of ACE,
. stock purchase contracts to purchase ordinary shares, and
. stock purchase units, each representing ownership of a stock purchase
contract and, as security for the holder's obligation to purchase
ordinary shares under the stock purchase contract, any of:
. debt securities of ACE INA, fully and unconditionally guaranteed by
ACE;
. debt obligations of third parties, including U.S. Treasury securities;
or
. preferred securities of an ACE Trust.
ACE INA may from time to time offer unsecured senior or subordinated debt
securities, which will be fully and unconditionally guaranteed by ACE.
Each of ACE Capital Trust III and ACE Capital Trust IV may offer preferred
securities representing undivided beneficial interests in their respective
assets, which will be fully and unconditionally guaranteed to the extent
described in this prospectus by ACE.
The aggregate initial offering price of the securities offered by ACE, ACE
INA and the ACE Trusts will not exceed $1,500,000,000.
DESCRIPTION OF ACE CAPITAL STOCK
The following is a summary of the material provisions of ACE's memorandum of
association and articles of association and is not complete. You should refer
to ACE's memorandum and articles for complete information regarding their
provisions, including the definitions of some of the terms used below, copies
of which are incorporated by reference as exhibits to the registration
statement of which this prospectus forms a part. Whenever particular sections
or defined terms of our memorandum and articles are referred to, these sections
or defined terms are incorporated into this prospectus by reference, and the
statement in connection with which the reference is made is qualified in its
entirety by the reference.
ACE's authorized share capital consists of two classes of shares:
. 500,000,000 ordinary shares, par value $0.041666667 per share, of which
262,495,210 ordinary shares were issued and outstanding as of September
30, 2002; and
. 20,000,000 other shares, 6,221,000 shares of which were issued and
outstanding as of September 30, 2002 as 8.25% cumulative redeemable
preferred shares, series A.
Ordinary Shares
Our ordinary shares are listed on the New York Stock Exchange under the
symbol "ACE." Our ordinary shares currently issued and outstanding are fully
paid and nonassessable, which means that our ordinary shares are paid for in
full at the time they are issued, and, once our ordinary shares are paid for in
full, there is no further liability for further assessment or taxation. Any of
our ordinary shares offered by a prospectus supplement will also be fully paid
and nonassessable once they are issued to the purchaser in exchange for the
full purchase price.
5
There are no provisions of Cayman Islands law or our memorandum or articles
which impose any limitation on the rights of our shareholders to hold or vote
ordinary shares by reason of their not being residents of the Cayman Islands.
Dividend Rights
After all dividends on our preferred shares have been paid or declared and
set apart for payment, holders of our ordinary shares are entitled to receive
dividends as may be declared from time to time by our board of directors in its
discretion, out of funds legally available for the payment of dividends.
Liquidation
In the event of our dissolution, liquidation or winding, whether voluntary
or involuntary, we will first pay or set aside for payment to the holders of
any outstanding shares ranking senior to our ordinary shares, the full amounts
to which they are entitled. After these payments have been paid or set aside,
the holder of our then outstanding ordinary shares, will be entitled to
receive, pro rata, according to the number of ordinary shares registered in
their names, any of our remaining assets which remain available for
distribution. However, if, at the time of our dissolution, liquidation or
winding up, you have any outstanding debts, liabilities or engagements to or
with us, whether presently payable or not, either alone or jointly with any
other person, whether a shareholder or not, including, without limitation, any
liability associated with the unpaid purchase price of our ordinary shares, the
liquidator appointed to oversee our liquidation will deduct the aggregate
amount of these debts, liabilities and engagements from the amount payable in
respect of your ordinary shares. The liquidator will then apply this amount to
any of your debts, liabilities or engagements to or with ACE, whether presently
payable or not. The liquidator may distribute to you, in kind, the remaining
assets of ACE or may sell, transfer or otherwise dispose of all or any part of
our remaining assets to any other corporation, trust or entity and receive
payment for our remaining assets in cash, shares or obligations of the other
corporation, trust or entity or any combination of these. The liquidator may
also sell all or part of the consideration received for the sale of our
remaining assets and distribute this consideration or any balance or proceeds
of this consideration to you.
Voting Rights
Our articles provide that the quorum required for a general meeting of
shareholders is not less than six shareholders present in person or by proxy
holding at least 50% of the issued and outstanding shares entitled to vote at
the meeting, and a quorum for considering a special resolution is 66 2/3% of
the issued and outstanding shares entitled to vote at the meeting. Generally,
we may, from time to time by special resolution:
. alter or amend our memorandum or articles;
. voluntarily liquidate, dissolve or wind-up our affairs;
. increase our share capital;
. consolidate and divide all or any of our share capital;
. subdivide the whole or any part of our share capital;
. reduce our share capital, any capital redemption reserve fund or any
share premium account; or
. change our name or alter our objects.
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Each holder of our ordinary shares is entitled to one vote per share on all
matters submitted to a vote of shareholders at any meeting, subject to the 10%
voting limitation described below. All matters, including the election of
directors, voted upon at any duly held shareholders' meeting will be carried by
a majority of the votes cast at the meeting by shareholders represented in
person or by proxy. However, the following actions, among others, require the
approval of at least 66 2/3% of the outstanding voting shares, voting together
as a single class:
. the approval of a merger, consolidation or amalgamation;
. the sale, lease or exchange of all or substantially all of our assets, in
addition to any regulatory or court approvals, and
. the amendment of specific provisions of our articles.
In addition, at least 66 2/3% of the votes cast by shareholders represented
in person or by proxy at a duly convened meeting is required to approve a
special resolution.
Our articles provide that, generally, extraordinary general meetings of
ACE's shareholders may be called only by directors or at the request in writing
of shareholders owning at least 25% of the outstanding shares generally
entitled to vote.
Each ordinary share has one vote. However, if and so long as, the controlled
shares of any person constitute 10% or more of the issued ordinary shares, the
voting rights with respect to these controlled shares will be limited, in the
aggregate, to a voting power of approximately 10%, pursuant to a formula
specified in our articles. The term controlled shares generally means all
shares of ACE directly, indirectly, constructively or beneficially owned by any
person, including any shares owned by a group of persons.
Our ordinary shares have noncumulative voting rights, which means that the
holders of a majority of our ordinary shares may elect all of our directors,
and, in this event, the holders of the remaining shares will not be able to
elect any directors. Our board is presently divided into three classes, two of
which have five directors and one of which has six directors, which we refer to
as a classified board. At present, each class is elected for a three-year term,
with the result that shareholders will not vote for the election of a majority
of directors in any single year. Directors may be removed without cause only by
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares generally entitled to vote, voting together as a single class, cast at a
meeting of shareholders. Directors may be removed with cause by the affirmative
vote of the holders of a majority of the votes cast at a meeting of
shareholders.
Our classified board could prevent a party who acquires control of a
majority of the outstanding voting power from obtaining control of our board
until the second annual shareholders meeting following the date the acquiror
obtains the controlling share interest. This could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of ACE and could increase the likelihood that
incumbent directors will retain their positions.
Preemptive Rights
No holder of ordinary shares, solely by reason of holding our ordinary
shares, has or will have any preemptive right to subscribe to any additional
issue of shares of any class or series nor to any security convertible into
ordinary shares.
Other Classes or Series of Shares
Our articles generally authorize the directors to create and issue one or
more other classes or series of shares and to determine the rights and
preferences of each class or series. Among other rights, for each class or
series, the directors may determine:
. the number of shares and the designation of the class or series;
. the voting powers, full or limited, if any, of the shares;
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. the dividend rights of the shares, whether dividends will be cumulative
and, if so, from which date or dates and the relative rights or priority,
if any, of payment of dividends on shares, as well as any limitations,
restrictions or conditions on the payment of dividends;
. the relative amounts, and the relative rights or priority, if any, of
payment in respect of shares, which you will be entitled to receive upon
any liquidation, dissolution or winding up of ACE;
. the terms and conditions, including the price or prices, which may vary
under different conditions and at different redemption dates, if any,
upon which all or any part of the shares may be redeemed, as well as any
limitations, restrictions or conditions on redemption of the shares;
. the terms, if any, of any purchase, retirement or sinking fund to be
provided for the shares;
. the terms, if any, upon which the shares will be convertible into or
exchangeable for shares of any other class, classes or series, or other
securities, whether or not issued by ACE;
. the restrictions, limitations and conditions, if any, upon the issuance
of indebtedness of ACE so long as any shares are outstanding; and
. any other preferences and relative, participating, optional or other
rights and limitations not inconsistent with applicable law or our
articles.
Preferred Shares
Our articles provide that the directors may, from time to time, create and
issue other classes or series of preferred shares setting forth the rights and
preferences of each class or series in a certificate of designation, which
certificate of designations we would incorporate by reference into this
prospectus. Our preferred shares will be fully paid and nonassessable once they
are issued in exchange for payment of their full purchase price. The particular
rights and preferences of the preferred shares offered by any prospectus
supplement and the extent, if any, to which the general provisions described
below may apply to the offered preferred shares, will be described in the
applicable prospectus supplement.
The following is a summary of the material terms of our preferred shares and
is not complete. You should refer to our memorandum, articles and the
applicable certificate of designations for complete information regarding the
terms of any class or series of preferred shares described in a prospectus
supplement. Whenever particular sections or defined terms of our memorandum,
articles and an applicable certificate of designations are referred to, these
sections or defined terms are incorporated in this prospectus by reference and
the statement is qualified in its entirety by this reference.
The applicable prospectus supplement will specify the terms of the class or
series of preferred shares, including:
. the number of shares to be issued and sold and the distinctive
designation of the class or series;
. the voting powers, full or limited, if any;
. the dividend rights, whether dividends will be cumulative and, if so,
from which date or dates and the relative rights or priority, if any, of
payment of dividends, as well as any limitations, restrictions or
conditions on the payment of dividends;
. the relative amounts, and the relative rights or priority, if any, of
payment in respect of preferred shares, which the holders of the
preferred shares will be entitled to receive upon any liquidation,
dissolution or winding up of ACE;
. the terms and conditions, including the price or prices, which may vary
under different conditions and at different redemption dates, if any,
upon which all or any part of the preferred shares may be redeemed, as
well as any limitations, restrictions or conditions on redemption;
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. the terms, if any, of any purchase, retirement or sinking fund;
. the terms, if any, upon which the preferred shares will be convertible
into or exchangeable for shares of any other class, classes or series, or
other securities, whether or not issued by ACE;
. the restrictions, limitations and conditions, if any, upon the issuance
of indebtedness of ACE so long as any preferred shares are outstanding;
and
. any other preferences and relative, participating, optional or other
rights and limitations not inconsistent with applicable law, our
memorandum or articles.
Dividends
You, as a holders of preferred shares, will be entitled to receive dividends
at the rate set by the board, payable on specified dates each year for the
respective dividend periods ending on those dates, when and as declared by the
board. Dividends will accrue on each preferred share from the first day of the
dividend period in which the share is issued or from any other date as the
board may fix for this purpose. All dividends on preferred shares will be
cumulative, which means that if we do not pay, or declare and set apart funds
for payment of, the dividend, or any part of the dividend, on the issued and
outstanding preferred shares for any dividend period, we must later pay in
full, or declare and set apart for payment, the deficiency in the dividend on
the preferred shares, without interest, before we may pay, or declare and set
apart for payment, any dividend on the ordinary shares. You will not be
entitled to participate in any other or additional earnings or profits of ACE,
except for premiums, if any, which may be payable in case of redemption or
liquidation, dissolution or winding up of ACE.
At any time when any accrued dividends for any prior dividend period are
delinquent, we will expressly declare any dividend paid upon the preferred
shares to be in whole or partial payment of the accrued dividends beginning
with the earliest dividend period for which dividends are then wholly or partly
delinquent. This express designation of whole or partial payments will be
communicated to each shareholder to whom payment is made.
We will not pay dividends upon any shares of any class or series of
preferred shares for a current dividend period unless we have paid, or declared
and set apart for payment, all dividends required to be paid to the holders of
each other class or series of preferred shares for all past dividend periods of
the other class or series. If we pay any dividends on any of the preferred
shares with respect to any past dividend period at any time when we are paying,
or declaring and setting apart for payment, less than the total dividends then
accumulated and payable for all past dividend periods on all of the preferred
shares then outstanding, then we will pay the dividends on each class or series
of preferred shares in the proportions that the dividends then accumulated and
payable on each class or series for all past dividend periods bear to the total
dividends then accumulated and payable for all past dividend periods on all
outstanding preferred shares.
Liquidation, Dissolution or Winding Up
If we liquidate, dissolve or wind up our business, whether voluntarily or
involuntarily, we will pay you a sum out of our assets equal to the liquidation
preference for the class or series of preferred shares you own plus all accrued
but unpaid dividends on your preferred shares, whether or not earned or
declared. We will make these payments to you before any of our assets will be
paid or distributed to holders of our ordinary shares. If our assets are
insufficient to pay the full amounts to which you and the holders of all of the
classes or series of our preferred shares then outstanding may be entitled, you
will share ratably in our assets in proportion to the amounts which would be
payable with respect to each class or series if all amounts payable on each
class or series of preferred shares were paid in full. The consolidation or
merger of ACE with or into any other corporation, or a sale of all or any part
of its assets, will not be deemed a liquidation, dissolution or winding up of
ACE within the meaning of this paragraph.
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Redemption
Except as otherwise set forth in the applicable prospectus supplement, the
following redemption provisions will apply to each class or series of preferred
shares.
Prior to redeeming any preferred shares, we will deposit adequate funds for
the redemption in trust for your account with a bank or trust company that has
an office in the United States, and that has, or is an affiliate of a bank or
trust company that has, capital and surplus of at least $50,000,000. After we
deposit these funds in trust, or have stated our intent to deposit these funds
in a redemption notice, and you are given the name and address of the bank or
trust company, then, from and after the mailing of the notice and the making of
the deposit, your shares will no longer be deemed to be outstanding for any
purpose whatsoever and your rights in or with respect to ACE pursuant to these
preferred shares will cease and terminate, except for your rights:
. to transfer your shares prior to the date fixed for redemption,
. to receive the redemption price of your shares, including accrued but
unpaid dividends to the date fixed for redemption, without interest, upon
surrender of the certificate or certificates representing the shares to
be redeemed, and
. to exercise privileges of conversion, if any, not previously expired on
or before the close of business on the fifth day preceding the date fixed
for redemption.
Six years after the redemption date, any moneys we deposit in trust which
remain unclaimed and not converted will be paid to us upon our request, after
which repayment you can no longer look to the bank or trust company for the
payment of the redemption price but must look only to us for the payment of any
lawful claim for these moneys. In addition, after this six-year period, your
right to receive this payment may be forfeited as provided under Cayman Islands
law. Any portion of the moneys we deposit in respect of your preferred shares
called for redemption that are converted into ordinary shares will be repaid to
us upon our request.
In case of the redemption of only a part of a class or series of preferred
shares, we will designate by lot, in a manner as determined by the board, the
shares to be redeemed or will effect the redemption pro rata.
Conversion Rights
Except as otherwise provided in the applicable prospectus supplement, the
following conversion provisions will apply to each class or series of preferred
shares that is convertible into ordinary shares.
All ordinary shares issued upon conversion will be fully paid and
nonassessable and will be free of all taxes, liens and charges with respect to
their issue, except taxes, if any, payable by reason of issuance of the
ordinary shares in a name other than your name.
The number of ordinary shares issuable upon conversion of a particular class
or series of preferred shares will be the quotient obtained by dividing the
aggregate conversion value of the shares of the class or series surrendered for
conversion by the conversion price per share of ordinary shares then in effect
for the class or series. We will not be required, however, upon any conversion
to issue any fractional share of ordinary shares, but instead we will pay you a
sum in cash equal to the value of the fractional share based on the last
reported sale price per ordinary share on the NYSE at the date of
determination. Preferred shares will be deemed to have been converted as of the
close of business on the date of receipt at the office of the transfer agent of
the certificates, duly endorsed, together with written notice of your election
to convert the shares.
The basic conversion price per ordinary share for a class or series of
preferred shares, as fixed by the board, will be subject to adjustment from
time to time as follows.
If we:
. pay a dividend or make a distribution to all holders of outstanding
ordinary shares as a class in ordinary shares,
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. subdivide or split the outstanding ordinary shares into a larger number
of shares or
. combine the outstanding ordinary shares into a smaller number of shares,
then we will retroactively adjust your basic conversion price so that your
convertible preferred shares will be entitled to receive, upon conversion, the
number of ordinary shares which you would have owned and been entitled to
receive after the happening of any of the events described above had your
shares been converted immediately prior to the happening of that event.
If we issue to all holders of ordinary shares as a class any rights or
warrants enabling them to subscribe for or purchase ordinary shares at a price
per share less than the current market price per ordinary share at the record
date for determination of shareholders entitled to receive these rights or
warrants, then we will retroactively adjust your basic conversion price by
multiplying your basic conversion price by a fraction. The fraction's numerator
will be the sum of the number of ordinary shares outstanding at the record date
plus the number of ordinary shares which the aggregate exercise price, before
deduction of underwriting discounts or commissions and our other expenses in
connection with the issue, of the total number of shares offered for
subscription or purchase would purchase at the current market price per share.
The fraction's denominator will be the sum of the number of ordinary shares
outstanding at the record date plus the number of additional ordinary shares
offered for subscription or purchase.
If we distribute to all holders of ordinary shares as a class evidences of
indebtedness or assets, other than cash dividends, then we will retroactively
adjust your basic conversion price by multiplying your basic conversion price
by a fraction. The fraction's numerator will be the difference between the
current market price per ordinary share at the record date for determination of
shareholders entitled to receive the distribution and the fair value, as
determined by the board, of the portion of the evidences of indebtedness or
assets, other than cash dividends, so distributed applicable to one ordinary
share. The fraction's denominator will be the current market price per ordinary
share, which will be deemed to be the average of the high and low sales prices
of the ordinary shares as reported in the New York Stock Exchange--Composite
Transactions, or other principal market quotation as may then be applicable to
the ordinary shares, for each of the 30 consecutive trading days commencing 45
trading days before that date.
Any adjustments described above will become effective retroactively
immediately after the applicable record date, or, in the case of a subdivision,
split or combination, immediately after the effective date, and these
adjustments will be made successively whenever any event described occurs.
We will not adjust the basic conversion price if the amount of the
adjustment would be less than 50 cents. However, any adjustments, which, by
reason of the preceding sentence, we do not make, will be carried forward and
taken into account in any subsequent adjustment. In addition, we will make any
adjustment required for purposes of making the computations described above not
later than the earlier of three years after the effective date describe above
for the adjustment and the date as of which the adjustment would result in an
increase or decrease of at least 3% in the aggregate number of ordinary shares
issued and outstanding on the first date on which an event occurred which
required the making of the computation. We will make all calculations to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
In the case of any capital reorganization or reclassification of ordinary
shares, or if we consolidate with or merge into, or sell or dispose of all or
substantially all of our property and assets to, any other corporation, we will
make proper provisions as part of the terms of the capital reorganization,
reclassification, consolidation, merger or sale that any preferred shares at
the time outstanding will be convertible into the number of shares of stock or
other securities or property to which a holder of the number of ordinary shares
deliverable upon conversion of the preferred shares would have been entitled
upon the capital reorganization, reclassification, consolidation or merger.
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We will not make any dividend adjustment with respect to any preferred
shares or ordinary shares in connection with any conversion.
Whenever we issue additional ordinary shares requiring a change in the
conversion price as described above, and whenever any other event occurs which
results in a change in your existing conversion rights, we will file with our
transfer agent or agents a statement signed by our Chairman, President and
Chief Executive Officer, or by any of our Executive Officers, specifically
describing the issue of additional ordinary shares or the other event,
including, in the case of a capital reorganization, reclassification,
consolidation or merger, the terms of the capital reorganization,
reclassification, consolidation or merger. The statement will also contain the
actual conversion prices or basis of conversion as changed by the issue or
event and the change, if any, in the securities issuable upon conversion.
Whenever we issue any rights or warrants to all holders of our ordinary shares
as a class enabling them to subscribe for or purchase ordinary shares, we will
also file in like manner a statement describing the same and the consideration
we will receive. These statements will be open to your inspection.
We will at all times authorize, and will at all times reserve and set aside,
a sufficient number of ordinary shares for the conversion of all shares of all
then outstanding classes or series of preferred shares which are then
convertible into ordinary shares.
Reissuance of Shares
If we retire any preferred shares by purchase or redemption, through
conversion, or through the operation of any sinking fund or redemption or
purchase account, these shares will have the status of authorized but unissued
preferred shares. We may reissue these shares as part of the same class or
series or may reclassify and reissue them in the same manner as any other
authorized and unissued preferred shares.
Voting Rights
Except as set forth below, generally, you, as a holder of preferred shares,
will have no voting rights.
Whenever dividends payable on your shares are in arrears in an aggregate
amount equivalent to six full quarterly dividends on all of the preferred
shares, you will have the exclusive and special right, voting separately as a
class, to elect two of our directors, and we will increase the number of
directors constituting the board to the extent necessary to effectuate this
right. Whenever this right has vested, it may be exercised initially either at
an extraordinary meeting of the holders of the preferred shares or at any
annual meeting of shareholders and, after its initial exercise, at annual
meetings of shareholders. This special voting right will continue until all
dividends accumulated on the preferred shares have been paid in full, at which
time this right will terminate, subject to revesting in the event of each and
every subsequent default in payment of dividends in an aggregate amount
equivalent to six full quarterly dividends.
At any time when this special voting right has vested, we will, upon the
written request of the holders of record of at least 10% of the preferred
shares then outstanding addressed to the Secretary of ACE, call an
extraordinary meeting of the holders of the preferred shares for the purpose of
electing directors. This extraordinary meeting will be held at the earliest
practicable date in a place we designate or, if there be no designation, at our
principal offices in Hamilton, Bermuda. If we do not call this meeting within
20 days after the Secretary of ACE has been personally served with the proper
request, or within 30 days after mailing the same within the United States by
registered or certified mail addressed to the Secretary of ACE at our principal
office, then the holders of record of at least 10% of the preferred shares then
outstanding may designate in writing one of their number to call the meeting at
our expense, and this meeting may be called by this designated person upon the
notice required for annual meetings of shareholders and will be held in
Hamilton, Bermuda. This designated person will have access to our stock books
for the purpose of causing meetings of shareholders to be called. However, we
do not have to, and will not, call an extraordinary meeting during the period
within 90 days immediately preceding the date fixed for the next annual meeting
of shareholders.
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At any annual or extraordinary meeting at which the holders of the preferred
shares have this special voting right, the presence, in person or by proxy, of
the holders of 33 1/3% of the preferred shares will be required to constitute a
quorum for the election of any director. At any meeting or adjournment of the
meeting, the absence of a quorum will not prevent the election of directors
other than those to be elected pursuant to this special voting right, and the
absence of a quorum for the election of other directors will not prevent the
election of the directors to be elected pursuant to this special voting right.
In addition, in the absence of either or both types of quorum, a majority of
the holders present in person or by proxy of any class or series of stock for
which a quorum is lacking may adjourn the meeting for the election of directors
which they are entitled to elect, from time to time, until a quorum shall be
present, without notice other than announcement at the meeting.
During any period during which the holders of preferred shares have the
special voting right, only a vote of a majority, even if that be only a single
director, of the remaining directors previously elected by the holders of the
class or series of stock which elected the directors whose offices have become
vacant may fill any board vacancy. During this period, the directors elected
pursuant to the special voting right shall continue in office until the next
succeeding annual meeting or until their successors, if any, are elected by
these holders and qualify or, unless required by applicable law to continue in
office for a longer period, until termination of the special voting right, if
earlier. If and to the extent permitted by applicable law, immediately upon any
termination of the special voting right, the term of office of the directors
then in office elected pursuant to the special voting right will terminate.
Whether or not our business is being wound up, your rights may only be
varied with either the written consent of the holders of three-fourths of the
issued shares of your class or series of preferred shares or the sanction of a
special resolution approved by at least 66 2/3% of the votes cast by the
holders of the shares of your class or series of preferred shares at a duly
convened meeting where at least one-third of the issued shares of that class or
series are represented, either in person or by proxy. Your rights will not be
deemed to be varied by the creation or issue of any shares or any securities
convertible into or evidencing the right to purchase shares ranking prior to or
equally with your class or series of preferred shares with respect to the
payment of dividends or of assets upon liquidation, dissolution or winding up.
You are not entitled to vote on any amalgamation, consolidation, merger or
statutory share exchange, except to the extent that this type of a transaction
would vary your rights, in which case any variation is subject to the approval
process described above. You are not entitled to vote on any sale of all or
substantially all of our assets.
On any item on which the you are entitled to vote, you will be entitled to
one vote for each preferred share held.
Restrictions in Event of Default in Dividends on Preferred Shares
If, at any time, we have failed to pay dividends or amounts payable with
respect to any obligations to retire preferred shares in full, after that time
and until dividends or these amounts, including all accrued and unpaid
dividends for all past quarterly dividend periods on the preferred shares
outstanding, shall have been declared and set apart in trust for payment or
paid, we may not:
. redeem less than all of the outstanding preferred shares without the
affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding preferred shares given in person or by proxy, either in
writing or by resolution adopted at an extraordinary meeting called for
the purpose, at which the holders of the preferred shares shall vote
separately as a class, regardless of class or series;
. purchase any preferred shares except in accordance with a purchase offer
made in writing to all holders of preferred shares of all classes or
series upon terms as the board, in its sole discretion after
consideration of the respective annual dividend rate and other relative
rights and preferences of the respective classes or series, determines,
which determination shall be final and conclusive, will result in fair
and equitable treatment among the respective classes or series. However,
we may use shares previously acquired and then held by it as treasury
stock to meet the requirements of any purchase,
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retirement or sinking fund provisions with respect to any class or
series. In addition, nothing will prevent us from completing the purchase
or redemption of preferred shares for which a purchase contract was
entered into for any purchase, retirement or sinking fund purposes, or
the notice of redemption of which was initially mailed, prior to the
failure; and
. we may not redeem, purchase or otherwise acquire, or permit any
subsidiary to purchase or acquire, any shares of any other class of our
stock ranking junior to the preferred shares as to dividends and upon
liquidation.
Preemptive Rights
No holder of preferred shares, solely by reason of holding the preferred
shares, has or will have any preemptive right to subscribe to any additional
issue of shares of any class or series nor to any security convertible into
shares.
8.25% Cumulative Redeemable ACE Series A Preferred Shares, Series A
In April 2000, we issued 6,221,000 shares of its 8.25% Cumulative Redeemable
ACE Series A Preferred Shares, Series A, which we refer to as the ACE Series A
ACE Series A Preferred Shares. The ACE Series A ACE Series A Preferred Shares
were issued as a component of our FELINE PRIDES, together with a purchase
contract obligating the holder to purchase $50 of our ordinary shares on May
16, 2003. All of the shares of ACE Series A Preferred Stock have been pledged
to us to secure the holders' obligations to purchase our ordinary shares under
the associated purchase contract. The ACE Series A Preferred Shares rank senior
to all ordinary shares now outstanding or that we may issue in the future, as
to payment of dividends and distribution of assets upon our dissolution,
liquidation or winding up.
Dividends
Dividends on the ACE Series A Preferred Shares are cumulative and are
payable quarterly in arrears on February 16, May 16, August 16 and November 16
of each year. We will only pay dividends on the ACE Series A Preferred Shares
if our board of directors or an authorized committee of our board declares
those dividends payable and ACE has funds legally available to pay those
dividends.
Dividends on the ACE Series A Preferred Shares are fixed initially at a rate
per year of 8.25% of the liquidation preference of $50 per preferred share (or
$4.125 per preferred share). The dividend rate on the ACE Series A Preferred
Shares will be reset effective May 16, 2003.
If we do not declare or pay dividends on the ACE Series A Preferred Shares
to May 16, 2003, on May 16, 2003, instead of a cash payment in respect of such
dividends, subject to shareholder approval, holders will receive a number of
ordinary shares equal to (x) the aggregate of all accumulated and unpaid
dividends divided by (y) the applicable market value. If we do not receive
shareholder approval to make that payment in ordinary shares, we will pay the
holders cash in respect of such dividends.
Mandatory Redemption
On June 16, 2003, we will redeem the ACE Series A Preferred Shares in whole
at a redemption price equal to the stated liquidation preference of $50 per
preferred share plus accumulated and unpaid dividends.
Payment Restrictions
Subject to certain exceptions described in the form of the preferred share,
if we do not declare or pay a dividend on the ACE Series A Preferred Shares on
any dividend payment date, then, until all accumulated and
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unpaid dividends are paid and the full quarterly dividend on the ACE Series A
Preferred Shares for the current and all prior dividend periods is declared and
paid or set apart for payment:
. we may not take any of the following actions with respect to any of its
capital stock that ranks junior to the ACE Series A Preferred Shares as
to payment of dividends or upon liquidation, including our ordinary
shares:
. declare or pay any dividend or make any distribution of assets on any
such junior capital stock or make any guarantee payments with respect
to the foregoing, other than dividends, distributions or payments made
in such junior capital stock; or
. redeem, purchase or otherwise acquire such junior capital stock,
except upon conversion or exchange for such junior capital stock;
. we may not declare dividends or make any distributions on any of its
capital stock that ranks equally with the ACE Series A Preferred Shares
as to payment of dividends or upon liquidation or make any guarantee
payments with respect to the foregoing, unless:
. the dividends, distributions or payments are of our capital stock that
ranks junior to the ACE Series A Preferred Shares as to payment
dividends or upon liquidation; or
. all dividends or other distributions on the ACE Series A Preferred
Shares and our equally-ranking capital stock are declared and paid or
set apart for payment or made pro rata such that the dividends or
distributions on the ACE Series A Preferred Shares and our equally
ranking capital stock will bear the same ratio that accumulated and
unpaid dividends per preferred share and the equally- capital stock
bear to each other; and
. we may not redeem, purchase or otherwise acquire any of its other capital
stock that ranks equally with the ACE Series A Preferred Shares as to the
payment of dividends and upon liquidation, except for conversion or
exchange for its capital stock that ranks junior to the ACE Series A
Preferred Shares as to payment of dividends or upon liquidation.
Market Rate Reset
The dividend rate on the ACE Series A Preferred Shares will be reset
effective May 16, 2003 to the reset rate. The reset rate will be calculated on
the third business day immediately preceding May 16, 2003 and will be equal to
the sum of the reset spread and the rate on the one-month U.S. Treasury bill in
effect on such date and the reset spread will be determined by the reset agent
as the spread required to establish the rate the ACE Series A Preferred Shares
should bear for the ACE Series A Preferred Shares to have an approximate market
value on the third business day immediately preceding May 16, 2003 of 100.5% of
$50. However, we may limit the reset rate to be no higher than the rate on the
one-month U.S. Treasury bill on May 16, 2003 plus 200 basis points (2%). The
market value of the ACE Series A Preferred Shares may be less than 100.5% if
the reset spread is limited to a maximum of 2%. In the event of a failed
remarketing, the reset rate shall be 8.25% of $50 per year per preferred share
until June 16, 2003.
The one-month U.S. Treasury bill shall mean direct obligations of the United
States, which may be obligations traded on a when-issued basis only, having a
maturity comparable to the remaining term to the mandatory redemption date of
the ACE Series A Preferred Shares, as agreed upon by us and the reset agent.
The rate for the one-month U.S. Treasury bill will be the bid side rate
displayed at 10:00 A.M., New York City time, on the third business day
immediately preceding May 16, 2003 on the Telerate system. If the Telerate
system is (a) no longer available on the third business day immediately
preceding May 16, 2003 or (b) in the opinion of the reset agent, after
consultation with us, no longer an appropriate system from which to obtain that
rate, another nationally recognized quotation system as, in the opinion of the
reset agent, after consultation with us, is appropriate, will be used. If that
rate is not so displayed, the rate for the one-month U.S. Treasury bill shall
be, as calculated by the reset agent, the yield to maturity for the one-month
U.S. Treasury bill, expressed as a bond
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equivalent on the basis of a year of 365 or 366 days, and applied on a daily
basis. It shall be computed by taking the arithmetic mean of the secondary
market bid rates, as of 10:30 A.M., New York City time, on the third business
day immediately preceding May 16, 2003, of three leading United States
government securities dealers selected by the reset agent, after consultation
with us. These dealers may include the reset agent or its affiliate.
We currently anticipate that Merrill Lynch, Pierce, Fenner & Smith
Incorporated will be the investment banking firm acting as the reset agent.
On the tenth business day immediately preceding May 16, 2003, the one-month
U.S. Treasury bill to be used to determine the reset rate on May 16, 2003, will
be selected. On that date, the reset agent will establish the reset spread to
be added to the rate on the one-month U.S. Treasury bill in effect on the third
business day immediately preceding May 16, 2003 and we will announce the reset
spread and the one-month U.S. Treasury bill. We will cause a notice of the
reset spread and the one-month U.S. Treasury bill to be published on the
business day following the reset announcement date by publication in a daily
newspaper in the English language of general circulation in The City of New
York, which we expect to be The Wall Street Journal (NYC edition).
Optional Remarketing
On or prior to the fifth business day immediately preceding May 16, 2003 but
no earlier than the payment date immediately preceding May 16, 2003, holders of
ACE Series A Preferred Shares which are not components of FELINE PRIDES may
elect to have their ACE Series A Preferred Shares remarketed by delivering
their ACE Series A Preferred Shares along with a notice of such election to the
custodial agent. The custodial agent will hold these ACE Series A Preferred
Shares in an account separate from the collateral account in which the pledged
securities will be held. Holders of ACE Series A Preferred Shares electing to
have their ACE Series A Preferred Shares remarketed will also have the right to
withdraw that election on or prior to the fifth business day immediately
preceding May 16, 2003.
On the fourth business day immediately preceding May 16, 2003, the custodial
agent will deliver these separate ACE Series A Preferred Shares to the
remarketing agent for remarketing. The remarketing agent will use its
reasonable efforts to remarket these ACE Series A Preferred Shares on that date
at a price of approximately 100.5% of the aggregate stated liquidation
preference of these ACE Series A Preferred Shares, plus accumulated and unpaid
distributions, including any deferred distributions. The portion of the
proceeds from that remarketing equal to the aggregate stated liquidation
preference of these ACE Series A Preferred Shares will automatically be
remitted by the remarketing agent to the custodial agent for the benefit of the
holders of these ACE Series A Preferred Shares. In addition, after deducting as
the remarketing fee an amount not exceeding 25 basis points (.25%) of the
aggregate stated liquidation preference of the remarketed securities from any
amount of those proceeds in excess of the aggregate stated liquidation
preference of the remarketed ACE Series A Preferred Shares plus any accumulated
and unpaid distributions, including any deferred distributions, the remarketing
agent will remit to the custodial agent any remaining portion of the proceeds
for the benefit of that holder.
If, despite using its reasonable efforts, the remarketing agent cannot
remarket the related ACE Series A Preferred Shares of these holders at a price
not less than 100% of the liquidation preference of the ACE Series A Preferred
Shares plus accumulated and unpaid dividends, including any deferred dividends,
or if the remarketing has not occurred because a condition precedent to the
remarketing has not been fulfilled, and thus resulting in a failed remarketing,
the remarketing agent will promptly return these ACE Series A Preferred Shares
to the custodial agent to release to these holders. We will cause a notice of
the failed remarketing to be published on the second business day immediately
preceding May 16, 2003 by publication in a daily newspaper in the English
language of general circulation in The City of New York, which we expect to be
The Wall Street Journal (NYC edition). We will endeavor to ensure that a
registration statement with regard to the full amount of the ACE Series A
Preferred Shares to be remarketed will be effective in a form as will enable
the remarketing agent to rely on it in connection with the remarketing process.
We currently anticipate that Merrill Lynch, Pierce, Fenner & Smith Incorporated
will be the remarketing agent.
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Put Option
If a failed remarketing has occurred, holders of ACE Series A Preferred
Shares that are not components of FELINE PRIDES will have the right to put
their ACE Series A Preferred Shares to us on May 16, 2003 upon at least three
business days' prior notice at a price per preferred share equal to $50, plus
any accumulated and unpaid dividends.
Voting Rights
The holders of the ACE Series A Preferred Shares are not entitled to any
voting rights, except as required by applicable law and as described above
under "Description of ACE Capital Stock-- Preferred Shares--Voting Rights".
Holders of ACE Series A Preferred Shares are also entitled to vote separately
as a class with respect to certain court approved schemes of arrangement or
reconstruction in which we will not be the surviving entity.
Liquidation Rights
In the event of our voluntary or involuntary liquidation, dissolution or
winding up, the holders of ACE Series A Preferred Shares will be entitled to
receive out of our assets available for distribution to shareholders--before
any distribution of assets is made on our ordinary shares or any other class or
series of our stock ranking junior to the ACE Series A Preferred Shares--a
liquidating distribution in the amount of $50 per share, plus an amount equal
to the sum of all accumulated and unpaid dividends, whether or not earned or
declared, for the then-current dividend period and all prior dividend periods.
After the payment to the holders of ACE Series A Preferred Shares of the
full preferential amounts provided above, the holders of ACE Series A Preferred
Shares will have no right or claim to any of our remaining assets.
In the event our assets available for distribution to the holders of ACE
Series A Preferred Shares upon any liquidation, dissolution or winding up,
whether voluntary or involuntary, are insufficient to pay in full all amounts
to which the holders are entitled as provided above, no such distribution will
be made on account of any other stock ranking equally with the ACE Series A
Preferred Shares as to the distribution of assets upon that liquidation,
dissolution or winding up unless a pro rata distribution is made on the ACE
Series A Preferred Shares, with the amount allocable to each series of that
stock determined on the basis of the aggregate liquidation preference of the
outstanding shares of each series and distributions to the shares of each
series being made on a pro rata basis.
Transfer Agent
Our registrar and transfer agent for our ordinary shares and preferred
shares is Mellon Investor Services.
Transfer of Shares
Our articles contain various provisions affecting the transferability of our
shares. Under our articles, the board has absolute discretion to decline to
register any transfer of shares for any reason, including its determination
that the transfer would result in a person having controlled shares that
constitute 10% or more of any class or series of ACE's issued shares and that a
registration statement under the Securities Act with respect to the shares has
not been filed. However, the board has waived its right to decline to register
any transfer of shares which have been traded in the public market, including
any ordinary and preferred shares offered by a prospectus supplement or which
were outstanding immediately prior to ACE's initial public offering.
Maples and Calder, our Cayman Islands counsel, has advised us that, while
the precise form of the restrictions on transfers contained in our articles is
untested, as a matter of general principle, restrictions on transfers of shares
are enforceable under Cayman Islands law and are not uncommon. You will be
deemed to
17
own your shares for dividend, voting and reporting purposes until a transfer of
the shares has been registered on our stock transfer records.
The restrictions on voting and ownership of more than 10% of any class or
series of our issued shares described above, as well as the provisions
discussed below under "Anti-Takeover Effects of Articles of Association" and
"Shareholder Rights Plan," may have the effect of discouraging an attempt to
obtain control of ACE.
Our articles also provide that the board may suspend the registration of
transfer for any periods as the board may determine, but shall not suspend the
registration of transfer for more than 45 days in any year.
Lloyd's Related Requirements
Under Lloyd's regulations, any person who, along with any associates,
beneficially holds 10% or more of the votes or economic interest in ACE, or who
controls decisions by our board, is a "controller" of any ACE subsidiary that
is either a Lloyd's corporate member or Lloyd's managing agent. Lloyd's imposes
an absolute prohibition on any company being a controller of a Lloyd's
corporate member or Lloyd's managing agent without first notifying Lloyd's and
receiving its consent. However, if a person breaches the 20%, 33%, 50% or
majority controller thresholds, the Lloyd's corporate member or Lloyd's
managing agent must do all that lies within its powers to comply with Lloyd's
requirements, which means that notice was given to the Council of Lloyd's
regarding the breach of the ownership percentage and that the Council did not
object. Lloyd's requires each controller to execute and deliver a declaration
and undertaking to Lloyd's with representations concerning, among other things,
the absence of criminal activities, censure, insolvency, civil liabilities and
government investigations. Lloyd's also requires each controller to submit to
the jurisdiction of the English courts. Any person that becomes the owner of
10% (or subsequently 20%, 33%, 50% or a majority) of our ordinary shares would
have to deliver this declaration and undertaking to Lloyd's, unless he received
an exemption from Lloyd's. The decision to grant an exemption is completely
within Lloyd's discretion.
In addition, under English law, if any person who is "connected with" a
Lloyd's broker holds, or subsequently becomes the holder of, more than 5% of
our ordinary shares, that Lloyd's broker risks losing its Lloyd's license. For
these purposes, a person is "connected with" a Lloyd's broker if:
. that person is the subsidiary or holding company of a corporate Lloyd's
broker or a subsidiary of a holding company;
. that person is a director of that Lloyd's broker;
. that person is a related company that controls or is controlled by a
Lloyd's broker or any related company, which is determined by a test
based on having either one-third voting rights or control of the board; or
. any person who is a partner in, or who controls or is controlled by, that
Lloyd's broker or any company which is controlled by a partner in that
Lloyd's broker or any related company of any partner or any director of
any controlled or related company, if the Lloyd's broker is a partnership.
Lien on Shares
Our articles provide that we will have a first lien on all of our
outstanding shares for all debts, liabilities or engagements to or with us,
whether presently payable or not, except for shares which the board declares
exempt. This lien extends to the payment of dividends or other money payable in
respect of any ordinary shares or preferred shares subject to the lien. In
addition, our directors may deduct from any dividend payable to you all sums of
money presently payable by you to us on any account. However, the board has
exempted the ordinary and preferred shares offered by any prospectus supplement
from these provisions.
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Anti-Takeover Effects of our Articles
Our articles contain provisions that make it more difficult for an entity to
acquire control of ACE by means of a tender offer, open market purchase, proxy
fight or otherwise. These provisions, as well as the shareholder rights plan
described under "Shareholder Rights Plan" below, are designed to encourage
persons seeking to acquire control of ACE to negotiate with our directors. We
believe that, as a general rule, your interests would be best served if any
change in control results from negotiations with our directors, who would
negotiate based upon careful consideration of the proposed terms, including the
price, the form of consideration and the anticipated tax effects of the
transaction. However, these provisions could have the effect of discouraging a
prospective acquiror from making a tender offer or otherwise attempting to
obtain control of ACE, which could deprive you of opportunities to realize
takeover premiums for your shares or could depress the market price of your
shares.
No Shareholder Action by Written Consent
Our articles provide that shareholders must take any action required or
permitted to be taken by them at a annual general or extraordinary general
meeting of its shareholders and may not be taken by written consent or
otherwise. The affirmative vote of the holders of at least 66 2/3% of the
outstanding shares is required to amend or repeal, or adopt any provision
inconsistent with, this provision of our articles.
Availability of Shares of Capital Stock for Future Issuances
Our directors may issue shares without further action by shareholders,
including by issuing warrants or rights to acquire shares to discourage or
defeat unsolicited stock accumulation programs and acquisition proposals and by
issuing shares in a private placement or public offering to dilute or deter
stock ownership of persons seeking to obtain control of ACE. This could be
enable the directors to make it more difficult for someone to effect a change
in control of ACE.
Shareholder Proposals
Our articles provide that if you desire to submit a proposal for
consideration at either an annual or extraordinary general meeting, or to
nominate persons for election as directors, you must submit written notice of
your intent to make the proposal or nomination to ACE's Secretary at our
principal executive offices. This notice must be received not later than 60
days prior to the anniversary date of the immediately preceding annual general
meeting or, with respect to an extraordinary general meeting, the close of
business on the tenth day following the date on which the notice is first sent
or given to shareholders. This notice must describe the proposal or nomination
in sufficient detail and must set forth the following information:
. your name and address;
. a representation that you are a holder of record of shares of ACE
entitled to vote at the meeting and you intend to appear in person or by
proxy at the meeting to present the proposal or nomination;
. the class and number of shares of ACE that are beneficially owned by you;
and
. the reasons for conducting the proposed business at the meeting and any
material interest of yours in the business.
In addition, a notice with regard to a nomination of any person for election as
a director must also contain:
. the name and address of any person to be nominated;
. a description of all arrangements or understandings between you and each
nominee and any other person or persons;
. any other information regarding the nominee as would be required to be
included in a proxy statement; and
. the consent of each nominee to serve as a director of ACE, if so elected.
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The presiding officer of the annual general meeting or extraordinary general
meeting will, if the facts warrant, refuse to acknowledge a proposal or
nomination not properly made.
This advance notice for shareholders' proposals provision may have the
effect of precluding a contest for the election of directors or the
introduction of a shareholder proposal and may discourage or deter a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to introduce a proposal. The affirmative vote of the holders of at
least 66 2/3% of the outstanding shares will be required to amend or repeal, or
adopt any provision inconsistent with, this provision.
Shareholder Rights Plan
On May 7, 1999, ACE's board declared a dividend of one preference share
purchase right for each outstanding ordinary share to shareholders of record at
the close of business on June 1, 1999. Generally, each right, entitles the
holder to purchase from us one one-thousandth of a series A junior
participating preference share at an exercise price of $150, subject to
antidilution adjustments. Because of the nature of the preference shares'
dividend, liquidation and voting rights, the value of the one one-thousandth of
a preference share should approximate the value of one ordinary share.
These purchase rights generally will only be exercisable:
. 10 days following a public announcement that a person or a group of
affiliated or associated persons has acquired, or obtained the right to
acquire, 15% or more of our outstanding ordinary shares; or
. 15 business days following the commencement of, or the announcement of an
intention to make, a tender or exchange offer for 15% or more of our
outstanding ordinary shares.
Generally, if any person or group acquires, or obtains the right to acquire,
15% or more of our outstanding ordinary shares, each right, except for rights
held by this person or group, will entitle its holder to purchase ordinary
shares having a value equal to two times the exercise price of the right. If
ACE is acquired in a merger, amalgamation or other business combination
transaction, or if 50% or more of ACE's assets or earnings power is sold, then
proper provision will be made so that each holder of a right, except for a
person or group acquiring, or obtaining the right to acquire, 15% or more of
our outstanding ordinary shares, will be entitled to receive common stock of
the acquiring or surviving company having a value equal to two times the
exercise price of the right.
In addition, our board has the option, at any time after any person or group
acquires, or obtains the right to acquire, 15% or more of our outstanding
ordinary shares, but before they acquires 50% or more of our outstanding
ordinary shares, to exchange each right, except for rights held by this person
or group, for one ordinary share. Further, at any time prior to the time that
any person or group acquires, or obtains the right to acquire, 15% or more of
our outstanding ordinary shares, our board may redeem the rights in whole, but
not in part, at a price of $0.01 per right. These rights will expire on June 1,
2009 if they have not been previously exercised, exchanged or redeemed.
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DESCRIPTION OF THE DEPOSITARY SHARES
General
We may, as set forth in the applicable prospectus supplement, offer
depositary shares, each representing a specified fraction of a share of a
particular series of preferred shares. In this event, depositary receipts
evidencing depositary shares issued pursuant to the deposit agreement will be
issued to those persons purchasing the fractional shares of the related
preferred shares as described in the applicable prospectus supplement. Copies
of the forms of deposit agreement and depositary receipt are filed as exhibits
to the registration statement of which this prospectus forms a part, and the
following summary is qualified in its entirety by reference to these exhibits.
The shares of any class or series of preferred shares represented by
depositary shares will be deposited under a deposit agreement among ACE, a
depositary selected by ACE and the holders of the depositary receipts, referred
to in this section as owners. The depositary will be a bank or trust company
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000. Subject to the terms of the deposit
agreement, each owner will be entitled to all the rights and preferences of the
preferred shares represented by the depositary share in proportion to the
applicable fraction of a preferred share represented by the depositary share,
including dividend, voting, redemption and liquidation rights.
Pending the preparation of definitive depositary receipts, the depositary
may, upon the written order of ACE, issue temporary depositary receipts
substantially identical, and entitling the owners to all the rights pertaining,
to the definitive depositary receipts. Definitive depositary receipts will be
prepared without unreasonable delay, and temporary depositary receipts will be
exchangeable for definitive depositary receipts without charge to the owners.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other distributions
received in respect of the related preferred shares to the owners in proportion
to the number of depositary shares owned. In the event of a distribution other
than in cash, the depositary will distribute property received by it to the
owners, unless the depositary determines that it is not feasible to make this
distribution, in which case the depositary may, with our approval, sell the
property and distribute the net proceeds from the sale to the owners.
Withdrawal of Shares
Upon surrender of the depositary receipts at the depositary's corporate
trust office, unless the related depositary shares have previously been called
for redemption, the owner is entitled to delivery of the number of whole shares
of the related preferred shares and any money or other property represented by
his depositary shares. Owners will be entitled to receive whole shares of the
related preferred shares as set forth in the applicable prospectus supplement,
but holders of the whole preferred shares will not be entitled to exchange the
preferred shares for depositary shares. If the depositary receipts delivered by
owners evidence a number of depositary shares in excess of the number of
depositary shares representing the number of whole preferred shares to be
withdrawn, the depositary will deliver to the owner a new depositary receipt
evidencing this excess number at the same time. In no event will fractional
preferred shares be delivered upon surrender of depositary receipts to the
depositary.
Redemption of Depositary Shares
Whenever we redeem preferred shares held by the depositary, the depositary
will concomitantly redeem the number of depositary shares representing shares
of the related preferred shares. The redemption price per depositary share will
be equal to the applicable fraction of the redemption price per related
preferred share. If less than all the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected by lot or pro rata as may be
determined by the depositary.
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Voting the Preferred Shares
Upon receipt of notice of any meeting at which the holders of the preferred
shares are entitled to vote, the depositary will mail the information contained
in the notice to the applicable record owners of the depositary shares. Each
record owner on the record date, which will be the same as the record date for
the preferred shares, may instruct the depositary how to exercise its voting
rights pertaining to the preferred shares represented by the owner's depositary
shares. The depositary will endeavor, insofar as practicable, to vote the
number of the preferred shares represented by these depositary shares in
accordance with the instructions, and we will agree to take all action which
the depositary deems necessary in order to enable the depositary to do so. The
depositary will abstain from voting preferred shares to the extent it does not
receive specific instructions from the record owners.
Amendment and Termination of the Deposit Agreement
Unless otherwise provided in the applicable prospectus supplement, the form
of depositary receipt and any provision of the deposit agreement may be amended
at any time by agreement between ACE and the depositary. However, any amendment
which materially and adversely alters the rights of the owners will not be
effective unless it has been approved by the owners representing at least a
majority, or, in the case of amendments relating to or affecting rights to
receive dividends or distributions or voting or redemption rights, 66 2/3% of
the depositary shares then outstanding. We or the depositary may terminate the
deposit agreement only:
. if all outstanding depositary shares have been redeemed;
. if there has been a final distribution in respect of the related
preferred shares in connection with any liquidation, dissolution or
winding up of ACE and the distribution has been distributed to the
owners; or
. upon the consent of owners representing not less than 66 2/3% of the
depositary shares outstanding.
Charges of Depositary
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will also pay
charges of the depositary in connection with the initial deposit of the related
preferred shares and any redemption of the preferred shares. Owners will pay
all other transfer and other taxes and governmental charges and any other
charges as are expressly provided in the deposit agreement to be for their
accounts.
The depositary may refuse to effect any transfer of a depositary receipt or
any withdrawal of preferred shares evidenced by the depositary receipts until
all taxes and charges with respect to the receipts or preferred shares are paid
by the owners.
Miscellaneous
The depositary will forward all reports and communications from us which are
delivered to it and which we are required to furnish to the holders of the
preferred shares.
Neither the depositary nor ACE will be liable if it is prevented or delayed
by law or any circumstance beyond its control in performing its obligations
under the deposit agreement. ACE's and the depositary's obligations will be
limited to performance in good faith of the duties under the deposit agreement,
and neither ACE nor the depositary will be obligated to prosecute or defend any
legal proceeding in respect of any depositary or preferred shares unless
satisfactory indemnity is furnished. ACE and the depositary may rely on written
advice of counsel or accountants, on information provided by persons presenting
preferred shares for deposit, owners or other persons believed to be competent
and on documents believed to be genuine.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to us notice of its
election to resign, and we may at any time remove the depositary. Any
resignation or removal of the depositary will take effect upon the appointment
of a successor depositary, which successor depositary must be appointed within
60 days after delivery of the notice of resignation or removal and must be a
bank or trust company having its principal office in the United States and
having a combined capital and surplus of at least $50,000,000.
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DESCRIPTION OF ACE DEBT SECURITIES
The following description of the ACE debt securities sets forth the material
terms and provisions of the ACE debt securities. The ACE senior debt securities
are to be issued under an indenture, referred to in this prospectus as the ACE
senior indenture, between ACE and Bank One Trust Company, N.A., as trustee,
dated as of March 15, 2002, a copy of which is incorporated by reference as an
exhibit to the registration statement of which this prospectus forms a part.
The ACE subordinated debt securities are to be issued under an indenture,
referred to in this prospectus as the ACE subordinated indenture, between ACE
and Bank One Trust Company, N.A., as trustee, which is filed as an exhibit to
the registration statement of which this prospectus forms a part. The ACE
senior indenture and the ACE subordinated indenture are sometimes referred to
in this prospectus collectively as the ACE indentures and each individually as
an ACE indenture. The specific terms applicable to a particular issuance of ACE
debt securities and any variations from the terms set forth below will be set
forth in the applicable prospectus supplement.
Because the following is a summary of the material terms and provisions of
the ACE indentures and the ACE debt securities, it is not complete and you
should refer to the forms of the ACE indentures and the ACE debt securities for
complete information regarding the terms and provisions of the ACE indentures,
including the definitions of some of the terms used below, and the ACE debt
securities. Wherever particular articles, sections or defined terms of an ACE
indenture are referred to, those articles, sections or defined terms are
incorporated in this prospectus by reference, and the statement in connection
with which the reference is made is qualified in its entirety by the reference.
The ACE indentures are substantially identical, except for the covenants of ACE
and provisions relating to subordination.
General
The ACE indentures do not limit the aggregate principal amount of ACE debt
securities which ACE may issue and provide that ACE may issue ACE debt
securities under the ACE indentures from time to time in one or more series.
(Section 3.1) The ACE indentures do not limit the amount of other indebtedness,
as defined below, or ACE debt securities other than specified secured
indebtedness, as described below, which ACE or its subsidiaries may issue.
Unless otherwise provided in a prospectus supplement, the ACE senior debt
securities will be its unsecured obligations and will rank equally with all of
its other unsecured and unsubordinated indebtedness. The ACE subordinated debt
securities will be its unsecured obligations and will be subordinated in right
of payment to the prior payment in full of all of its senior indebtedness,
which term includes ACE senior debt securities, as described below under
"Subordination of ACE Subordinated Debt Securities."
Because ACE is a holding company, its rights and the rights of its
creditors, including you, as a holder of ACE debt securities, and shareholders
to participate in any distribution of assets of any subsidiary upon the
subsidiary's liquidation or reorganization or otherwise would be subject to the
prior claims of the subsidiary's creditors, except to the extent that ACE may
itself be a creditor with recognized claims against the subsidiary. The right
of ACE's creditors, including you, to participate in the distribution of stock
owned by ACE in some of its subsidiaries, including ACE's insurance
subsidiaries, may also be subject to approval by insurance regulatory
authorities having jurisdiction over these subsidiaries.
Each prospectus supplement will describe the following terms of the offered
ACE debt securities:
. the title of, and the series in which, the ACE debt securities will be
included, which may include medium-term notes;
. any limit upon the aggregate principal amount;
. the date or dates, or the method or methods, if any, by which the date or
dates will be determined, on which the principal will be payable;
23
. the rate or rates at which the ACE debt securities will bear interest, if
any, which rate may be zero in the case of ACE debt securities issued at
an issue price representing a discount from the principal amount payable
at maturity, or the method by which the rate or rates will be determined,
including, if applicable, any remarketing option or similar method;
. the date or dates from which interest, if any, will accrue or the method
by which the date or dates will be determined;
. the date or dates on which interest, if any, on the ACE debt securities
will be payable and any regular record dates applicable to the date or
dates on which interest will be payable;
. whether and on what terms ACE will have the option to redeem the ACE debt
securities in lieu of paying additional amounts in respect of Bermuda or
Cayman Islands taxes, fees, duties, assessments or governmental charges
that might be imposed on you and the terms of the option;
. the place or places where the principal of, any premium or interest on or
any additional amounts with respect to any ACE debt securities will be
payable, where any of ACE debt securities that are issued in registered
form may be surrendered for registration of transfer or exchange, and
where any ACE debt securities may be surrendered for conversion or
exchange;
. whether any of the ACE debt securities are to be redeemable at ACE's
option and, if so, the date or dates on which, the period or periods
within which, the price or prices at which and the other terms and
conditions upon which they may be redeemed, in whole or in part;
. whether ACE will be obligated to redeem or purchase any of the ACE debt
securities pursuant to any sinking fund or analogous provision or at your
option, and, if so, the date or dates on which, the period or periods
within which, the price or prices at which and the other terms and
conditions upon which the ACE debt securities must be redeemed or
purchased, in whole or in part, pursuant to this obligation and any
provisions for the remarketing of the ACE debt securities so redeemed or
purchased;
. if other than denominations of $1,000 and any integral multiple of
$1,000, the denominations in which any ACE debt securities to be issued
in registered form will be issuable and, if other than denominations of
$5,000, the denominations in which any ACE debt securities to be issued
in bearer form will be issuable;
. whether the ACE debt securities will be convertible into ordinary shares
and/or exchangeable for other securities, whether or not issued by ACE
and, if so, the terms and conditions upon which the ACE debt securities
will be convertible or exchangeable;
. if other than the principal amount, the portion of the principal amount,
or the method by which the portion will be determined, of the ACE debt
securities that will be payable upon declaration of acceleration of the
maturity of the ACE debt securities;
. if other than United States dollars, the currency of payment, including
composite currencies, in which the principal of, any premium or interest
on or any additional amounts with respect to ACE debt securities will be
paid;
. whether the principal of, any premium or interest on or any additional
amounts with respect to ACE debt securities will be payable, at the
election of ACE or you, in a currency other than that in which the ACE
debt securities are stated to be payable, and the date or dates on which,
the period or periods within which, and the other terms and conditions
upon which this election may be made;
. any index, formula or other method used to determine the amount of
payments of principal of, any premium or interest on or any additional
amounts with respect to ACE debt securities;
. whether the ACE debt securities are to be issued in the form of one or
more global securities and, if so, the identity of the depositary for the
global security or securities;
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. whether the ACE debt securities are ACE senior debt securities or
subordinated debt securities and, if ACE subordinated debt securities,
the applicable subordination provisions;
. in the case of ACE subordinated debt securities, the relative degree, if
any, to which the ACE subordinated debt securities will be senior to or
be subordinated to other series of ACE subordinated debt securities or
other indebtedness of ACE in right of payment, whether the other series
of ACE subordinated debt securities or other indebtedness is outstanding
or not;
. any deletions from, modifications of or additions to the events of
default or covenants of ACE;
. whether the provisions described below under "Discharge, Defeasance and
Covenant Defeasance" will be applicable to the ACE debt securities;
. whether any of the ACE debt securities are to be issued upon the exercise
of warrants and the time, manner and place for the ACE debt securities to
be authenticated and delivered; and
. any other terms of the ACE debt securities and any other deletions from
or modifications or additions to the applicable ACE indenture. (Section
3.1)
ACE will have the ability under the ACE indentures to "reopen" a previously
issued series of ACE debt securities and issue additional ACE debt securities
of that series or establish additional terms of that series. ACE is also
permitted to issue ACE debt securities with the same terms as previously issued
ACE debt securities. (Section 3.1)
Unless otherwise set forth in the applicable prospectus supplement,
principal of premium and interest on and additional amounts, if any, with
respect to any ACE debt securities will initially be payable at the corporate
trust office of the trustee or any other office or agency designated by ACE for
this purpose. Interest on ACE debt securities issued in registered form:
. may be paid by check mailed to the persons entitled to the payments at
their addresses appearing on the security register or by transfer to an
account maintained by the payee with a bank located in the United States;
and
. will be payable on any interest payment date to the persons in whose
names the ACE debt securities are registered at the close of business on
the regular record date with respect to the interest payment date.
ACE will designate the initial paying agents, which will be named in the
applicable prospectus supplement, and may, at any time, designate additional
paying agents, rescind the designation of any paying agent or approve a change
in the office through which any paying agent acts. However, ACE is required to
maintain a paying agent in each place where the principal of, any premium or
interest on or any additional amounts with respect to the ACE debt securities
are payable. (Sections 3.7 and 10.2)
Unless otherwise set forth in the applicable prospectus supplement, you may
present the ACE debt securities for transfer, duly endorsed or accompanied by a
written instrument of transfer if so required by ACE or the security registrar,
or exchange for other ACE debt securities of the same series containing
identical terms and provisions, in any authorized denominations, and of a like
aggregate principal amount, in each case at the office or agency maintained by
ACE for this purposes, which will initially be the corporate trust office of
the trustee. Any transfer or exchange will be made without service charge,
although ACE may require payment of a sum sufficient to cover any tax or other
governmental charge and any other expenses then payable. ACE is not required to:
. issue, register the transfer of, or exchange ACE debt securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption of any ACE debt securities and ending
at the close of business on the day of mailing; or
. register the transfer of or exchange any ACE debt security selected for
redemption, in whole or in part, except the unredeemed portion of any ACE
debt security being redeemed in part. (Section 3.5)
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Unless otherwise set forth in the applicable prospectus supplement, we will
only issue the ACE debt securities in fully registered form without coupons in
minimum denominations of $1,000 and any integral multiple of $1,000. (Section
3.2) If the ACE debt securities are issued in bearer form, any restrictions and
considerations, including offering restrictions and U.S. Federal income tax
considerations applicable to these securities, and to payment on and transfer
and exchange of, these securities, will be described in the applicable
prospectus supplement.
The ACE debt securities may be issued as original issue discount securities,
which means that they will bear no interest or bear interest at a rate which,
at the time of issuance, is below market rates. ACE debt securities issued as
original issue discount securities will be sold at a substantial discount below
their principal amount. U.S. Federal income tax and other considerations
applicable to original issue discount securities will be described in the
applicable prospectus supplement.
If the purchase price, or the principal of, or any premium or interest on,
or any additional amounts with respect to, any ACE debt securities is payable
in, or if any ACE debt securities are denominated in, one or more foreign
currencies or currency units, the restrictions, elections, U.S. Federal income
tax considerations, specific terms and other information will be set forth in
the applicable prospectus supplement.
Unless otherwise set forth in the applicable prospectus supplement, other
than as described below under "--Covenants Applicable to ACE Senior Debt
Securities--Limitation on Liens on Stock of Designated Subsidiaries," the ACE
indentures do not limit ACE's ability to incur indebtedness or protect holders
of the ACE debt securities in the event of a sudden and significant decline in
the credit quality of ACE or a takeover, recapitalization or highly leveraged
or similar transaction involving ACE. Accordingly, ACE could in the future
enter into transactions that could increase the amount of its outstanding
indebtedness or otherwise affect its capital structure or credit rating.
Conversion and Exchange
The terms, if any, on which ACE debt securities are convertible into or
exchangeable for, either mandatorily, at your option or at ACE's option,
property or cash, ordinary shares, preferred shares or other securities,
whether or not issued by ACE, or a combination of any of these, will be set
forth in the applicable prospectus supplement.
Global Securities
The ACE debt securities may be issued, in whole or in part, in the form of
one or more global security(ies) that will be deposited with, or on behalf of,
a depositary identified in the applicable prospectus supplement and registered
in the name of the depositary or its nominee. Interests in any global ACE debt
security will be shown on, and transfers of the ACE debt securities will be
effected only through, records maintained by the depositary and its
participants as described below.
The specific terms of the depositary arrangement will be described in the
applicable prospectus supplement, however, we anticipate that the following
provisions will apply to all depositary arrangements.
Upon the issuance of a global security, the depositary for the global
security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the ACE debt securities represented
by the global security. The accounts will be designated by the underwriters or
agents with respect to the ACE debt securities or by ACE if the ACE debt
securities are offered and sold directly by ACE. Ownership of beneficial
interests in a global security will be limited to persons that may hold
interests through participants. Ownership of beneficial interests in a global
security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the depositary or its nominee with respect
to interests of participants, and on the records of participants with respect
to interests of persons other than participants. The
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laws of some states require that some purchasers of securities take physical
delivery of securities in definitive form. These limits and laws may impair the
ability to transfer beneficial interests in a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of the global security, the depositary or nominee, as the case
may be, will be considered the sole owner or holder of the ACE debt securities
represented by the global security for all purposes under the applicable ACE
indenture. Except as described below, owners of beneficial interests in a
global security will not be entitled to have ACE debt securities represented by
the global security registered in their names and will not receive or be
entitled to receive physical delivery of ACE debt securities in definitive form.
Principal of, any premium and interest on and any additional amounts with
respect to ACE debt securities registered in the name of a depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the global security representing the ACE debt
securities. None of ACE, the trustee, any paying agent or the security
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the global security for the ACE debt securities or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
ACE expects that the depositary or its nominee, upon receipt of any payment
with respect to the ACE debt securities, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interest in the global security for the ACE debt securities as shown on its
records. ACE also expects that payments by participants to owners of beneficial
interests in the global security held through participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in street name, and
will be the responsibility of the participants.
The ACE indentures provide that if:
. the depositary for a series of ACE debt securities notifies ACE that it
is unwilling or unable to continue as depositary, or if the depositary
ceases to be eligible under the applicable ACE indenture, and a successor
depositary is not appointed by ACE within 90 days of written notice;
. ACE determines that the ACE debt securities will no longer be represented
by global securities and executes and delivers to the trustee a company
order to this effect; or
. an event of default with respect to the ACE debt securities has occurred
and is continuing,
the global securities will be exchanged for ACE debt securities in definitive
form of like tenor and of an equal aggregate principal amount, in authorized
denominations.
Definitive ACE debt securities will be registered in the name or names as
the depositary shall instruct the trustee. (Section 3.5) It is expected that
these instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in the global
securities.
Payment of Additional Amounts
ACE will make all payments of principal of and premium, if any, interest and
any other amounts on or in respect of the ACE debt securities of any series
without withholding or deduction at source for, or on account of, any present
or future taxes, fees, duties, assessments or governmental charges of whatever
nature imposed or levied by or on behalf of the Cayman Islands or Bermuda, each
referred to as a taxing jurisdiction, or any political subdivision or taxing
authority of the taxing jurisdiction, unless the taxes, fees, duties,
assessments or governmental charges are required to be withheld or deducted by:
. the laws or any regulations or rulings promulgated under the laws of a
taxing jurisdiction or any political subdivision or taxing authority of
the taxing jurisdiction; or
27
. an official position regarding the application, administration,
interpretation or enforcement of any laws, regulations or rulings,
including, without limitation, a holding by a court of competent
jurisdiction or by a taxing authority in a taxing jurisdiction or any
political subdivision of the taxing jurisdiction.
If a withholding or deduction at source is required, ACE will, subject to
limitations and exceptions described below, pay to you any additional amounts
as may be necessary so that every net payment of principal, premium, if any,
interest or any other amount made to you, after the withholding or deduction,
will not be less than the amount provided for in the ACE debt security and the
applicable ACE indenture to be then due and payable.
ACE will not be required to pay any additional amounts for or on account of:
. any tax, fee, duty, assessment or governmental charge of whatever nature
which would not have been imposed but for the fact that you:
. were a resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or were physically present in,
the relevant taxing jurisdiction or any political subdivision of the
taxing jurisdiction or otherwise had some connection with the relevant
taxing jurisdiction other than by reason of the mere ownership of, or
receipt of payment under, the ACE debt security,
. presented the ACE debt security for payment in the relevant taxing
jurisdiction or any political subdivision of the taxing jurisdiction,
unless the ACE debt security could not have been presented for payment
elsewhere, or
. presented the ACE debt security for payment more than 30 days after
the date on which the payment in respect of the ACE debt security
became due and payable or provided for, whichever is later, except to
the extent that you would have been entitled to these additional
amounts if you had presented the ACE debt security for payment on any
day within that 30-day period;
. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
. any tax, assessment or other governmental charge that is imposed or
withheld by reason of your failure, as the beneficial owner of the ACE
debt security, to comply with any reasonable request by ACE addressed to
you within 90 days of ACE's request:
. to provide information concerning your nationality, residence or
identity or that of the beneficial owner; or
. to make any declaration or other similar claim or satisfy any
information or reporting requirement, which in either case is
required or imposed by statute, treaty, regulation or
administrative practice of the relevant taxing jurisdiction or any
political subdivision of the taxing jurisdiction as a precondition
to exemption from all or part of the tax, assessment or other
governmental charge; or
. any combination of the above items.
In addition, ACE will not pay additional amounts with respect to any payment
of principal of, or premium, if any, or interest on or any other amounts with
respect to, any ACE debt security if you are a fiduciary or partnership or
other than the sole beneficial owner of the ACE debt security to the extent the
payment would be required by the laws of the relevant taxing jurisdiction, or
any political subdivision or relevant taxing authority, to be included in the
income for tax purposes of a beneficiary or partner or settlor with respect to
the fiduciary or a member of the partnership or a beneficial owner who would
not have been entitled to the additional amounts had it been the holder of the
ACE debt security. (Section 10.4)
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Covenants Applicable to ACE Senior Debt Securities
Limitation on Liens on Stock of Designated Subsidiaries
Under the ACE senior indenture, ACE will covenant that, so long as any ACE
senior debt securities are outstanding, it will not, nor will it permit any
subsidiary to, create, assume, incur, guarantee or otherwise permit to exist
any indebtedness secured by any mortgage, pledge, lien, security interest or
other encumbrance upon any shares of capital stock of any designated
subsidiary, whether these shares of stock are now owned or later acquired,
unless ACE concurrently provides that the ACE senior debt securities and, if
ACE so elects, any other indebtedness of ACE that is not subordinate to the ACE
senior debt securities, will be secured equally and ratably with this
indebtedness for at least the time period this other indebtedness is so
secured. (Section 10.5 of the ACE senior indenture)
For purposes of the ACE indentures, "capital stock" of any person means any
and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in, however designated,
equity of a person, including preferred stock, but excluding any debt
securities convertible into equity. (Section 1.1 of the ACE indentures)
The term "designated subsidiary" means any present or future consolidated
subsidiary of ACE, the consolidated net worth of which constitutes at least 5%
of ACE's consolidated net worth. (Section 1.1 of the ACE senior indenture) As
of September 30, 2002, ACE's designated subsidiaries were ACE Bermuda, Tempest,
ACE INA and ACE USA.
For purposes of the ACE indentures, the term "indebtedness" means, with
respect to any person:
. the principal of and any premium and interest on:
. indebtedness for money borrowed and
. indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the person is responsible or
liable;
. all capitalized lease obligations;
. all obligations issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any
title retention agreement, but excluding trade accounts payable arising
in the ordinary course of business;
. all obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction, generally
other than obligations with respect to letters of credit securing
obligations entered into in the ordinary course of business to the extent
these letters of credit are not drawn upon;
. all obligations of the type referred to above of other persons and all
dividends of other persons for the payment of which, in either case, the
person is responsible or liable as obligor, guarantor or otherwise;
. all obligations of the type referred to above of other persons secured by
any mortgage, pledge, lien, security interest or other encumbrance on any
property or asset of the person, whether or not the obligation is assumed
by the person; and
. any amendments, modifications, refundings, renewals or extensions of any
indebtedness or obligation described above. (Section 1.1)
Limitations on Disposition of Stock of Designated Subsidiaries
The ACE senior indenture also provides that, so long as any ACE senior debt
securities are outstanding and except in a transaction otherwise governed by
the ACE indentures, ACE will not issue, sell, assign, transfer or
29
otherwise dispose of any shares of, securities convertible into, or warrants,
rights or options to subscribe for or purchase shares of, capital stock, other
than preferred stock having no voting rights of any kind, of any designated
subsidiary. Similarly, ACE will not permit any designated subsidiary to issue,
other than to ACE, these types of securities, warrants, rights or options,
other than director's qualifying shares and preferred stock having no voting
rights of any kind, of any designated subsidiary, if, after giving effect to
the transaction and the issuance of the maximum number of shares issuable upon
the conversion or exercise of all the convertible securities, warrants, rights
or options, ACE would own, directly or indirectly, less than 80% of the shares
of capital stock of the designated subsidiary, other than preferred stock
having no voting rights.
However, ACE may issue, sell, assign, transfer or otherwise dispose of
securities if the consideration is at least a fair market value as determined
by ACE's board pursuant to a resolution adopted in good faith or if required by
any law, regulation or order of any governmental or insurance regulatory
authority. ACE may also merge or consolidate any designated subsidiary into or
with another direct or indirect subsidiary of ACE, the shares of capital stock
of which ACE owns at least 80% or, subject to the provisions described under
"--Consolidation, Amalgamation, Merger and Sale of Assets" below, sell, assign,
transfer or otherwise dispose of the entire capital stock of any designated
subsidiary at one time if the consideration is at least fair market value as
determined by ACE's board pursuant to a resolution adopted in good faith.
(Section 10.6 of the ACE senior indenture)
Consolidation, Amalgamation, Merger and Sale of Assets
Each ACE indenture provides that ACE may not:
. consolidate or amalgamate with or merge into any person or convey,
transfer or lease its properties and assets as an entirety or
substantially as an entirety to any person, or
. permit any person to consolidate or amalgamate with or merge into ACE, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to ACE,
unless,
. the person is a corporation organized and existing under the laws of the
United States of America, any state of the U.S., the District of
Columbia, Bermuda or the Cayman Islands;
. the surviving entity expressly assumes, by supplemental indenture, the
due and punctual payment of the principal of, any premium and interest on
and any additional amounts with respect to all of the ACE debt securities
and the performance of ACE's obligations under the ACE indenture and the
ACE debt securities;
. the surviving entity provides for conversion or exchange rights in
accordance with the provisions of the ACE debt securities of any series
that are convertible or exchangeable into ordinary shares or other
securities; and
. immediately after giving effect to the transaction and treating any
indebtedness which becomes an obligation of ACE or a subsidiary as a
result of the transaction as having been incurred by ACE or the
subsidiary at the time of the transaction, no event of default, and no
event which after notice or lapse of time or both would become an event
of default, will have happened and be continuing. (Section 8.1)
Events of Default
Each of the following events will constitute an event of default under each
ACE indenture, whether it 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:
. default in the payment of any interest on, or any additional amounts
payable with respect to, any ACE debt security when the interest or
additional amounts become due and payable, and continuance of this
default for a period of 30 days;
30
. default in the payment of the principal of or any premium on, or any
additional amounts payable with respect to, any ACE debt security when
the principal, premium or additional amounts become due and payable
either at maturity, upon any redemption, by declaration of acceleration
or otherwise;
. default in the deposit of any sinking fund payment, when and as due by
the terms of any ACE debt security;
. default in the performance, or breach, of any covenant or warranty of ACE
for the benefit of the holders of the ACE debt securities, and the
continuance of this default or breach for a period of 60 days after ACE
has received written notice from the holders;
. if any event of default, as defined in any mortgage, indenture or
instrument under which ACE may issue, or by which ACE may secure or
evidence, any of its indebtedness, including an event of default under
any other series of ACE debt securities, whether the indebtedness now
exists or is later created or incurred, happens and consists of default
in the payment of more than $50,000,000 in principal amount of
indebtedness at the maturity of the indebtedness, after giving effect to
any applicable grace period, or results in the indebtedness in principal
amount in excess of $50,000,000 becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable, and this default is not cured or the acceleration is not
rescinded or annulled within a period of 30 days after ACE has received
written notice;
. ACE shall fail within 60 days to pay, bond or otherwise discharge any
uninsured judgment or court order for the payment of money in excess of
$50,000,000, which is not stayed on appeal or is not otherwise being
appropriately contested in good faith;
. events in bankruptcy, insolvency or reorganization of ACE; and
. any other event of default, which will be described in the applicable
prospectus supplement. (Section 5.1)
If an event of default with respect to the ACE debt securities of any
series, other than events of bankruptcy, insolvency or reorganization, occurs
and is continuing, either the trustee or the holders of not less than 25% in
principal amount of the outstanding ACE debt securities of the series may
declare the principal amount, or a lesser amount as may be provided for in the
ACE debt securities, of all outstanding ACE debt securities of the series to be
immediately due and payable by written notice. At any time after a declaration
of acceleration has been made, but before a judgment or decree for payment of
money has been obtained by the trustee, generally, the holders of not less than
a majority in principal amount of the ACE debt securities of the series may
rescind and annul the declaration of acceleration. Any event of bankruptcy,
insolvency or reorganization will cause the principal amount and accrued
interest, or the lesser amount as provided for in the ACE debt securities, to
become immediately due and payable without any declaration or other act by the
trustee or any holder. (Section 5.2)
Each ACE indenture provides that, within 90 days after the occurrence of any
event which is, or after notice or lapse of time or both would become, an event
of default the trustee will transmit notice of the default to each holder of
the ACE debt securities unless the default has been cured or waived. However,
except in the case of a default in the payment of principal of, or premium, or
interest, if any, on or additional amounts or any sinking fund or purchase fund
installment with respect to any ACE debt security, the trustee may withhold
this notice if and so long as the board of directors, executive committee or
trust committee of directors and/or responsible officers of the trustee
determines in good faith that the withholding of the notice is in the best
interest of the holders. (Section 6.2)
If an event of default occurs and is continuing with respect to the ACE debt
securities of any series, the trustee may, in its discretion, proceed to
protect and enforce its rights and the rights of the holders of ACE debt
securities by all appropriate judicial proceedings. (Section 5.3) Each ACE
indenture provides that, subject to the duty of the trustee during any default
to act with the required standard of care, the trustee will be under no
obligation to exercise any of its rights or powers under the ACE indenture at
the request or direction of any of the
31
holders, unless the holders have offered the trustee reasonable indemnity.
(Section 6.1) Subject to these indemnification provisions, the holders of a
majority in principal amount of the outstanding ACE debt securities of any
series will generally have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with respect to the ACE
debt securities of the series. (Section 5.12)
Modification and Waiver
ACE and the trustee may modify or amend either ACE indenture with the
consent of the holders of not less than a majority in principal amount of the
outstanding ACE debt securities of each series affected by the modification or
amendment, so long as the modification or amendment does not, without the
consent of each affected holder:
. change the stated maturity of the principal of, any premium or
installment of interest on or any additional amounts with respect to any
ACE debt security,
. reduce the principal amount of, or the rate, or modify the calculation of
the rate, of interest on, or any additional amounts with respect to, or
any premium payable upon the redemption of, any ACE debt security,
. change the obligation of ACE to pay additional amounts,
. reduce the amount of the principal of an original issue discount security
that would be due and payable upon a declaration of acceleration of the
maturity of the original issue discount security or the amount provable
in bankruptcy,
. change the redemption provisions or adversely affect the right of
repayment at the option of any holder,
. change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional amounts with
respect to any ACE debt security is payable,
. impair the right to institute suit for the enforcement of any payment on
or after the stated maturity of any ACE debt security or, in the case of
redemption, on or after the redemption date or, in the case of repayment
at the option of any holder, on or after the repayment date,
. reduce the percentage in principal amount of the outstanding ACE debt
securities, the consent of whose holders is required in order to take
specific actions,
. reduce the requirements for quorum or voting by holders of ACE debt
securities in specified circumstances,
. modify any of the provisions regarding the waiver of past defaults and
the waiver of specified covenants by the holders of ACE debt securities,
except to increase any percentage vote required or to provide that other
provisions of the ACE indenture cannot be modified or waived without the
consent of the holder of each ACE debt security affected by the
modification,
. make any change that adversely affects the right to convert or exchange
any ACE debt security into or for ordinary shares of ACE or other
securities, whether or not issued by ACE, cash or property in accordance
with its terms,
. modify any of the provisions of the ACE subordinated indenture relating
to the subordination of the ACE subordinated debt securities in a manner
adverse to holders of ACE subordinated debt securities, or
. modify any of the above provisions. (Section 9.2)
In addition, no supplemental indenture may, directly or indirectly, modify
or eliminate the subordination provisions of the ACE subordinated indenture in
any manner which might terminate or impair the subordination
32
of the ACE subordinated debt securities of any series to senior indebtedness
without the prior written consent of the holders of the senior indebtedness.
(Section 9.7 of the ACE subordinated indenture)
ACE and the trustee may modify or amend either ACE indenture and the ACE
debt securities of any series without the consent of any holder in order to,
among other things:
. provide for a successor to ACE pursuant to a consolidation, amalgamation,
merger or sale of assets;
. add to the covenants of ACE for the benefit of the holders of all or any
series of ACE debt securities or to surrender any right or power
conferred upon ACE;
. provide for a successor trustee with respect to the ACE debt securities
of all or any series;
. cure any ambiguity or correct or supplement any provision which may be
defective or inconsistent with any other provision, or to make any other
provisions with respect to matters or questions arising under either ACE
indenture which will not adversely affect the interests of the holders of
ACE debt securities of any series;
. change the conditions, limitations and restrictions on the authorized
amount, terms or purposes of issue, authentication and delivery of ACE
debt securities;
. add any additional events of default with respect to all or any series of
ACE debt securities;
. secure the ACE debt securities;
. provide for conversion or exchange rights of the holders of any series of
ACE debt securities; or
. make any other change that does not materially adversely affect the
interests of the holders of any ACE debt securities then outstanding.
(Section 9.1)
The holders of at least a majority in principal amount of the outstanding
ACE debt securities of any series may, on behalf of the holders of all ACE debt
securities of that series, waive compliance by ACE with specified covenants.
(Section 10.8 of the ACE senior indenture; Section 10.6 of the ACE subordinated
indenture) The holders of not less than a majority in principal amount of the
outstanding ACE debt securities of any series may, on behalf of the holders of
all ACE debt securities of that series, waive any past default and its
consequences with respect to the ACE debt securities of that series, except a
default:
. in the payment of principal of, any premium or interest on or any
additional amounts with respect to ACE debt securities of that series; or
. in respect of a covenant or provision that cannot be modified or amended
without the consent of the holder of each outstanding ACE debt security
of any series affected. (Section 5.13)
Under each ACE indenture, ACE must annually furnish the trustee annually a
statement regarding its performance of specified obligations and any default in
its performance under the applicable ACE indenture. ACE is also required to
deliver to the trustee, within five days after its occurrence, written notice
of any event of default, or any event which after notice or lapse of time or
both would constitute an event of default, resulting from the failure to
perform, or breach of, any covenant or warranty contained in the applicable ACE
indenture or the ACE debt securities. (Section 10.9 of the ACE senior
indenture; Section 10.7 of the ACE subordinated indenture)
Discharge, Defeasance and Covenant Defeasance
ACE may discharge specified of its obligations by depositing with the
trustee, in trust, funds in an amount sufficient to pay the entire indebtedness
on the ACE debt securities with respect to principal and any premium, interest
and additional amounts to the date of the deposit if the ACE debt securities
have become due and payable or to the maturity of the ACE debt securities, as
the case may be. (Section 4.1)
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Each ACE indenture also provides that, generally, ACE may elect either:
. to be discharged from any and all obligations with respect to the ACE
debt securities, except for, among other things:
. the obligation to pay additional amounts, if any, upon the occurrence of
specified events of taxation, assessment or governmental charge with
respect to payments on the ACE debt securities and
. other obligations to register the transfer or exchange of the ACE debt
securities,
. to replace temporary or mutilated, destroyed, lost or stolen ACE debt
securities,
. to maintain an office or agency with respect to the ACE debt securities
and
. to hold moneys for payment in trust, each of the above of which is
referred to in this prospectus as defeasance, or
. to be released from its obligations with respect to the ACE debt
securities under specified covenants.
Any omission to comply with these obligations will not constitute an event
of default with respect to the ACE debt securities and is referred to in this
prospectus as covenant defeasance.
Defeasance or covenant defeasance, as the case may be, will be conditioned
upon the irrevocable deposit by ACE with the trustee, in trust, of a cash
amount or government obligations, or both, applicable to the ACE debt
securities, which, through the scheduled payment of principal and interest in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of, any premium and interest on and any additional amounts with
respect to, the ACE debt securities on the scheduled due dates. (Section 4.2)
For purposes of the ACE indentures, "government obligations" means debt
securities which are:
. direct obligations of the United States or the government or the
governments which issued the foreign currency in which the ACE debt
securities are payable, for the payment of which its full faith and
credit is pledged; or
. obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States or the government or
governments which issued the foreign currency in which the ACE debt
securities are payable, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States or
the other government or governments; and
which, in both cases, are not callable or redeemable at the option of the
issuer or issuers of the obligation, and will also include a depository receipt
issued by a bank or trust company as custodian with respect to the government
obligation or a specific payment of interest on or principal of or any other
amount with respect to the government obligation held by the custodian for the
account of the holder of the depository receipt. However, except as required by
law, the custodian is not authorized to make any deduction from the amount
payable to the holder of the depository receipt from any amount received by the
custodian with respect to the government obligation or the specific payment of
interest on or principal of or any other amount with respect to the government
obligation evidenced by the depository receipt. (Section 1.1)
A trust may only be established if, among other things:
. the applicable defeasance or covenant defeasance does not result in a
breach or violation of, or constitute a default under, the applicable ACE
indenture or any other material agreement or instrument to which ACE is a
party or by which it is bound;
. no event of default or event which with notice or lapse of time or both
would become an event of default with respect to the ACE debt securities
to be defeased will have occurred and be continuing on the date of
establishment of the trust and, with respect to defeasance only, at any
time during the period ending on the 123rd day after that date; and
34
. ACE has delivered to the trustee an opinion of counsel to the effect that
you will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of the defeasance or covenant defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the
defeasance or covenant defeasance had not occurred. The opinion of
counsel, in the case of defeasance, must refer to and be based upon a
letter ruling of the I.R.S. received by ACE, a revenue ruling published
by the I.R.S. or a change in applicable U.S. Federal income tax law
occurring after the date of the applicable ACE indenture. (Section 4.2)
If, after ACE has deposited funds and/or government obligations to effect
defeasance or covenant defeasance,
. you elect to, and do, receive payment in a currency other than that in
which the deposit has been made in respect of your ACE debt security, or
. a conversion event occurs in respect of the foreign currency in which the
deposit has been made,
the indebtedness represented by the ACE debt security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of, any premium and interest on and any additional amounts with
respect to the ACE debt security as it becomes due out of the proceeds yielded
by converting the amount or other properties deposited in respect of the ACE
debt security into the currency in which the ACE debt security becomes payable
as a result of the election or conversion event based on either the applicable
market exchange rate for the currency in effect on the second business day
prior to the payment date, or the applicable market exchange rate for the
foreign currency in effect, as nearly as feasible, at the time of the
conversion event. (Section 4.2) For purposes of the ACE indentures, "conversion
event" means the cessation of use of:
. a foreign currency both by the government of the country or countries
which issued it and for the settlement of transactions by a central bank
or other public institutions of or within the international banking
community or
. any currency unit or composite currency for the purposes for which it was
established.
All payments of principal of, any premium and interest on and any additional
amounts with respect to any ACE debt security that are payable in a foreign
currency that ceases to be used by the government or governments of issuance
will be made in U.S. dollars. (Section 1.1)
If ACE effects covenant defeasance with respect to any ACE debt securities
and they are declared due and payable because of the occurrence of any event of
default other than an event of default for which ACE has effected covenant
defeasance, the amount in the foreign currency in which the ACE debt securities
are payable and the government obligations on deposit with the trustee will be
sufficient to pay amounts due on the ACE debt securities at the time of the
stated maturity. However, these amounts may not be sufficient to pay amounts
due on the ACE debt securities at the time of the acceleration resulting from
the event of default. In this case, ACE would remain liable to make payment of
the amounts due at the time of acceleration.
Subordination of ACE Subordinated Debt Securities
The ACE subordinated debt securities will generally be subordinate in right
of payment to the prior payment in full of all senior indebtedness. (Section
16.1 of the ACE subordinated indenture) Upon any payment or distribution of
assets of ACE of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution, winding-up, liquidation or
reorganization of ACE, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership or other proceedings, all amounts due upon all senior
indebtedness will first be paid in full, or payment provided for in money in
accordance with its terms, before the holders of ACE subordinated debt
securities are entitled to receive or retain any payment on account of
principal of, or any premium or interest on or any additional amounts with
respect to the ACE subordinated debt securities. This means that the holders of
senior indebtedness will be entitled to receive any payment or distribution of
any kind
35
or character, including any payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of ACE being
subordinated to the payment of ACE subordinated debt securities, which may be
payable or deliverable in respect of the ACE subordinated debt securities upon
any dissolution, winding-up, liquidation or reorganization or in any
bankruptcy, insolvency, receivership or other proceeding. (Section 16.3 of the
ACE subordinated indenture)
By reason of subordination, in the event of liquidation or insolvency of
ACE, holders of senior indebtedness and holders of other obligations of ACE
that are not subordinated to senior indebtedness may recover more ratably than
the holders of the ACE subordinated debt securities.
Subject to the payment in full of all senior indebtedness, your rights, as a
holder of the ACE subordinated debt securities, will be subrogated to the
rights of the holders of senior indebtedness to receive payments or
distributions of cash, property or securities of ACE applicable to the senior
indebtedness until the principal of, any premium and interest on and any
additional amounts with respect to the ACE senior debt securities have been
paid in full. (Section 16.4 of the ACE subordinated indenture)
No payment of principal of, including redemption and sinking fund payments,
or any premium or interest on or any additional amounts with respect to the ACE
subordinated debt securities of any series may be made:
. if any senior indebtedness is not paid when due and any applicable grace
period with respect to the default has ended and has not been cured or
waived or ceased to exist, or
. if the maturity of any senior indebtedness has been accelerated because
of a default. (Section 16.2 of the ACE subordinated indenture)
The ACE subordinated indenture does not limit or prohibit ACE from incurring
additional senior indebtedness, which may include indebtedness that is senior
to the ACE subordinated debt securities but subordinate to other obligations of
ACE. The ACE senior debt securities will constitute senior indebtedness with
respect to the ACE subordinated debt securities.
The term "senior indebtedness" means all indebtedness of ACE outstanding at
any time, except:
. the ACE subordinated debt securities of the series;
. indebtedness as to which, by the terms of the instrument creating or
evidencing the indebtedness, it is provided that the indebtedness is
subordinated to or ranks equally with the ACE subordinated debt
securities;
. indebtedness of ACE to an affiliate of ACE;
. interest accruing after the filing of a petition initiating any
bankruptcy, insolvency or other similar proceeding unless the interest is
an allowed claim enforceable against ACE in a proceeding under federal or
state bankruptcy laws; and
. trade accounts payable.
Senior indebtedness will continue to be senior indebtedness and be entitled
to the benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of the senior indebtedness. (Sections 1.1
and 16.8 of the ACE subordinated indenture)
The ACE subordinated indenture provides that these subordination provisions
may be changed prior to issuance of the ACE subordinated debt securities. Any
change would be described in the applicable prospectus supplement.
36
New York Law to Govern
The ACE indentures and the ACE debt securities will be governed by, and
construed in accordance with, the laws of the state of New York. (Section 1.13)
Information Concerning the Trustee
ACE may, from time to time, borrow from or maintain deposit accounts and
conduct other banking transactions with Bank One Trust Company, N.A. and its
affiliates in the ordinary course of business.
Under each ACE indenture, Bank One Trust Company is required to transmit
annual reports to all holders regarding its eligibility and qualifications as
trustee under the applicable ACE indenture and related matters. (Section 7.3)
37
DESCRIPTION OF ACE INA DEBT SECURITIES AND ACE GUARANTEE
The following description of the ACE INA debt securities and the ACE
guarantee sets forth the material terms and provisions of the ACE INA debt
securities and the ACE guarantee to which any prospectus supplement may relate.
The ACE INA senior debt securities are to be issued under an indenture,
referred to in this prospectus as the ACE INA senior indenture, among ACE INA,
ACE and Bank One Trust Company, N.A., as trustee, dated as of August 1, 1999, a
copy of which is incorporated by reference as an exhibit to the registration
statement of which this prospectus forms a part. The ACE INA subordinated debt
securities are to be issued under an indenture, referred to in this prospectus
as the ACE INA subordinated indenture, among ACE INA, ACE and Bank One Trust
Company, N.A., as trustee, which is filed as an exhibit to the registration
statement of which this prospectus forms a part. The ACE INA senior indenture
and the ACE INA subordinated indenture are sometimes referred to herein
collectively as the ACE INA indentures and each individually as an ACE INA
indenture. The specific terms applicable to a particular issuance of ACE INA
debt securities and any variations from the terms set forth below will be set
forth in the applicable prospectus supplement.
Because the following is a summary of the material terms and provisions of
the ACE INA indentures, the ACE INA debt securities and the ACE guarantee, it
is not complete and you should refer to the ACE INA indentures and the ACE INA
debt securities for complete information regarding the terms and provisions of
the ACE INA indentures, including the definitions of some of the terms used
below, the ACE INA debt securities and the ACE guarantee. Wherever particular
articles, sections or defined terms of an ACE INA indenture are referred to,
those articles, sections or defined terms are incorporated in this prospectus
by reference, and the statement in connection with which the reference is made
is qualified in its entirety by the reference. The ACE INA indentures are
substantially identical, except for the covenants of ACE INA and ACE and
provisions relating to subordination.
General
The ACE INA indentures do not limit the aggregate principal amount of ACE
INA debt securities which ACE INA may issue and provide that ACE INA may issue
ACE INA debt securities under the ACE INA indenture from time to time in one or
more series. (Section 3.1) The ACE INA indentures do not limit the amount of
other indebtedness, as defined below, or ACE INA debt securities, other than
secured indebtedness as described below, which ACE, ACE INA or their respective
subsidiaries may issue.
Unless otherwise set forth in the applicable prospectus supplement, the ACE
INA senior debt securities will be unsecured obligations of ACE INA and will
rank equally with all of its other unsecured and unsubordinated indebtedness,
subordinated in right of payment to the prior payment in full of all of ACE
INA's senior indebtedness, which term includes ACE INA senior debt securities,
as described below under "Subordination of ACE INA Subordinated Debt
Securities." The ACE INA subordinated debt securities of any series issued to
an ACE Trust will rank equally with each other series of ACE INA subordinated
debt securities issued to other ACE Trusts.
Because ACE INA is a holding company, its rights and the rights of its
creditors, including you as a holder of ACE INA debt securities, to participate
in any distribution of assets of any subsidiary upon that subsidiary's
liquidation or reorganization or otherwise would be subject to the prior claims
of the subsidiary's creditors, except to the extent that ACE INA may itself be
a creditor with recognized claims against the subsidiary. The rights of
creditors of ACE INA, including you as a holder of ACE INA debt securities, to
participate in the distribution of stock owned by ACE INA in its subsidiaries,
including ACE INA's insurance subsidiaries, may also be subject to the approval
of insurance regulatory authorities having jurisdiction over the subsidiaries.
If ACE INA subordinated debt securities are issued to an ACE Trust in
connection with the issuance of preferred securities and common securities by
that ACE Trust, these ACE INA subordinated debt securities may subsequently be
distributed pro rata to the holders of the preferred securities and common
securities in
38
connection with the dissolution of that ACE Trust. This type of distribution
would only occur upon the occurrence of specified events, which will be
described in the applicable prospectus supplement. Only one series of ACE INA
subordinated debt securities will be issued to an ACE Trust in connection with
the issuance of preferred securities and common securities by that ACE Trust.
The applicable prospectus supplement will describe the following terms of
the offered ACE INA debt securities:
. the title of the ACE INA debt securities and the series in which the ACE
INA debt securities will be included, which may include medium-term notes;
. any limit upon the aggregate principal amount;
. the date or dates, or the method or methods, if any, by which the date or
dates will be determined, on which the principal of the ACE INA debt
securities will be payable;
. the rate or rates at which the ACE INA debt securities will bear
interest, if any, or the method by which the rate or rates will be
determined, including, if applicable, any remarketing option or similar
option. This interest rate may be zero in the case of ACE INA debt
securities issued at an issue price representing a discount from the
principal amount payable at maturity;
. the date or dates from which interest, if any, will accrue or the method
by which the date or dates will be determined;
. the date or dates on which interest, if any, on the ACE INA debt
securities will be payable and any regular record dates applicable to the
date or dates on which interest will be payable;
. whether and under what circumstances additional amounts in respect of
taxes, fees, duties, assessments or governmental charges that might be
imposed on holders of the ACE INA debt securities will be payable and, if
so, whether and on what terms ACE INA will have the option to redeem the
ACE INA debt securities in lieu of paying the additional amounts and the
terms of this option;
. the place or places where the principal of, any premium or interest on or
any additional amounts with respect to the ACE INA debt securities will
be payable, where any of the ACE INA debt securities that are issued in
registered form may be surrendered for registration of transfer or
exchange, and where any of the ACE INA debt securities may be surrendered
for conversion or exchange;
. whether any of the ACE INA debt securities are to be redeemable at the
option of ACE INA and, if so, the date or dates on which, the period or
periods within which, the price or prices at which and the other terms
and conditions upon which they may be redeemed, in whole or in part, at
the option of ACE INA;
. whether ACE INA will be obligated to redeem or purchase any of the ACE
INA debt securities pursuant to any sinking fund or analogous provision
or at your option and, if so, the date or dates on which the period or
periods within which, the price or prices at which and the other terms
and conditions upon which the ACE INA debt securities will be redeemed or
purchased, in whole or in part, pursuant to this obligation, and any
provisions for the remarketing of the ACE INA debt securities redeemed or
purchased;
. if other than denominations of $1,000 and any integral multiple of
$1,000, the denominations in which any ACE INA debt securities to be
issued in registered form will be issuable and, if other than a
denomination of $5,000, the denominations in which any ACE INA debt
securities to be issued in bearer form will be issuable;
. whether the ACE INA debt securities will be convertible into other
securities of ACE INA and/or exchangeable for securities of ACE or other
issuers and, if so, the terms and conditions upon which the ACE INA debt
securities will be convertible or exchangeable;
39
. if other than the principal amount, the portion of the principal amount,
or the method by which this portion will be determined, of the ACE INA
debt securities that will be payable upon declaration of acceleration of
the maturity of the ACE INA debt securities;
. if other than United States dollars, the currency of payment, including
composite currencies, in which the principal of, any premium or interest
on or any additional amounts with respect to any of the ACE INA debt
securities will be payable;
. whether the principal of, any premium or interest on or any additional
amounts with respect to the ACE INA debt securities will be payable, at
the election of ACE INA or you, in a currency other than that in which
the ACE INA debt securities are stated to be payable and the date or
dates on which, the period or periods within which, and the other terms
and conditions upon which, this election may be made;
. any index, formula or other method used to determine the amount of
payments of principal of, any premium or interest on or any additional
amounts with respect to the ACE INA debt securities;
. whether the ACE INA debt securities are to be issued in the form of one
or more global securities and, if so, the identity of the depositary for
the global security or securities;
. whether the ACE INA debt securities are senior or subordinated debt
securities and, if subordinated debt securities, the applicable
subordination provisions;
. in the case of ACE INA subordinated debt securities issued to an ACE
Trust, the terms and conditions of any obligation or right of ACE INA or
you to convert or exchange the ACE INA subordinated debt securities into
preferred securities of that ACE Trust;
. in the case of ACE INA subordinated debt securities issued to an ACE
Trust, the specifics of the restated trust agreement and, if applicable,
the agreement relating to ACE's guarantee of the preferred securities of
that ACE Trust;
. in the case of ACE INA subordinated debt securities, the relative degree,
if any, to which the ACE INA subordinated debt securities of the series
and the related ACE guarantee will be senior to or be subordinated to
other series of ACE INA subordinated debt securities and the related ACE
guarantee(s) or other indebtedness of ACE INA or ACE, as the case may be,
in right of payment, whether the other series of ACE INA subordinated
debt securities or other indebtedness is outstanding or not;
. any deletions from, modifications of or additions to the events of
default or covenants of ACE INA or ACE with respect to the ACE INA debt
securities;
. whether the provisions described below under "Discharge, Defeasance and
Covenant Defeasance" will be applicable to the ACE INA debt securities;
. whether any of the ACE INA debt securities are to be issued upon the
exercise of warrants, and the time, manner and place for the ACE INA debt
securities to be authenticated and delivered; and
. any other terms of the ACE INA debt securities and any other deletions
from or modifications or additions to the applicable ACE INA indenture in
respect of the ACE INA debt securities. (Section 3.1)
ACE INA will have the ability under the ACE INA indentures to reopen a
previously issued series of ACE INA debt securities and issue additional ACE
INA debt securities of that series or establish additional terms of that
series. ACE INA is also permitted to issue ACE INA debt securities with the
same terms as previously issued ACE INA debt securities. (Section 3.1)
40
Unless otherwise set forth in the applicable prospectus supplement,
principal of, premium and interest on and additional amounts, if any, with
respect to any ACE INA debt securities will initially be payable at the
corporate trust office of the trustee, or any other office or agency designated
by ACE INA for this purpose. Interest on ACE INA debt securities issued in
registered form:
. may be paid by check mailed to the persons entitled to the payments at
their addresses appearing on the security register or by transfer to an
account maintained by the payee with a bank located in the United States;
and
. will be payable on any interest payment date to the persons in whose
names the ACE INA debt securities are registered at the close of business
on the regular record date with respect to the interest payment date.
ACE INA will designate the initial paying agents, which will be named in the
applicable prospectus supplement, and may, at any time, designate additional
paying agents or rescind the designation of any paying agent or approve a
change in the office through which any paying agent acts. However, ACE INA is
required to maintain a paying agent in each place where the principal of, any
premium or interest on or any additional amounts with respect to the ACE INA
debt securities are payable. (Sections 3.7 and 10.2)
Unless otherwise set forth in the applicable prospectus supplement, you may
present the ACE INA debt securities for transfer, duly endorsed or accompanied
by a written instrument of transfer if so required by ACE INA or the security
registrar, or exchange for other ACE INA debt securities of the same series
containing identical terms and provisions, in any authorized denominations, and
of a like aggregate principal amount, in each case at the office or agency
maintained by ACE INA for these purposes. This office will initially be the
corporate trust office of the trustee. Any transfer or exchange will be made
without service charge, although ACE INA may require payment of a sum
sufficient to cover any tax or other governmental charge and any other expenses
then payable. ACE INA is not required to:
. issue, register the transfer of, or exchange, ACE INA debt securities
during a period beginning at the opening of business 15 days before the
day of mailing of a notice of redemption of any ACE INA debt securities
and ending at the close of business on the day of mailing; or
. register the transfer of or exchange any ACE INA debt security selected
for redemption, in whole or in part, except the unredeemed portion of any
ACE INA debt security being redeemed in part. (Section 3.5)
ACE INA has appointed the trustee as security registrar. The security
registrar and any transfer agent initially designated by ACE INA will be named
in the applicable prospectus supplement. At any time, ACE INA may designate
additional transfer agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent acts. However,
ACE INA is required to maintain a transfer agent in each place where the
principal of, any premium or interest on or any additional amounts with respect
to the ACE INA debt securities are payable. (Section 10.2)
Unless otherwise set forth in the applicable prospectus supplement, we will
only issue the ACE INA debt securities in fully registered form without coupons
in minimum denominations of $1,000 and any integral multiple of $1,000.
(Section 3.2) If the ACE INA debt securities are issued in bearer form, any
restrictions and considerations, including offering restrictions and U.S.
Federal income tax considerations applicable to, and to payment on and transfer
and exchange of, these securities, will be described in the applicable
prospectus supplement.
The ACE INA debt securities may be issued as original issue discount
securities, which means that they will bear no interest or bear interest at a
rate which, at the time of issuance, is below market rates. ACE INA debt
securities issued as original issue discount securities will be sold at a
substantial discount below their principal amount. U.S. Federal income tax and
other considerations applicable to original issue discount securities will be
described in the applicable prospectus supplement.
41
If the purchase price, or the principal of, any premium or interest on or
any additional amounts with respect to, any ACE INA debt securities is payable,
or if any ACE INA debt securities are denominated, in one or more foreign
currencies or currency units, the restrictions, elections, U.S. Federal income
tax considerations, specific terms and other information will be set forth in
the applicable prospectus supplement.
Unless otherwise set forth in the applicable prospectus supplement, other
than as described below under "--Covenants Applicable to ACE INA Senior Debt
Securities--Limitation on Liens on Stock of Designated Subsidiaries," the ACE
INA indentures do not contain any provisions that would limit the ability of
ACE INA to incur indebtedness or that would afford holders of ACE INA debt
securities protection in the event of a sudden and significant decline in the
credit quality of ACE INA or ACE or a takeover, recapitalization or highly
leveraged or similar transaction involving ACE INA or ACE. Accordingly, ACE INA
or ACE could in the future enter into transactions that could increase the
amount of its outstanding indebtedness that could affect its respective capital
structure or credit rating.
ACE Guarantee
ACE will fully and unconditionally guarantee all payments with respect to
the ACE INA debt securities. Unless otherwise set forth in the applicable
prospectus supplement, the ACE guarantee of the ACE INA senior debt securities
will be an unsecured obligation of ACE and will rank equally with all of its
other unsecured and unsubordinated indebtedness, including the ACE senior debt
securities. The ACE guarantee of the ACE INA subordinated debt securities will
be an unsecured obligation of ACE, subordinated in right of payment to the
prior payment in full of all ACE senior indebtedness, which term includes ACE
senior debt securities and the ACE guarantee of the ACE INA senior debt
securities, as described below under "Subordination of ACE Guarantee." The ACE
guarantee of the ACE INA subordinated debt securities of any series issued to
an ACE Trust will rank equally with the ACE guarantee of each other series of
ACE subordinated debt securities issued to other ACE Trusts.
Since ACE is a holding company, its rights and the rights of its creditors,
including you as a holder of the ACE INA debt securities who would be a
creditor of ACE by virtue of the ACE guarantee, and shareholders to participate
in any distribution of the assets of any subsidiary upon the subsidiary's
liquidation or reorganization or otherwise would be subject to prior claims of
the subsidiary's creditors, except to the extent that ACE may itself be a
creditor with recognized claims against the subsidiary. The right of ACE's
creditors, including you, to participate in the distribution of the stock owned
by ACE in some of its subsidiaries, including ACE's insurance subsidiaries, may
also be subject to approval by insurance regulatory authorities having
jurisdiction over the subsidiaries.
ACE will make all payments of principal of and premium, if any, and interest
on and any other amounts with respect to the ACE INA debt securities of any
series without withholding or deduction at source for, or on account of, any
present or future taxes, fees, duties, assessments or governmental charges of
whatever nature imposed or levied by or on behalf of the Cayman Islands or
Bermuda, each referred to in this prospectus as a taxing jurisdiction, or any
political subdivision or taxing authority of the taxing jurisdiction. However,
ACE may withhold or deduct at source for taxes, fees, duties, assessments or
governmental charges if these amounts are required to be withheld or deducted
by:
. the laws, regulations or rulings of a taxing jurisdiction or any
political subdivision or taxing authority of the taxing jurisdiction; or
. an official position regarding the application, administration,
interpretation or enforcement of any the laws, regulations or rulings,
including, without limitation, a holding by a court of competent
jurisdiction or by a taxing authority in a taxing jurisdiction or any
political subdivision of the taxing jurisdiction.
If a withholding or deduction at source is required, ACE will, subject to
specified limitations and exceptions described below, pay to the holder of any
ACE INA debt security the additional amounts as may be necessary so that every
net payment of principal, premium, if any, interest or any other amount made to
you, after the withholding or deduction, will not be less than the amount
provided for in the ACE INA debt security and the applicable ACE INA indenture
to be then due and payable.
42
ACE will not be required to pay any additional amounts for or on account of:
. any tax, fee, duty, assessment or governmental charge of whatever nature
which would not have been imposed but for the fact that you:
. were a resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or were physically present in,
the relevant taxing jurisdiction or any political subdivision of the
taxing jurisdiction or otherwise had some connection with the relevant
taxing jurisdiction other than by reason of the mere ownership of, or
receipt of payment under, the ACE INA debt security,
. presented the ACE INA debt security for payment in the relevant taxing
jurisdiction or any political subdivision of the taxing jurisdiction,
unless it could not have been presented for payment elsewhere, or
. presented the ACE INA debt security for payment more than 30 days
after the date on which the payment in respect of the ACE INA debt
security became due and payable or provided for, whichever is later,
except to the extent that you would have been entitled to these
additional amounts if you had presented the ACE INA debt security for
payment on any day within that 30-day period;
. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
. any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by you or the beneficial owner of the
ACE INA debt security to comply with any reasonable request by ACE
addressed to you within 90 days of the request to:
. provide information concerning your nationality, residence or identity
or that of the beneficial owner; or
. make any declaration or other similar claim or satisfy any information
or reporting requirement, which, in either case, is required or
imposed by statute, treaty, regulation or administrative practice of
the relevant taxing jurisdiction or any political subdivision of the
taxing jurisdiction as a precondition to exemption from all or part of
the tax, assessment or other governmental charge; or
. any combination of the above items.
In addition, ACE will not pay additional amounts with respect to any payment
of principal of, premium, if any, or interest on or any other amounts with
respect to, any ACE INA debt security to any holder who is a fiduciary or
partnership or other than the sole beneficial owner of the ACE INA debt
security to the extent the payment would be required by the laws of the
relevant taxing jurisdiction, or any political subdivision or relevant taxing
authority of the taxing jurisdiction, to be included in the income for tax
purposes of a beneficiary, partner or settlor with respect to the fiduciary or
a member of the partnership or a beneficial owner who would not have been
entitled to these additional amounts had it been the holder of the ACE INA debt
security. (Section 10.4)
Conversion and Exchange
The terms, if any, on which ACE INA debt securities are convertible into or
exchangeable for, either mandatorily, at your option or at ACE INA's option,
for ordinary shares, preferred shares or other securities, whether or not
issued by ACE, property or cash, or a combination of any of these, will be set
forth in the applicable prospectus supplement.
43
Global Securities
The ACE INA debt securities may be issued, in whole or in part, in the form
of one or more global security(ies) that will be deposited with, or on behalf
of, a depositary identified in the applicable prospectus supplement and
registered in the name of the depositary or its nominee. Interests in any
global ACE INA debt security will be shown on, and transfers of the ACE INA
debt securities will be effected only through, records maintained by the
depositary and its participants as described below.
The specific terms of the depositary arrangement will be described in the
applicable prospectus supplement. However, we anticipate that the following
provisions will apply to all depositary arrangements.
Upon the issuance of a global security, the depositary for the global
security or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the ACE INA debt
securities represented by the global security. The accounts will be designated
by the underwriters or agents with respect to the ACE INA debt securities or by
ACE INA if the ACE INA debt securities are offered and sold directly by ACE
INA. Ownership of beneficial interests in a global security will be limited to
persons that may hold interests through participants. Ownership of beneficial
interests in a global security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the depositary
or its nominee with respect to interests of participants, and on the records of
participants with respect to interests of persons other than participants. The
laws of some states require that some purchasers of securities take physical
delivery of securities in definitive form. These limits and laws may impair the
ability to transfer beneficial interests in a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of the global security, the depositary or nominee, as the case
may be, will be considered the sole owner or holder of the ACE INA debt
securities represented by the global security for all purposes under the
applicable ACE INA indenture. Except as described below, owners of beneficial
interests in a global security will not be entitled to have ACE INA debt
securities represented by the global security registered in their names and
will not receive or be entitled to receive physical delivery of ACE INA debt
securities in definitive form.
Principal of, any premium and interest on and any additional amounts with
respect to ACE INA debt securities registered in the name of a depositary or
its nominee will be made to the depositary or its nominee, as the case may be,
as the registered owner of the global security representing the ACE INA debt
securities. None of ACE INA, ACE, the trustee, any paying agent or the security
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the global security for the ACE INA debt securities or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
ACE INA expects that the depositary or its nominee, upon receipt of any
payment with respect to the ACE INA debt securities, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global security
for the ACE INA debt securities as shown on the records of the depositary or
its nominee. ACE INA also expects that payments by participants to owners of
beneficial interests in the global security held through participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in street name,
and will be the responsibility of the participants.
The ACE INA indentures provide that if:
. the depositary for a series of ACE INA debt securities notifies ACE INA
that it is unwilling or unable to continue as depositary or if the
depositary ceases to be eligible under the applicable ACE INA indenture
and a successor depositary is not appointed by ACE INA within 90 days of
written notice;
. ACE INA determines that the ACE INA debt securities will no longer be
represented by global securities and executes and delivers to the trustee
a company order to this effect; or
. an event of default with respect to the ACE INA debt securities has
occurred and is continuing,
44
the global securities will be exchanged for ACE INA debt securities in
definitive form of like tenor and of an equal aggregate principal amount, in
authorized denominations.
Definitive ACE INA debt securities will be registered in the name or names
as the depositary shall instruct the trustee. (Section 3.5) It is expected that
these instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in global
securities.
Option to Extend Interest Payment Date
If and as set forth in the applicable prospectus supplement, ACE INA will
have the right, at any time and from time to time during the term of any series
of ACE INA subordinated debt securities issued to an ACE Trust, to defer
payment of interest for a number of consecutive interest payment periods, which
we refer to in this prospectus supplement as an extension period. However, no
extension period may extend beyond the stated maturity of the ACE INA
subordinated debt securities. U.S. Federal income tax consequences and other
considerations applicable to the ACE INA subordinated debt securities will be
described in the applicable prospectus supplement. (Section 3.11 of the ACE INA
subordinated indenture)
Option to Extend Maturity Date
If set forth in the applicable prospectus supplement, ACE INA will have the
right to:
. change the stated maturity of the principal of the ACE INA subordinated
debt securities issued to an ACE Trust upon the liquidation of that ACE
Trust and the exchange of the ACE INA subordinated debt securities for
the preferred securities of that ACE Trust; or
. extend the stated maturity of the principal of the ACE INA subordinated
debt securities of any series;
provided that:
. neither ACE INA nor ACE is in bankruptcy, otherwise insolvent or in
liquidation;
. neither ACE INA nor ACE has defaulted on any payment on the ACE INA
subordinated debt securities or under ACE's related guarantee, as the
case may be, and no deferred interest payments have accrued;
. the applicable ACE Trust is not in arrears on payments of distributions
on its preferred securities and no deferred distributions have
accumulated;
. the ACE INA subordinated debt securities are rated investment grade by
Standard & Poor's Ratings Services, Moody's Investors Service, Inc. or
another nationally recognized statistical rating organization; and
. the extended stated maturity is no later than the 49th anniversary of the
initial issuance of the preferred securities of the applicable ACE Trust.
If ACE INA exercises its right to liquidate the applicable ACE Trust and
exchange the ACE INA subordinated debt securities for the preferred securities
of the ACE Trust as described above, any changed stated maturity of the
principal of the ACE INA subordinated debt securities shall be no earlier than
the date that is five years after the initial issue date of the preferred
securities and no later than the date 30 years, plus an extended term of up to
an additional 19 years if the conditions described above are satisfied, after
the initial issue date of the preferred securities of the applicable ACE Trust.
(Section 3.14 of the ACE INA subordinated indenture)
45
Redemption
Except as otherwise set forth in the applicable prospectus supplement, in
the case of ACE INA subordinated debt securities issued to an ACE Trust, if an
investment company event or a tax event (as defined below), each referred to in
this prospectus as a special event, shall occur and be continuing, ACE INA may,
at its option, redeem the series of ACE INA subordinated debt securities, in
whole but not in part, at any time within 90 days of the occurrence of the
special event at a redemption price equal to 100% of the principal amount of
the ACE INA subordinated debt securities then outstanding plus accrued and
unpaid interest to the date fixed for redemption. (Section 11.8 of the ACE INA
subordinated indenture)
For purposes of the ACE INA subordinated indenture, "investment company
event" means, in respect of an ACE Trust, the receipt by the ACE Trust of an
opinion of independent counsel to the effect that, as a result of the
occurrence of a change in law or regulation or a change in the interpretation
or application of law or regulation by any legislative body, court or
governmental agency or regulatory authority, the ACE Trust is or will be
considered an investment company that is required to be registered under the
Investment Company Act, which change becomes effective on or after the date of
original issuance of the preferred securities of the ACE Trust. (Section 1.1 of
the ACE INA subordinated indenture) "Tax event" means, in respect of an ACE
Trust, the receipt by the ACE Trust or ACE INA of an opinion of independent
counsel to the effect that, as a result of any amendment to, or change,
including any announced prospective change, in, the laws or regulation of the
United States or any political subdivision or taxing authority of the United
States, or as a result of any official administrative pronouncement or judicial
decision interpreting or applying the laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
the date of original issuance of the preferred securities of the ACE Trust,
there is more than an insubstantial risk that:
. the ACE Trust is, or will be within 90 days of the date of the opinion,
subject to U.S. Federal income tax with respect to income received or
accrued on the corresponding series of ACE INA subordinated debt
securities;
. interest payable by ACE INA on the ACE INA subordinated debt securities
is not, or within 90 days of the date of the opinion will not be,
deductible by ACE INA, in whole or in part, for U.S. Federal income tax
purposes; or
. the ACE Trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges. (Section 1.1 of the ACE INA subordinated indenture)
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of ACE INA subordinated debt
securities to be redeemed at its registered address. Unless ACE INA and ACE, as
guarantor, default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the ACE INA subordinated debt
securities or portions of the ACE INA subordinated debt securities called for
redemption.
Covenants Applicable to ACE INA Senior Debt Securities
Limitation on Liens on Stock of Designated Subsidiaries
Under the ACE INA senior indenture, each of ACE INA and ACE will covenant
that, so long as any ACE INA senior debt securities are outstanding, it will
not, nor will it permit any subsidiary to, create, assume, incur, guarantee or
otherwise permit to exist any indebtedness secured by any mortgage, pledge,
lien, security interest or other encumbrance upon any shares of capital stock
of any designated subsidiary, whether these shares of stock are now owned or
later acquired, unless ACE INA and ACE concurrently provide that the ACE INA
senior debt securities and, if ACE INA and ACE elect, any other indebtedness of
ACE INA that is not subordinate to the ACE INA senior debt securities, will be
secured equally and ratably with the indebtedness for at least the time period
the other indebtedness is so secured. (Section 10.5 of the ACE INA senior
indenture)
46
Limitations on Disposition of Stock of Designated Subsidiaries
The ACE INA senior indenture also provides that, so long as any ACE INA
senior debt securities are outstanding and except in a transaction otherwise
governed by the ACE INA indentures, neither ACE INA nor ACE will issue, sell,
assign, transfer or otherwise dispose of any shares of, securities convertible
into, or warrants, rights or options to subscribe for or purchase shares of,
capital stock, other than preferred stock having no voting rights of any kind,
of any designated subsidiary. Similarly, ACE INA will not permit any designated
subsidiary to issue, other than to ACE INA or ACE, these types of securities,
warrants, rights or options, other than director's qualifying shares and
preferred stock having no voting rights of any kind, of any designated
subsidiary, if, after giving effect to the transaction and the issuance of the
maximum number of shares issuable upon the conversion or exercise of all the
convertible securities, warrants, rights or options, ACE would own, directly or
indirectly, less than 80% of the shares of capital stock of the designated
subsidiary, other than preferred stock having no voting rights.
However, ACE INA may issue, sell, assign, transfer or otherwise dispose of
securities if the consideration is at least a fair market value as determined
by ACE INA's board pursuant to a resolution adopted in good faith or if
required by any law, regulation or order of any governmental or insurance
regulatory authority. ACE INA or ACE, as the case may be, may also merge or
consolidate any designated subsidiary into or with another direct or indirect
subsidiary of ACE, the shares of capital stock of which ACE owns at least 80%
or, subject to the provisions described under "--Consolidation, Amalgamation,
Merger and Sale of Assets" below, sell, assign, transfer or otherwise dispose
of the entire capital stock of any designated subsidiary at one time if the
consideration is at least fair market value as determined by ACE INA's or ACE's
board pursuant to a resolution adopted in good faith. (Section 10.6 of the ACE
INA senior indenture)
Covenants Applicable to ACE INA Subordinated Debt Securities Issued to an ACE
Trust
Each of ACE INA and ACE will also covenant, as to each series of ACE INA
subordinated debt securities issued to an ACE Trust in connection with the
issuance of preferred securities and common securities by that ACE Trust, that
it will not, and will not permit any of its subsidiaries to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the
outstanding capital stock of ACE INA or ACE, as the case may be, or
. make any payment of principal of, or interest or premium, if any, on or
repay, repurchase or redeem any debt security of ACE INA or ACE that
ranks junior in interest to the ACE INA subordinated debt securities or
the related ACE guarantee, as the case may be, or make any guarantee
payments with respect to any guarantee by ACE INA or ACE, as the case may
be, of the debt securities of any subsidiary of ACE INA or ACE, as the
case may be, if the guarantee ranks junior in interest to the ACE INA
subordinated debt securities or the related ACE guarantee, as the case
may be, other than:
. dividends or distributions on the capital stock of ACE INA paid or
made to ACE and dividends or distributions in common stock of ACE INA
or ordinary shares of ACE, as the case may be;
. redemptions or purchases of any rights outstanding under a shareholder
rights plan of ACE INA or ACE, as the case may be, or the declaration
of a dividend of these rights or the issuance of stock under the plans
in the future;
. payments under any preferred securities guarantee; and
. purchases of common stock or ordinary shares related to the issuance
of common stock or ordinary shares under any of ACE INA's or ACE's
benefit plans for its directors, officers or employees
if at that time:
. any event of which ACE INA or ACE has actual knowledge that, with the
giving of notice or lapse of time or both, would constitute an event of
default and in respect of which ACE INA or ACE, as the case may be, shall
not have taken reasonable steps to cure shall have occurred,
47
. ACE shall be in default with respect to its payment of any obligations
under the preferred securities guarantee relating to the related
preferred securities or
. ACE INA shall have given notice of its election to begin an extension
period and shall not have rescinded the notice, or the extension period,
or any extension of the extension period, shall be continuing. (Section
10.9 of the ACE INA subordinated indenture)
If ACE INA subordinated debt securities are issued to an ACE Trust in
connection with the issuance of preferred securities and common securities of
the ACE Trust, for so long as the ACE INA subordinated debt securities remain
outstanding, ACE INA will also covenant:
. to maintain, directly or indirectly, 100% ownership of the common
securities of the ACE Trust; provided, however, that any permitted
successor of ACE INA under the ACE INA subordinated indenture may succeed
to ACE INA's ownership of the common securities,
. not to voluntarily dissolve, wind-up or liquidate the ACE Trust, except
in connection with the distribution of ACE INA subordinated debt
securities to the holders of preferred securities and common securities
in liquidation of the ACE Trust, the redemption of all of the preferred
securities and common securities of the ACE Trust or specified mergers,
consolidations or amalgamations, each as permitted by the restated trust
agreement of the ACE Trust, and
. to use its reasonable efforts, consistent with the terms of the related
trust agreement, to cause the ACE Trust to remain classified as a grantor
trust for U.S. Federal income tax purposes. (Section 10.9 of the ACE INA
subordinated indenture)
Consolidation, Amalgamation, Merger and Sale of Assets
Each ACE INA indenture provides that ACE INA and ACE may not:
. consolidate or amalgamate with or merge into any person or convey,
transfer or lease its properties and assets as an entirety or
substantially as an entirety to any person, or
. permit any person to consolidate or amalgamate with or merge into ACE INA
or ACE, respectively, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to ACE INA or ACE,
respectively,
unless:
. the person is a corporation organized and existing under the laws of the
United States of America, any state of the U.S., the District of
Columbia, Bermuda or the Cayman Islands;
. the surviving entity expressly assumes, by supplemental indenture, the
due and punctual payment of the principal of, any premium and interest on
and any additional amounts with respect to all of the ACE INA or ACE debt
securities, respectively, and the performance of ACE INA's or ACE's
obligations, respectively, under the ACE INA indenture and the ACE INA
debt securities or ACE indenture and ACE debt securities, respectively;
and
. the surviving entity provides for conversion or exchange rights in
accordance with the provisions of the ACE debt securities of any series
that are convertible or exchangeable into ordinary shares or other
securities; and
. immediately after giving effect to the transaction and treating any
indebtedness which becomes an obligation of ACE INA or ACE, respectively,
or a subsidiary as a result of the transaction as having been incurred by
ACE INA or ACE, respectively, or the subsidiary at the time of the
transaction, no event of default, and no event which after notice or
lapse of time or both would become an event of default, will have
happened and be continuing. (Sections 8.1 and 8.3)
48
Events of Default
Each of the following events will constitute an event of default under each
ACE INA indenture, whether it 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:
. default in the payment of any interest on, or any additional amounts
payable with respect to, any ACE INA debt security when the interest or
additional amounts become due and payable, and continuance of this
default for a period of 30 days;
. default in the payment of the principal of or any premium on, or any
additional amounts payable with respect to, any ACE INA debt security
when the principal, premium or additional amounts become due and payable
either at maturity, upon any redemption, by declaration of acceleration
or otherwise;
. default in the deposit of any sinking fund payment, when and as due by
the terms of any ACE INA debt security;
. default in the performance, or breach, of any covenant or warranty of ACE
INA or ACE for the benefit of the holders of the ACE INA debt securities,
and the continuance of this default or breach for a period of 60 days
after ACE INA has received written notice from the holders;
. if any event of default, as defined in any mortgage, indenture or
instrument under which ACE or ACE INA may issue, or by which ACE or ACE
INA may secure or evidence, any indebtedness, including an event of
default under any other series of ACE INA debt securities, whether the
indebtedness now exists or is later created or incurred, happens and
consists of default in the payment of more than $50,000,000 in principal
amount of indebtedness at the maturity of the indebtedness, after giving
effect to any applicable grace period, or results in the indebtedness in
principal amount in excess of $50,000,000 becoming or being declared due
and payable prior to the date on which it would otherwise become due and
payable, and this default is not cured or the acceleration is not
rescinded or annulled within a period of 30 days after ACE INA has
received written notice;
. ACE INA or ACE shall fail within 60 days to pay, bond or otherwise
discharge any uninsured judgment or court order for the payment of money
in excess of $50,000,000, which is not stayed on appeal or is not
otherwise being appropriately contested in good faith;
. events in bankruptcy, insolvency or reorganization of ACE INA or ACE; and
. any other event of default, which will be described in the applicable
prospectus supplement. (Section 5.1)
If an event of default with respect to the ACE INA debt securities of any
series, other than events of bankruptcy, insolvency or reorganization, occurs
and is continuing, either the trustee or the holders of not less than 25% in
principal amount of the outstanding ACE INA debt securities of the series may
declare the principal amount, or a lesser amount as may be provided for in the
ACE debt securities, of all outstanding ACE debt securities of the series to be
immediately due and payable by written notice. In the case of an event of
default with respect to a series of ACE INA subordinated debt securities issued
to an ACE Trust, if the trustee or the holders fail to declare the principal
amount, or lesser amount, to be due and payable immediately, the holders of at
least 25% in liquidation amount of the outstanding preferred securities of the
ACE Trust may do so by written notice. At any time after a declaration of
acceleration has been made, but before a judgment or decree for payment of
money has been obtained by the trustee, generally, the holders of not less than
a majority in principal amount of the ACE INA debt securities of the series may
rescind and annul the declaration of acceleration. In the case of a series of
ACE INA subordinated debt securities issued to an ACE Trust, if the holders
fail to rescind and annul the declaration, the holders of a majority in
liquidation amount of the outstanding preferred securities of the ACE Trust
may, subject to satisfaction of specified conditions, rescind and annul the
declaration by written notice. Any event of bankruptcy, insolvency or
reorganization will cause the principal amount and accrued
49
interest, or the lesser amount as provided for in the ACE INA debt securities,
to become immediately due and payable without any declaration or other act by
the trustee or any holder. (Section 5.2)
Each ACE INA indenture provides that, within 90 days after the occurrence of
any event which is, or after notice or lapse of time or both would become, an
event of default the trustee must transmit, notice of the default to each
holder of the ACE INA debt securities unless the default has been cured or
waived. However, except in the case of a default in the payment of principal
of, or premium or interest, if any, on or additional amounts or any sinking
fund or purchase fund installment with respect to any ACE INA debt security,
the trustee may withhold this notice if and so long as the board of directors,
executive committee or trust committee of directors and/or responsible officers
of the trustee determine in good faith that the withholding of the notice is in
the best interest of the holders. (Section 6.2)
If an event of default occurs and is continuing with respect to the ACE INA
debt securities of any series, the trustee may, in its discretion, proceed to
protect and enforce its rights and the rights of the holders of ACE INA debt
securities by all appropriate judicial proceedings. (Section 5.3) Each ACE INA
indenture provides that, subject to the duty of the trustee during any default
to act with the required standard of care, the trustee will be under no
obligation to exercise any of its rights or powers under the ACE INA indenture
at the request or direction of any of the holders, unless the holders have
offered the trustee reasonable indemnity. (Section 6.1) Subject to these
indemnification provisions, the holders of a majority in principal amount of
the outstanding ACE INA debt securities of any series will generally have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee, or exercising any trust or power conferred on
the trustee, with respect to the ACE INA debt securities of the series.
(Section 5.12)
If an event of default with respect to a series of ACE INA subordinated debt
securities issued to an ACE Trust has occurred and is continuing and this event
is attributable to a default in the payment of principal of, any premium or
interest on or additional amounts with respect to the related ACE INA
subordinated debt securities on the date the principal, premium, interest or
additional amounts are otherwise payable, a holder of preferred securities of
the ACE Trust may institute directly a legal proceeding against ACE INA or ACE,
pursuant to the ACE guarantee, for enforcement of payment to the holder of the
principal of, any premium and interest on and additional amounts with respect
to the related ACE INA subordinated debt securities having a principal amount
equal to the liquidation amount of the holder's related preferred securities,
referred to in this prospectus as a direct action. (Section 5.8 of the ACE INA
subordinated indenture) ACE INA and ACE may not amend the ACE INA subordinated
indenture to remove this right to bring a direct action without the prior
consent of the holders of all of the outstanding preferred securities of the
ACE Trust. (Section 9.2 of the ACE INA subordinated indenture) If the right to
bring a direct action is removed, the applicable ACE Trust may become subject
to the reporting obligations under the Exchange Act. Each of ACE INA and ACE
will have the right under the ACE INA subordinated indenture to set-off any
payment made to a holder of preferred securities by ACE INA or ACE, as the case
may be, in connection with a direct action. (Section 3.12 of the ACE INA
subordinated indenture)
The holders of the preferred securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the related ACE INA subordinated debt securities.
Modification and Waiver
ACE INA, ACE and the trustee may modify or amend either ACE INA indenture
with the consent of the holders of not less than a majority in principal amount
of the outstanding ACE INA debt securities of each series affected by the
modification or amendment, so long as the modification or amendment does not,
without the consent of each affected holder:
. change the stated maturity of the principal of, or any premium or
installment of interest on or any additional amounts with respect to any
ACE INA debt security;
50
. reduce the principal amount of, or the rate, or modify the calculation of
the rate, of interest on, or any additional amounts with respect to, or
any premium payable upon the redemption of, any ACE INA debt security;
. change the obligation of ACE INA or ACE to pay additional amounts with
respect to any ACE INA debt security;
. reduce the amount of the principal of an original issue discount security
that would be due and payable upon a declaration of acceleration of the
maturity of the original issue discount security or the amount provable
in bankruptcy;
. change the redemption provisions of any ACE INA debt security or
adversely affect the right of repayment at the option of any holder of
any ACE INA debt security;
. change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional amounts with
respect to any ACE INA debt security is payable;
. impair the right to institute suit for the enforcement of any payment on
or after the stated maturity of any ACE INA debt security, or, in the
case of redemption, on or after the redemption date or, in the case of
repayment at the option of any holder, on or after the repayment date;
. reduce the percentage in principal amount of the outstanding ACE INA debt
securities, the consent of whose holders is required in order to take
specific actions;
. reduce the requirements for quorum or voting by holders of ACE INA debt
securities;
. modify any of the provisions relating to the subordination of the ACE INA
debt securities or the ACE guarantee in a manner adverse to the holders
of ACE INA subordinated debt securities;
. modify or effect in any manner adverse to the holders of ACE INA debt
securities the terms and conditions of the obligations of ACE in respect
of the due and punctual payment of principal of, or any premium or
interest on, or any sinking fund requirements or additional amounts with
respect to, the ACE INA debt securities;
. modify any of the provisions regarding the waiver of past defaults and
the waiver of specified covenants by the holders of ACE INA debt
securities, except to increase any percentage vote required or to provide
that other provisions of the ACE INA indenture cannot be modified or
waived without the consent of the holder of each ACE INA debt security
affected by the modification or waiver;
. make any change that adversely affects the right to convert or exchange
any ACE INA debt security into or for other securities of ACE INA, ACE or
other securities, cash or property in accordance with its terms; or
. modify any of the above provisions. (Section 9.2)
In addition, no supplemental indenture may, directly or indirectly, modify
or eliminate the subordination provisions of the ACE INA subordinated indenture
in any manner which might terminate or impair the subordination of the ACE INA
subordinated debt securities to senior indebtedness or the subordination of the
related ACE guarantee to ACE senior indebtedness, without the prior written
consent of the holders of the senior indebtedness or the ACE senior
indebtedness, respectively. (Section 9.7 of the ACE INA subordinated indenture)
ACE INA, ACE and the trustee may modify or amend either ACE INA indenture
and the ACE INA debt securities of any series without the consent of any holder
in order to, among other things:
. provide for a successor to ACE INA or ACE pursuant to a consolidation,
amalgamation, merger or sale of assets;
51
. add to the covenants of ACE INA or ACE for the benefit of the holders of
all or any series of ACE INA debt securities or to surrender any right or
power conferred upon ACE INA or ACE by the applicable ACE INA indenture;
. provide for a successor trustee with respect to the ACE INA debt
securities of all or any series;
. cure any ambiguity or correct or supplement any provision in either ACE
INA indenture which may be defective or inconsistent with any other
provision, or to make any other provisions with respect to matters or
questions arising under either ACE INA indenture which will not adversely
affect the interests of the holders of ACE INA debt securities of any
series;
. change the conditions, limitations and restrictions on the authorized
amount, terms or purposes of issue, authentication and delivery of ACE
INA debt securities under either ACE INA indenture;
. add any additional events of default with respect to all or any series of
ACE INA debt securities;
. secure the ACE INA debt securities;
. provide for conversion or exchange rights of the holders of any series of
ACE INA debt securities; or
. make any other change that does not materially adversely affect the
interests of the holders of any ACE INA debt securities then outstanding
under the applicable ACE INA indenture. (Section 9.1)
The holders of at least a majority in principal amount of the outstanding
ACE INA debt securities of any series may, on behalf of the holders of all ACE
INA debt securities of that series, waive compliance by ACE INA and ACE with
specified covenants of the applicable ACE INA indenture. (Section 10.8 of the
ACE INA senior indenture; Section 10.6 of the ACE INA subordinated indenture)
The holders of not less than a majority in principal amount of the outstanding
ACE INA debt securities on behalf of the holders of all ACE INA debt securities
of that series and, in the case of any ACE INA subordinated debt securities
issued to an ACE Trust, the holders of not less than a majority in liquidation
amount of the outstanding preferred securities of the ACE Trust, may waive any
past default and its consequences with respect to the ACE INA debt securities
of that series, except a default:
. in the payment of principal, any premium or interest on or any additional
amounts with respect to ACE INA debt securities of the series; or
. in respect of a covenant or provision of the applicable ACE INA indenture
that cannot be modified or amended without the consent of the holder of
each outstanding ACE INA debt security of any series affected. (Section
5.13)
Under each ACE INA indenture, each of ACE INA and ACE must annually furnish
the trustee a statement regarding its performance of specified obligations and
any default in its performance under the applicable ACE INA indenture. Each of
ACE INA and ACE is also required to deliver to the trustee, within five days
after its occurrence, written notice of any event of default, or any event
which after notice or lapse of time or both would constitute an event of
default, resulting from the failure to perform or breach of any covenant or
warranty contained in the applicable ACE INA indenture or the ACE INA debt
securities of any series. (Sections 10.9 and 10.10 of the ACE INA senior
indenture; Sections 10.7 and 10.8 of the ACE INA subordinated indenture)
Discharge, Defeasance and Covenant Defeasance
ACE INA or ACE may discharge specified of obligations by depositing with the
trustee, in trust, funds in an amount sufficient to pay the entire indebtedness
on the ACE INA debt securities with respect to principal and any premium,
interest and additional amounts to the date of deposit if the ACE INA debt
securities have become due and payable or to the maturity of the ACE INA debt
securities, as the case may be. (Section 4.1)
52
Each ACE INA indenture provides that, generally, ACE INA may elect either:
. to discharge itself and ACE from any and all obligations with respect to
the ACE INA debt securities, except for, among other things, the
obligation of ACE to pay additional amounts upon the occurrence of
specified events of taxation, assessment or governmental charge with
respect to payments on the ACE INA debt securities and other obligations
to register the transfer or exchange of the ACE INA debt securities, to
replace temporary or mutilated, destroyed, lost or stolen ACE INA debt
securities, to maintain an office or agency with respect to the ACE INA
debt securities and to hold moneys for payment in trust, referred to in
this prospectus as defeasance, or
. to release itself and ACE from their respective obligations with respect
to the ACE INA debt securities under specified covenants as will be set
forth in the related prospectus supplement, and any omission to comply
with these obligations shall not constitute a default or an event of
default with respect to the ACE INA debt securities, referred to in this
prospectus as covenant defeasance.
Defeasance or covenant defeasance, as the case may be, shall be conditioned
upon the irrevocable deposit by ACE INA or ACE with the trustee, in trust, of
an amount in U.S. dollars or in the foreign currency in which the ACE INA debt
securities are payable at stated maturity, or government obligations, or both,
applicable to the ACE INA debt securities which, through the scheduled payment
of principal and interest in accordance with their terms, will provide money in
an amount sufficient to pay the principal of, any premium and interest on, and
any additional amounts with respect to, the ACE INA debt securities on the
scheduled due dates. (Section 4.2)
A trust may only be established if, among other things,
. the applicable defeasance or covenant defeasance does not result in a
breach or violation of, or constitute a default under, the applicable ACE
INA indenture or any other material agreement or instrument to which ACE
INA or ACE is a party or by which either or them is bound,
. no event of default or event which with notice or lapse of time or both
would become an event of default with respect to the ACE INA debt
securities to be defeased will have occurred and be continuing on the
date of establishment of the trust and, with respect to defeasance only,
at any time during the period ending on the 123rd day after that date and
. ACE INA or ACE has delivered to the trustee an opinion of counsel to the
effect that the you will not recognize income, gain or loss for U.S.
Federal income tax purposes as a result of the defeasance or covenant
defeasance and will be subject to U.S. Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if the defeasance or covenant defeasance had not occurred. The
opinion of counsel, in the case of defeasance, must refer to and be based
upon a letter ruling of the I.R.S. received by ACE, a Revenue Ruling
published by the I.R.S. or a change in applicable U.S. Federal income tax
law occurring after the date of the applicable ACE indenture. (Section
4.2)
If after ACE INA or ACE has deposited funds and/or government obligations to
effect defeasance or covenant defeasance:
. you are, and do, elect to receive payment in a currency other than that
in which the deposit has been made in respect of your ACE debt security,
or
. a conversion event occurs in respect of the foreign currency in which the
deposit has been made,
the indebtedness represented by the ACE INA debt security will be deemed to
have been, and will be, fully discharged and satisfied through the payment of
the principal of, any premium and interest on, and any additional amounts with
respect to, the ACE INA debt security as it becomes due out of the proceeds
yielded by converting the amount or other properties deposited in respect of
the ACE INA debt security into the currency in which the ACE INA debt security
becomes payable as a result of the election or conversion event based on either
the
53
applicable market exchange rate for the currency in effect on the second
business day prior to the payment date, or the applicable market exchange rate
for the foreign currency in effect, as nearly as feasible, at the time of the
conversion event. (Section 4.2) All payments of principal of, any premium and
interest on, and any additional amounts with respect to, any ACE INA debt
security that are payable in a foreign currency that ceases to be used by the
government or governments of issuance will be made in U.S. dollars. (Section
1.1)
If ACE INA effects covenant defeasance with respect to any ACE INA debt
securities and they are declared due and payable because of the occurrence of
any event of default other than an event of default for which ACE INA has
effected covenant defeasance, the amount in the foreign currency in which the
ACE INA debt securities are payable, and government obligations on deposit with
the trustee, will be sufficient to pay amounts due on the ACE INA debt
securities at the time of the stated maturity. However, these amounts may not
be sufficient to pay amounts due on the ACE INA debt securities at the time of
the acceleration resulting from the event of default. In this case, ACE INA and
ACE would remain liable to make payment of the amounts due at the time of
acceleration.
Subordination of ACE INA Subordinated Debt Securities
The ACE INA subordinated debt securities will generally be subordinate in
right of payment to the prior payment in full of all senior indebtedness.
(Section 16.1 of the ACE INA subordinated indenture) Upon any payment or
distribution of assets of ACE INA of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution, winding-up,
liquidation or reorganization of ACE INA, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all amounts due
upon all senior indebtedness will first be paid in full, or payment provided
for in money in accordance with its terms, before the holders of ACE INA
subordinated debt securities of that series are entitled to receive or retain
any payment on account of principal of, or any premium or interest on, or any
additional amounts with respect to, the ACE INA subordinated debt securities.
This means that the holders of the senior indebtedness will be entitled to
receive any payment or distribution, which may be payable or deliverable by
reason of the payment of any other indebtedness of ACE INA being subordinated
to the payment of ACE INA subordinated debt securities, which may be payable or
deliverable in respect of the ACE INA subordinated debt securities upon any
dissolution, winding-up, liquidation or reorganization or in any bankruptcy,
insolvency, receivership or other proceeding. (Section 16.3 of the ACE INA
subordinated indenture)
By reason of this subordination, in the event of liquidation or insolvency
of ACE INA, holders of senior indebtedness and holders of other obligations of
ACE INA that are not subordinated to the senior indebtedness may recover more,
ratably, than the holders of the ACE INA subordinated debt securities.
Subject to the payment in full of all senior indebtedness, the rights of the
holders of the ACE INA subordinated debt securities will be subrogated to the
rights of the holders of the senior indebtedness to receive payments or
distributions of cash, property or securities of ACE INA applicable to the
senior indebtedness until the principal of, any premium and interest on, and
any additional amounts with respect to, the ACE INA subordinated debt
securities have been paid in full. (Section 16.4 of the ACE INA subordinated
indenture)
No payment of principal of, including redemption and sinking fund payments,
or any premium or interest on or any additional amounts with respect to the ACE
INA subordinated debt securities may be made by ACE INA if:
. any senior indebtedness is not paid when due, any applicable grace period
with respect to the default has ended and the default has not been cured
or waived or ceased to exist, or
. the maturity of any senior indebtedness has been accelerated because of a
default. (Section 16.2 of the ACE INA subordinated indenture)
54
The ACE INA subordinated indenture does not limit or prohibit ACE INA from
incurring additional senior indebtedness, which may include indebtedness that
is senior to the ACE INA subordinated debt securities, but subordinate to other
obligations of ACE INA. The ACE INA senior debt securities will constitute
senior indebtedness with respect to the ACE INA subordinated debt securities.
The term "senior indebtedness" means, with respect to the ACE INA
subordinated debt securities of any particular series, all indebtedness of ACE
INA outstanding at any time, except:
. the ACE INA subordinated debt securities of that series;
. indebtedness as to which, by the terms of the instrument creating or
evidencing the same, it is provided that the indebtedness is subordinated
to or ranks equally with the ACE INA subordinated debt securities;
. indebtedness of ACE INA to an affiliate of ACE INA;
. interest accruing after the filing of a petition initiating any
bankruptcy, insolvency or other similar proceeding unless the interest is
an allowed claim enforceable against ACE INA in a proceeding under
federal or state bankruptcy laws;
. trade accounts payable; and
. any indebtedness, including all other debt securities and guarantees in
respect of those debt securities, initially issued to:
. any ACE Trust or
. any trust, partnership or other entity affiliated with ACE which is a
financing vehicle of ACE or any affiliate of ACE in connection with an
issuance by the entity of preferred securities or other securities
which are similar to the preferred securities described under
"Description of Preferred Securities" below that are guaranteed by ACE
pursuant to an instrument that ranks equally with or junior in right
of payment to the preferred securities guarantees described under
"Description of the Preferred Securities Guarantees" below.
Senior indebtedness with respect to the ACE INA subordinated debt securities
shall continue to be entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of the senior
indebtedness. (Sections 1.1 and 16.8 of the ACE INA subordinated indenture)
The ACE INA subordinated indenture provides that the subordination
provisions, insofar as they relate to any particular series of ACE INA
subordinated debt securities, may be changed prior to issuance of the
applicable ACE INA subordinated debt securities, which change would be
described in the applicable prospectus supplement.
Subordination of ACE Guarantee of ACE INA Subordinated Debt Securities
The ACE guarantee of ACE INA subordinated debt securities will generally be
subordinate in right of payment to the prior payment in full of all ACE senior
indebtedness. (Section 18.1 of the ACE INA subordinated indenture) Upon any
payment or distribution of assets of ACE of any kind or character, whether in
cash, property or securities, to creditors upon any dissolution, winding-up,
liquidation or reorganization of ACE, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due upon
all ACE senior indebtedness will first be paid in full, or payment of the ACE
senior indebtedness provided for in money in accordance with its terms, before
the holders of ACE INA subordinated debt securities are entitled to receive or
retain any payment from ACE on account of principal of, or any premium or
interest on, or any additional amounts with respect to, the ACE INA
subordinated debt securities. This means that the holders of ACE senior
indebtedness shall be entitled to receive any payment or distribution by ACE of
any kind or character, including any payment or distribution which may be
payable or deliverable by ACE by reason of the payment of any other
indebtedness of ACE being subordinated to the payment of ACE INA subordinated
debt
55
securities, which may be payable or deliverable by ACE in respect of the ACE
INA subordinated debt securities upon any dissolution, winding-up, liquidation
or reorganization or in any bankruptcy, insolvency, receivership or other
proceeding. (Section 18.3 of the ACE INA subordinated indenture)
By reason of this subordination, in the event of liquidation or insolvency
of ACE, holders of ACE senior indebtedness and holders of other obligations of
ACE that are not subordinated to the ACE senior indebtedness may recover more,
ratably, than the holders of the ACE INA subordinated debt securities.
Subject to the payment in full of all ACE senior indebtedness, the rights of
the holders of the ACE INA subordinated debt securities under the ACE guarantee
will be subrogated to the rights of the holders of the ACE senior indebtedness
to receive payments or distributions of cash, property or securities of ACE
applicable to the ACE senior indebtedness until the principal of, any premium
and interest on, and any additional amounts with respect to, the ACE INA senior
debt securities have been paid in full. (Section 18.4 of the ACE INA
subordinated indenture)
No payment of principal of, including redemption and sinking fund payments,
or any premium or interest on or any additional amounts with respect to the ACE
INA subordinated debt securities of any series may be made by ACE if:
. any ACE senior indebtedness is not paid when due, any applicable grace
period with respect to the default has ended and the default has not been
cured or waived or ceased to exist, or
. the maturity of any ACE senior indebtedness has been accelerated because
of a default. (Section 18.2 of the ACE INA subordinated indenture)
The ACE INA subordinated indenture does not limit or prohibit ACE from
incurring additional ACE senior indebtedness, which may include indebtedness
that is senior to the ACE guarantee of the ACE INA subordinated debt
securities, but subordinate to other obligations of ACE. The ACE senior debt
securities will constitute ACE senior indebtedness with respect to the ACE INA
subordinated debt securities.
The term "ACE senior indebtedness" means, with respect to the ACE INA
subordinated debt securities of any particular series, all indebtedness of ACE
outstanding at any time, except:
. ACE's obligations under the ACE guarantee in respect of the ACE INA
subordinated debt securities of that series;
. indebtedness as to which, by the terms of the instrument creating or
evidencing the same, it is provided that the indebtedness is subordinated
to or ranks equally with ACE's obligations under the ACE guarantee in
respect of the ACE subordinated debt securities;
. indebtedness of ACE to an affiliate of ACE;
. interest accruing after the filing of a petition initiating any
bankruptcy, insolvency or other similar proceeding unless the interest is
an allowed claim enforceable against ACE in a proceeding under federal or
state bankruptcy laws;
. trade accounts payable;
. ACE's obligations under the ACE guarantee in respect of the ACE INA
subordinated debt securities initially issued to:
. any ACE Trust or
. any trust, partnership or other entity affiliated with ACE which is a
financing vehicle of ACE or any affiliate of ACE in connection with an
issuance by the entity of preferred securities or other securities
which are similar to the preferred securities described under
"Description of Preferred Securities" below that are guaranteed by ACE
pursuant to an instrument that ranks equally with a
56
junior in right of payment to the preferred securities guarantees
described under "Description of Preferred Securities Guarantees"
below; and
. all preferred securities guarantees and all similar guarantees issued by
ACE on behalf of holders of preferred securities of an ACE Trust or other
similar preferred securities issued by any trust, partnership or other
entity affiliated with ACE which is a financing vehicle for ACE or any
affiliate of ACE.
The ACE INA subordinated indenture provides that the subordination
provisions, insofar as they relate to any particular series of ACE INA
subordinated debt securities, may be changed prior to the issuance of that
series of ACE INA subordinated debt securities, which change would be described
in the applicable prospectus supplement.
New York Law to Govern
The ACE INA indentures, the ACE INA debt securities and the ACE guarantee
will be governed by, and construed in accordance with, the laws of the state of
New York. (Section 1.13)
57
DESCRIPTION OF THE WARRANTS TO PURCHASE
ORDINARY SHARES OR PREFERRED SHARES
The following summary sets forth the material terms and provisions of the
ordinary share warrants and preferred share warrants, which would be issued
pursuant to a stock warrant agreement between ACE and a stock warrant agent to
be selected at the time of issue. The stock warrant agreement may include or
incorporate by reference standard warrant provisions substantially in the form
of the standard stock warrant provisions, which is filed as an exhibit to the
registration statement of which this prospectus forms a part.
General
The stock warrants, which will be evidenced by stock warrant certificates,
may be issued under the stock warrant agreement independently or together with,
attached to or separate from any other securities offered by a prospectus
supplement. If stock warrants are offered, the applicable prospectus supplement
will describe the designation and terms of the stock warrants, including,
without limitation, the following:
. the offering price, if any;
. the designation and terms of the ordinary shares or preferred shares
purchasable upon exercise of the stock warrants;
. if applicable, the date on and after which the stock warrants and the
related offered securities will be separately transferable;
. the number of ordinary shares or preferred shares purchasable upon
exercise of one stock warrant and the initial price at which shares may
be purchased upon exercise of the stock warrant;
. the date on which the right to exercise the stock warrants shall commence
and the date on which these rights shall expire;
. a discussion of U.S. Federal income tax considerations;
. any call provisions;
. the currency, currencies or currency units in which the offering price,
if any, and exercise price are payable;
. the antidilution provisions of the stock warrants; and
. any other terms of the stock warrants.
The ordinary shares or preferred shares issuable upon exercise of the stock
warrants will, when issued in accordance with the stock warrant agreement, be
fully paid and nonassessable. This means that the ordinary shares will be paid
for in full at the time they are issued, and, once they are paid for in full,
there will be no further liability for further assessments or taxation.
Exercise of Stock Warrants
You may exercise your stock warrants by surrendering to the stock warrant
agent your stock warrant certificate with the form of election to purchase on
the reverse of the certificate properly completed and executed by you, or your
authorized agent, which signature shall be guaranteed by a bank or trust
company, by a broker or dealer which is a member of the National Association of
Securities Dealers, Inc., which we refer to in this prospectus as the NASD, or
by a member of a national securities exchange. You must indicate on the form of
election whether you are electing to exercise all or a portion of the stock
warrants evidenced by the certificate. You must also submit a payment of the
aggregate exercise price of the stock warrants to be exercised in lawful money
of the United States along with your stock warrant certificates, unless
otherwise set forth in the applicable prospectus supplement. Upon receipt of
the stock warrant certificate, form of election and aggregate payment, if
applicable, by the stock warrant agent, the stock warrant agent will
requisition from the transfer agent for the
58
ordinary shares or the preferred shares, as the case may be, a certificate
representing the number of ordinary shares or preferred shares purchased for
issuance and delivery to you or upon your written order. If you exercise less
than all of the stock warrants evidenced by any stock warrant certificate, the
stock warrant agent shall deliver to you a new stock warrant certificate
representing your unexercised stock warrants.
Antidilution and Other Provisions
The exercise price payable, the number of ordinary shares or preferred
shares purchasable upon the exercise of each stock warrant, and the number of
stock warrants outstanding are subject to adjustment if specified events occur.
These events include:
. the issuance of a stock dividend to holders of ordinary shares or
preferred shares; and
. a combination, subdivision or reclassification of ordinary shares or
preferred shares.
In lieu of adjusting the number of ordinary shares or preferred shares
purchasable upon exercise of each stock warrant, ACE may elect to adjust the
number of stock warrants. No adjustment in the number of shares purchasable
upon exercise of the stock warrants will be required until cumulative
adjustments require an adjustment of at least 1% in the number of shares
purchasable. ACE may also, at its option, reduce the exercise price at any
time. No fractional shares will be issued upon exercise of stock warrants, but
ACE will pay the cash value of any fractional shares otherwise issuable.
Notwithstanding the preceding sentences, in case of any consolidation, merger,
or sale or conveyance of the property of ACE as an entirety or substantially as
an entirety, you, as a stock warrant holder, shall have the right to the kind
and amount of shares of stock and other securities and property, including
cash, receivable by a holder of the number of ordinary shares or preferred
shares into which your stock warrants were exercisable immediately prior to
this event.
No Rights as Shareholders
You will not be entitled, by virtue of being a stock warrant holder, to
vote, to consent, to receive dividends, to receive notice as shareholders with
respect to any meeting of shareholders for the election of directors of ACE or
any other matter, or to exercise any rights whatsoever as shareholders of ACE.
59
DESCRIPTION OF THE WARRANTS TO PURCHASE DEBT SECURITIES
The following summary sets forth the material terms and provisions of the
debt warrants, which would be issued pursuant to a debt warrant agreement
between ACE and a debt warrant agent to be selected at the time of issue. The
debt warrant agreement may include or incorporate by reference standard warrant
provisions substantially in the form of the standard debt warrant provisions,
which is filed as an exhibit to the registration statement of which this
prospectus forms a part.
General
The debt warrants, which will be evidenced by debt warrant certificates, may
be issued under the debt warrant agreement independently or together with,
attached to or separate from any other securities offered by a prospectus
supplement. If debt warrants are offered, the applicable prospectus supplement
will describe the designation and terms of the debt warrants, including,
without limitation, the following:
. the offering price, if any;
. the designation, aggregate principal amount and terms of the ACE debt
securities purchasable upon exercise of the debt warrants;
. if applicable, the date on and after which the debt warrants and the
related offered securities will be separately transferable;
. the principal amount of ACE debt securities purchasable upon exercise of
one debt warrant and the price at which the principal amount of ACE debt
securities may be purchased upon exercise of the debt warrant;
. the date on which the right to exercise the debt warrants shall commence
and the date on which this right shall expire;
. a discussion of U.S. Federal income tax considerations;
. whether the warrants represented by the debt warrant certificates will be
issued in registered or bearer form;
. the currency, currencies or currency units in which the offering price,
if any, and exercise price are payable;
. the antidilution provisions of the debt warrants; and
. any other terms of the debt warrants.
You, as a debt warrant holder, will generally not have any of the rights of
holders of ACE debt securities, including the right to receive the payment of
principal of, any premium or interest on, or any additional amounts with
respect to, the ACE debt securities or to enforce any of the covenants of the
ACE debt securities or the applicable ACE indenture.
Exercise of Debt Warrants
You may exercise your debt warrants by surrendering at the office of the
debt warrant agent your debt warrant certificate with the form of election to
purchase on the reverse side of the certificate properly completed and signed
by you, which signature shall be guaranteed by a bank or trust company, by a
broker or dealer which is a member of the NASD or by a member of a national
securities exchange. You must also submit a payment in full of the exercise
price, as set forth in the applicable prospectus supplement. Upon the exercise
of debt warrants, ACE will issue the ACE debt securities in authorized
denominations in accordance with your instructions. If you exercise less than
all of the debt warrants evidenced by your debt warrant certificate, a new debt
warrant certificate will be issued for the remaining number of debt warrants.
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DESCRIPTION OF PREFERRED SECURITIES
Each ACE Trust will be governed by an amended and restated trust agreement,
which refer to in this prospectus as a trust agreement, a form of which is an
exhibit to the registration statement of which this prospectus forms a part.
Under each trust agreement, the ACE Trust may issue, from time to time, only
one series of preferred securities with the terms set forth in the trust
agreement or made a part of the trust agreement by the Trust Indenture Act,
which terms will be set forth in the applicable prospectus supplement. The
terms of the ACE Trust preferred securities will mirror the terms of the ACE
INA subordinated debt securities, which the ACE Trust will purchase with the
proceeds from the sale of its preferred securities and its common securities.
The ACE INA subordinated debt securities issued to an ACE Trust will be
guaranteed by ACE on a subordinated basis and are referred to in this
prospectus as the corresponding ACE INA subordinated debt securities relating
to that ACE Trust.
Because the following is a summary of the material terms and provisions of
each trust agreement and the preferred securities, it is not complete and you
should refer to the form of amended and restated trust agreement and to the
Trust Indenture Act for complete information regarding the terms and provisions
of the trust agreement and of the preferred securities, including the
definitions of some of the terms used below. Whenever particular sections or
defined terms of a trust agreement are referred to, those sections or defined
terms are incorporated in this prospectus by reference, and the statement in
connection with which the reference is made is qualified in its entirety by the
reference.
Issuance, Status and Guarantee of Preferred Securities
Under the terms of each trust agreement, the administrative trustees will
issue the preferred securities on behalf of the ACE Trust. The preferred
securities will represent preferred beneficial interests in an ACE Trust and
you, as holders of the preferred securities, will be entitled to a preference
in specified circumstances, including as regards distributions and amounts
payable on redemption or liquidation over the common securities of the
applicable ACE Trust. The preferred securities of each ACE Trust will rank
equally, and payments will be made on the preferred securities pro rata, with
the common securities of that ACE Trust, except as described under
"--Subordination of Common Securities" below. The property trustee will hold
legal title to the corresponding ACE INA subordinated debt securities in trust
for your benefit and for the benefit of the holder of the ACE Trust's common
securities. In this prospectus, we refer to the common securities and the
preferred securities of an ACE Trust collectively as the "trust securities" of
that ACE Trust.
ACE will issue a guarantee agreement for your benefit, which we refer to in
this prospectus as the preferred securities guarantee for those ACE trust
preferred securities. Under each preferred securities guarantee, ACE will
guarantee, on a subordinated basis, payment of distributions on the related
preferred securities and amounts payable on redemption or liquidation of the
related preferred securities, but only to the extent that the related ACE Trust
has funds on hand to make these payments. See "Description of Preferred
Securities Guarantees."
Distributions
Distributions on the preferred securities will be cumulative, will
accumulate from the original issue date and will be payable on the dates as
specified in the applicable prospectus supplement. If any date on which these
distributions are payable is not a business day, payment of the distribution
payable on that date will be made on the next succeeding business day without
any additional distributions or other payment in respect of the delay. However,
if the next succeeding business day is in the next succeeding calendar year,
payment of the distribution shall be made on the immediately preceding business
day, in each case with the same force and effect as if made on the date the
payment was originally payable. We refer to each date on which distributions
are payable in this prospectus as a distribution date. (Section 4.1) A
"business day" is any day other than a Saturday or a Sunday, or a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to remain closed or a day on which the corporate trust
office of the property trustee or the trustee for the corresponding ACE INA
subordinated debt securities is closed for business. (Section 1.1)
61
Distributions on each preferred security will be payable at a rate specified
in the applicable prospectus supplement and the amount of distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months unless otherwise specified in the applicable prospectus supplement.
Distributions to which you are entitled will accumulate additional
distributions at the rate per annum if and as specified in the applicable
prospectus supplement. References to "distributions" include any accumulated or
additional distributions unless otherwise stated. (Section 4.1)
If set forth in the applicable prospectus supplement, ACE INA will have the
right under the ACE INA subordinated indenture to defer the payment of interest
at any time or from time to time on any series of corresponding ACE INA
subordinated debt securities for an extension period, which period will be
specified in the applicable prospectus supplement. However, no extension period
may extend beyond the stated maturity of the corresponding ACE INA subordinated
debt securities. See "Description of ACE INA Debt Securities and ACE
Guarantee--Option to Extend Interest Payment Date." As a consequence of any
extension, distributions on the corresponding preferred securities would be
deferred but would continue to accumulate additional distributions at the rate
per annum set forth in the applicable prospectus supplement, which rate will
match the interest rate payable on the corresponding ACE INA subordinated debt
securities during the extension period, by the ACE Trust which issued the
preferred securities during any extension period. (Section 4.1)
The funds of each ACE Trust available for distribution to you will be
limited to payments under the corresponding ACE INA subordinated debt
securities in which the ACE Trust will invest the proceeds from the issuance
and sale of its trust securities. If ACE INA or ACE, as the case may be, does
not make interest payments on those corresponding ACE INA subordinated debt
securities, the property trustee will not have funds available to pay
distributions on the related preferred securities. The payment of
distributions, if and to the extent the ACE Trust has funds legally available
for the payment of the distributions and cash sufficient to make the payments,
is guaranteed by ACE on a limited basis as set forth under "Description of
Preferred Securities Guarantees."
Distributions on the preferred securities will be payable to the holders of
the preferred securities as they appear on the register of the applicable ACE
Trust on the relevant record dates. As long as the preferred securities remain
in book-entry form, the record dates will be one business day prior to the
relevant distribution dates. Generally, each distribution payment will be made
as described under "Global Preferred Securities." If any preferred securities
are not in book-entry form, the relevant record date will be the date at least
15 days prior to the relevant distribution date, as specified in the applicable
prospectus supplement. (Section 4.1)
Redemption or Exchange
Mandatory Redemption. Upon any repayment or redemption, in whole or in
part, of any corresponding ACE INA subordinated debt securities held by an ACE
Trust, whether at stated maturity, upon earlier redemption or otherwise, the
property trustee will simultaneously apply the proceeds from the repayment or
redemption, upon not less than 30 nor more than 60 days notice to holders of
trust securities, to redeem, on a pro rata basis, trust securities having an
aggregate stated liquidation amount equal to the aggregate principal amount of
the corresponding ACE INA subordinated debt securities repaid or redeemed. The
redemption price per trust security will be equal to its stated liquidation
amount, plus any accumulated and unpaid distributions on the trust security to
the date of redemption, plus the related amount of premium, if any, and any
additional amounts paid by ACE INA or ACE upon the concurrent repayment or
redemption of the corresponding ACE INA subordinated debt securities. The
amount described in the preceding sentence is referred to in this prospectus as
the redemption price. (Section 4.2) If less than all of the corresponding ACE
INA subordinated debt securities are to be repaid or redeemed on a redemption
date, then the property trustee shall allocate the proceeds from the repayment
or redemption to the redemption pro rata of the related trust securities.
(Section 4.2)
Generally, ACE INA will have the right to redeem any series of corresponding
ACE INA subordinated debt securities at any time, in whole but not in part,
upon the occurrence of a special event and subject to the conditions described
under "Description of ACE INA Debt Securities and ACE Guarantee--Redemption."
62
Special Event Redemption or Distribution of Corresponding ACE INA
Subordinated Debt Securities. If a special event relating to the trust
securities of an ACE Trust shall occur and be continuing, within 90 days
following the occurrence of the special event, ACE INA has the right to redeem
the corresponding ACE INA subordinated debt securities, in whole but not in
part, and, in doing so, cause a mandatory redemption of the related trust
securities, in whole but not in part, at the redemption price. At any time, ACE
INA has the right to dissolve the ACE Trust and, after satisfaction of the
liabilities of creditors of the ACE Trust, cause the corresponding ACE INA
subordinated debt securities to be distributed to the holders of the trust
securities in liquidation of the ACE Trust. If ACE INA does not elect to redeem
the corresponding ACE INA subordinated debt securities upon the occurrence of a
special event, the applicable trust securities will remain outstanding. If a
tax event has occurred and is continuing, additional sums may be payable on the
corresponding ACE INA subordinated debt securities. For purposes of this
section, "additional sums" means the additional amounts as may be necessary in
order that the amount of distributions then due and payable by an ACE Trust on
its outstanding trust securities shall not be reduced as a result of any
additional taxes, duties and other governmental charges to which it has become
subject as a result of a tax event. (Section 1.1)
On and from the date fixed for any distribution of corresponding ACE INA
subordinated debt securities upon dissolution of an ACE Trust:
. the trust securities will no longer be deemed to be outstanding;
. the depositary or its nominee, as the record holder of the related
preferred securities, will receive a registered global certificate or
certificates representing the corresponding ACE INA subordinated debt
securities to be delivered upon the distribution, upon surrender of the
related preferred securities certificates for exchange; and
. any certificates representing the preferred securities, which is not
surrendered for exchange will be deemed to represent beneficial interests
in the corresponding ACE INA subordinated debt securities having an
aggregate principal amount equal to the aggregate stated liquidation
amount of the preferred securities and accruing interest at the rate
provided for in the debt securities, which rate will equal the
distribution rate on the preferred securities, until the certificates are
presented to the administrative trustees or their agent for exchange.
(Section 9.4)
There can be no assurance as to the market prices for the preferred
securities or the corresponding ACE INA subordinated debt securities that may
be distributed in exchange for preferred securities if a dissolution and
liquidation of an ACE Trust were to occur. Accordingly, the preferred
securities that you may purchase, and the corresponding ACE INA subordinated
debt securities that you may receive on dissolution and liquidation of an ACE
Trust, may trade at a discount to the price that you paid to purchase the
preferred securities.
Redemption Procedures
The property trustee shall redeem the preferred securities on each
redemption date at the redemption price with the applicable proceeds from the
contemporaneous redemption of the corresponding ACE INA subordinated debt
securities. The property trustee shall redeem the preferred securities, and
shall pay the redemption price, on each redemption date only to the extent that
the applicable ACE Trust has funds on hand available for the payment of the
redemption price. See also "--Subordination of Common Securities."
If an ACE Trust gives a notice of redemption, which notice will be
irrevocable, in respect of its preferred securities, then, by 12:00 noon, New
York City time, on the redemption date, to the extent funds are available, the
property trustee will deposit irrevocably with the depositary for the preferred
securities funds sufficient to pay the applicable redemption price. The
property trustee will also give the depositary irrevocable instructions and
authority to pay the redemption price to you, as a holder of the preferred
securities. If the preferred securities are no longer in book-entry form, the
property trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for the preferred securities funds sufficient to pay the
applicable redemption price and will give
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the paying agent irrevocable instructions and authority to pay the redemption
price to you upon surrender of your certificates evidencing the preferred
securities. Notwithstanding the preceding sentences, distributions payable on
or prior to the redemption date for any preferred securities called for
redemption shall be payable to you on the relevant record date for the related
distribution dates. If notice of redemption shall have been given and funds
deposited as required, then, immediately prior to the close of business on the
date of the deposit, all of your rights, as a holder of preferred securities so
called for redemption, will cease, except your right to receive the redemption
price, but without interest, and your preferred securities will cease to be
outstanding. If any date on which any redemption price is payable is not a
business day, then payment of the redemption price payable on that date will be
made on the next succeeding business day without any interest or other payment
in respect of the delay. However, if the next succeeding business day falls in
the next calendar year, the payment will be made on the immediately preceding
business day, in each case with the same force and effect as if made on the
proper payment date. If that payment of the redemption price is improperly
withheld or refused and not paid either by the ACE Trust or by ACE pursuant to
the preferred securities guarantee as described under "Description of Preferred
Securities Guarantees," distributions on the preferred securities will continue
to accumulate interest at the then applicable rate, from the redemption date
originally established by the ACE Trust for the preferred securities to the
date the redemption price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
redemption price.
Generally, ACE or its subsidiaries, including ACE INA, may, at any time and
from time to time, purchase outstanding preferred securities by tender, in the
open market or by private agreement.
Payment of the redemption price on the preferred securities shall be made to
the applicable record holders as they appear on the register for the preferred
securities on the relevant record date, which shall be one business day prior
to the relevant redemption date. If any preferred securities are not in
book-entry form, the relevant record date for the preferred securities shall be
a date at least 15 days prior to the redemption date, as specified in the
applicable prospectus supplement.
The property trustee shall allocate the aggregate liquidation amount pro
rata to the trust securities based upon the relative liquidation amounts of the
classes if less than all of the trust securities issued by an ACE Trust are to
be redeemed on a redemption date. The property trustee shall select on a pro
rata basis not more than 60 days prior to the redemption date from the
outstanding preferred securities not previously called for redemption the
particular preferred securities to be redeemed by any method, including without
limitation by lot, as it shall deem fair and appropriate. The property trustee
shall promptly notify the trust registrar in writing of the preferred
securities selected for redemption and, in the case of any preferred securities
selected for partial redemption, the liquidation amount of the preferred
securities to be redeemed. Generally, for purposes of each trust agreement, all
provisions relating to the redemption of preferred securities shall relate, in
the case of any preferred securities redeemed or to be redeemed only in part,
to the portion of the liquidation amount of preferred securities which has been
or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of trust securities to be
redeemed at its registered address. Unless each of ACE INA and ACE defaults in
payment of the redemption price on the corresponding ACE INA subordinated debt
securities, on and after the redemption date interest will cease to accrue on
the ACE INA subordinated debt securities or portions of the ACE INA
subordinated debt securities, and distributions will cease to accrue on the
related preferred securities or portions of the related preferred securities,
called for redemption. (Section 4.2)
Subordination of Common Securities
Payment of distributions on, and the redemption price of, each ACE Trust's
trust securities, as applicable, shall be made pro rata based on the
liquidation amount of the trust securities. However, if an event of default
under the corresponding ACE INA subordinated debt securities shall have
occurred and be continuing on any distribution date or redemption date, no
payment of any distribution on, or redemption price of, any of the ACE
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Trust's 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 ACE Trust's outstanding preferred securities for all distribution periods
terminating on or prior to that date, or in the case of payment of the
redemption price the full amount of the redemption price on all of the ACE
Trust's outstanding preferred securities then called for redemption, shall have
been made or provided for, and all funds available to the property trustee
shall first be applied to the payment in full in cash of all distributions on,
or redemption price of, the ACE Trust's preferred securities then due and
payable.
If any event of default under the trust agreement resulting from a event of
default under the corresponding ACE INA subordinated debt securities occurs,
the holder of the ACE Trust's common securities will be deemed to have waived
any right to act with respect to that event of default until the effect of all
of the events of default with respect to the preferred securities have been
cured, waived or otherwise eliminated. Until these events of default have been
so cured, waived or otherwise eliminated, the property trustee shall act solely
on behalf of the holders of the preferred securities and not on behalf of the
holder of the ACE Trust's common securities, and only the holders of the
preferred securities will have the right to direct the property trustee to act
on their behalf. (Section 4.3)
Liquidation Distribution Upon Dissolution of ACE Trust
Pursuant to each trust agreement, each ACE Trust shall automatically
dissolve upon expiration of its term and shall dissolve on the first to occur
of:
. specified events of bankruptcy, dissolution or liquidation of ACE INA or
ACE;
. the written direction to the property trustee from ACE INA, as depositor,
at any time, which direction is optional and wholly within the discretion
of ACE INA, to dissolve the ACE Trust and distribute corresponding ACE
INA subordinated debt securities having an aggregate principal amount
equal to the aggregate stated liquidation amount of the trust securities
to the holders of the trust securities in exchange for the trust
securities;
. the redemption of all of the ACE Trust's trust securities following a
special event;
. the redemption of all of the ACE Trust's preferred securities as
described under "Description of Preferred Securities--Redemption or
Exchange--Mandatory Redemption"; and
. the entry of an order for the dissolution of the ACE Trust by a court of
competent jurisdiction. (Section 9.2)
If an early dissolution occurs as described in the first, second and fifth
bullets above or upon the date designated for automatic dissolution of the ACE
Trust, the ACE Trust shall be liquidated by the ACE trustees as expeditiously
as the ACE trustees determine to be possible by distributing to the holders of
the trust securities, after satisfaction of liabilities to the ACE Trust's
creditors, corresponding ACE INA subordinated debt securities having an
aggregate principal amount equal to the aggregate stated liquidation amount of
the trust securities. However, if the property trustee determines that this
distribution is not practical, the holders will be entitled to receive out of
the ACE Trust's assets available for distribution, after satisfaction of
liabilities to the ACE Trust's creditors, an amount equal to, in the case of
holders of preferred securities, the aggregate of the liquidation amount plus
accumulated and unpaid distributions on the trust securities to the date of
payment, this amount being referred to in this prospectus as the liquidation
distribution. If the liquidation distribution can be paid only in part because
the ACE Trust has insufficient assets available to pay in full the aggregate
liquidation distribution, then the amounts payable directly by the ACE Trust on
its preferred securities shall be paid on a pro rata basis. The holder of the
ACE Trust's common securities will be entitled to receive distributions upon any
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liquidation pro rata with the holders of its preferred securities, except that
if an event of default under the corresponding ACE INA subordinated debt
securities has occurred and is continuing, the preferred securities shall have
a priority over the common securities. (Section 9.4)
Events of Default; Notice
The following each constitute an event of default under each trust agreement
with respect to the applicable preferred securities whatever the reason for the
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:
. the occurrence of an event of default in respect of the corresponding ACE
INA subordinated debt securities (see "Description of ACE INA Debt
Securities and ACE Guarantee--Events of Default");
. default by the property trustee in the payment of any distribution when
it becomes due and payable, and continuation of this default for a period
of 30 days;
. default by the property trustee in the payment of any redemption price of
any trust security when it becomes due and payable;
. default in the performance, or breach, in any material respect, of any
covenant or warranty of the ACE trustees in the trust agreement, other
than a covenant or warranty a default in the performance or breach those
covenants in the preceding two bullets, and continuation of the default
or breach for a period of 60 days after the holders of at least 25% in
aggregate liquidation preference of the outstanding preferred securities
of the applicable ACE Trust have given written notice specifying the
default or breach, requiring it to be remedied and stating that the
notice is a "Notice of Default" under the trust agreement, by registered
or certified mail to the defaulting ACE trustee(s); and
. the occurrence of specified events of bankruptcy or insolvency with
respect to the property trustee and the failure by ACE INA, as depositor,
to appoint a successor property trustee within 60 days of the occurrence.
(Section 1.1)
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee shall transmit
notice of the event of default to the holders of the applicable preferred
securities, the administrative trustees and ACE INA, as depositor, unless the
event of default shall have been cured or waived. (Section 8.2) ACE INA, as
depositor, and the administrative trustees are required to file annually with
the property trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under each trust
agreement. (Sections 8.15 and 8.16)
If an event of default under the corresponding ACE INA subordinated debt
securities has occurred and is continuing, the preferred securities shall have
a preference over the common securities upon dissolution of each ACE Trust as
described above. See "--Liquidation Distribution Upon Dissolution of ACE
Trust." The existence of an event of default under the trust agreement does not
entitle the holders of preferred securities to accelerate the maturity of the
preferred securities.
Removal of ACE Trustees
Unless an event of default under the corresponding ACE INA subordinated debt
securities shall have occurred and be continuing, any ACE trustee may be
removed at any time by the holder of the ACE Trust's common securities. If an
event of default under the corresponding ACE INA subordinated debt securities
has occurred and is continuing, the property trustee and the Delaware trustee
may be removed by the holders of a majority in liquidation amount of the
outstanding preferred securities. In no event will the holders of the preferred
securities have the right to vote to appoint, remove or replace the
administrative trustees, which voting
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rights are vested exclusively in the holder of the ACE Trust's common
securities. No resignation or removal of an ACE trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the applicable trust
agreement. (Section 8.10)
Co-Trustees and Separate Property Trustee
Unless an event of default shall have occurred and be continuing, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the property of any ACE Trust may at the time
be located, ACE INA, as depositor, and the administrative trustees shall have
power, at any time or times, to appoint one or more persons either to act as a
co-trustee jointly with the property trustee of all or any part of the property
of the ACE Trust or to act as separate trustee of any property, in either case
with the powers as may be provided in the instrument of appointment. ACE INA,
as depositor, and the administrative trustees shall generally also have the
power to vest in that person or persons in that capacity any property, title,
right or power deemed necessary or desirable. If an event of default under the
corresponding ACE INA subordinated debt securities has occurred and is
continuing, the property trustee alone shall have power to make this
appointment. (Section 8.9)
Merger or Consolidation of ACE Trustees
Any corporation into which the property trustee, the Delaware trustee or any
administrative trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the ACE trustee shall be a party,
shall be the successor of the ACE trustee under each trust agreement, so long
as the corporation is otherwise qualified and eligible. (Section 8.12)
Mergers, Consolidations, Amalgamations or Replacements of the ACE Trusts
An ACE Trust may not merge with or into, convert into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any corporation or other entity, except
as described below or as described in "Liquidation Distribution Upon
Dissolution of ACE Trust." An ACE Trust may, at the request of ACE INA, with
the consent of only the administrative trustees and without the consent of the
holders of the preferred securities, merge with or into, convert into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state so long as the following conditions are met:
. The successor entity either:
. expressly assumes all of the obligations of the ACE Trust with respect
to the preferred securities or
. substitutes for the preferred securities other securities having
substantially the same terms as the preferred securities, referred to
in this prospectus as the successor securities, so long as the
successor securities rank the same as the preferred securities rank in
priority with respect to distributions and payments upon liquidation,
redemption and otherwise;
. ACE expressly appoints a trustee of the successor entity possessing the
same powers and duties as the property trustee as the holder of the
corresponding ACE INA subordinated debt securities;
. The successor securities are listed or traded, or any successor
securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the preferred
securities are then listed or traded, if any;
. The merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the preferred securities,
including any successor securities, to be downgraded by any nationally
recognized statistical rating organization;
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. The merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the preferred securities,
including any successor securities, in any material respect;
. The successor entity has a purpose substantially identical to that of the
ACE Trust;
. Prior to the merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, ACE INA has received an
opinion from independent counsel to the ACE Trust to the effect that:
. the merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the preferred securities,
including any successor securities, in any material respect, and
. following the merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the ACE Trust nor
any successor entity will be required to register as an "investment
company" under the Investment Company Act; and
. ACE INA or any permitted successor or assignee owns all of the common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the preferred securities guarantee.
Notwithstanding the preceding description, an ACE Trust shall not, except
with the consent of holders of 100% in liquidation amount of the preferred
securities, consolidate, amalgamate, merge with or into, convert into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, convert into, or replace it if the
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the ACE Trust or the successor entity to be classified as other
than a grantor trust for U.S. Federal income tax purposes. (Section 9.5)
Voting and Preemptive Rights
Except as provided below and under "--Removal of ACE Trustees," "Description
of ACE INA Debt Securities and ACE Guarantee--Events of Default," "Description
of Preferred Securities Guarantees--Amendments and Assignment", the holders of
the preferred securities will generally not have any voting rights. Holders of
the preferred securities have no preemptive or similar rights. (Sections 5.14
and 6.1)
Amendment of Restated Trust Agreements
Each trust agreement may be amended from time to time by ACE INA and the ACE
trustees, without the consent of the holders of the trust securities:
. to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, which shall not be inconsistent with the other
provisions of the trust agreement, or
. to modify, eliminate or add to any provisions of the trust agreement to
the extent as shall be necessary to ensure that the ACE Trust will be
classified for U.S. Federal income tax purposes as a grantor trust at all
times that any trust securities are outstanding or to ensure that the ACE
Trust will not be required to register as an "investment company" under
the Investment Company Act;
However, in the case of the first bullet above, that action shall not
adversely affect in any material respect the interests of any holder of trust
securities. Any amendments of a trust agreement shall become effective when
notice of the amendment is given to the holders of trust securities of the
applicable ACE Trust.
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Each trust agreement may be amended by the ACE Trustees and ACE INA with the
consent of holders representing not less than a majority, based upon
liquidation amounts, of the outstanding trust securities and receipt by the ACE
trustees of an opinion of counsel to the effect that the amendment or the
exercise of any power granted to the ACE trustees in accordance with the
amendment will not affect the ACE Trust's status as a grantor trust for U.S.
Federal income tax purposes or the ACE Trust's exemption from status as an
"investment company" under the Investment Company Act. However, without the
consent of each holder of trust securities, the trust agreement may not be
amended to:
. change the amount or timing of any distribution on the trust securities
or otherwise adversely affect the amount of any distribution required to
be made in respect of the trust securities as of a specified date; or
. restrict the right of a holder of trust securities to institute suit for
the enforcement of any payment on or after the date. (Section 10.2)
So long as any corresponding ACE INA subordinated debt securities are held
by the property trustee, the ACE trustees shall not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the ACE INA subordinated indenture,
or executing any trust or power conferred on that trustee with respect to
the corresponding ACE INA subordinated debt securities;
. waive any past default that is waivable under the ACE INA subordinated
indenture, as described in "Description of the ACE INA Debt Securities
and ACE Guarantee--Modification and Waiver";
. exercise any right to rescind or annul a declaration that the principal
of all the ACE INA subordinated debt securities shall be due and payable;
or
. consent to any amendment, modification or termination of the ACE INA
subordinated indenture or the corresponding ACE INA subordinated debt
securities, where the consent shall be required,
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate liquidation amount of all outstanding preferred
securities.
However, where a consent under the ACE INA subordinated indenture would
require the consent of each holder of the affected corresponding ACE INA
subordinated debt securities, no consent shall be given by the property trustee
without the prior consent of each holder of the corresponding preferred
securities. The ACE trustees shall not revoke any action previously authorized
or approved by a vote of the holders of the preferred securities except by
subsequent vote of the holders of the preferred securities. The property
trustee shall notify each holder of preferred securities of any notice of
default with respect to the corresponding ACE INA subordinated debt securities.
In addition to obtaining these approvals of the holders of the preferred
securities, prior to taking any of these actions, the ACE trustees shall obtain
an opinion of counsel to the effect that the ACE Trust will not be classified
as an association taxable as a corporation for U.S. Federal income tax purposes
on account of that action. (Section 6.1)
Any required approval or action of holders of preferred securities may be
given or taken at a meeting of holders of preferred securities convened for
that purpose or pursuant to written consent. The property trustee will cause a
notice of any meeting at which holders of preferred securities are entitled to
vote to be given to each holder of record of preferred securities. (Sections
6.2, 6.3 and 6.6)
No vote or consent of the holders of preferred securities will be required
for an ACE Trust to redeem and cancel its preferred securities in accordance
with the applicable trust agreement.
Even though the holders of preferred securities are entitled to vote or
consent under any of the circumstances described above, any of the preferred
securities that are owned by ACE INA, the ACE trustees or any affiliate of ACE
INA or any ACE trustees shall, for purposes of the vote or consent, be treated
as if they were not outstanding.
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Global Preferred Securities
The preferred securities of an ACE Trust may be issued, in whole or in part,
in the form of one or more global preferred securities that will be deposited
with, or on behalf of, the depositary. The depositary and the specific terms of
the depositary arrangement with respect to the preferred securities of an ACE
Trust will be described in the applicable prospectus supplement. ACE INA
anticipates that the following provisions will generally apply to all
depositary arrangements.
Upon the issuance of a global preferred security, and the deposit of the
global preferred security with or on behalf of the depositary, the depositary
or its nominee will credit, on its book-entry registration and transfer system,
the respective aggregate liquidation amounts of the individual preferred
securities represented by the global preferred securities to the accounts of
participants. These accounts shall be designated by the underwriters or agents
with respect to the preferred securities or by ACE INA if the preferred
securities are offered and sold directly by ACE INA. Ownership of beneficial
interests in a global preferred security will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the global preferred security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
depositary or its nominee with respect to interests of participants, and the
records of participants with respect to interests of persons who hold through
participants. The laws of some states require that some purchasers of
securities take physical delivery of securities in definitive form, which laws
may impair holders' ability to transfer beneficial interests in a global
preferred security.
So long as the depositary for a global preferred security, or its nominee,
is the registered owner of the global preferred security, the depositary or its
nominee, as the case may be, will be considered the sole owner or holder of the
preferred securities represented by the global preferred security for all
purposes under the applicable trust agreement. Except as provided below, owners
of beneficial interests in a global preferred security will not be entitled to
have any of the individual preferred securities represented by the global
preferred security registered in their names, will not receive or be entitled
to receive physical delivery of any preferred securities in definitive form and
will not be considered the owners or holders of the preferred securities under
the trust agreement.
Payments of any liquidation amount, premium or distributions in respect of
individual preferred securities registered in the name of a depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the global preferred security representing the
preferred securities. None of ACE, ACE INA, the property trustee, any paying
agent, or the securities registrar for the preferred securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the global
preferred security representing the preferred securities or for maintaining,
supervising or reviewing any records relating to these beneficial ownership
interests.
ACE INA expects that the depositary or its nominee, upon receipt of any
payment in respect of a global preferred security representing any ACE Trust's
preferred securities, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interest in
the aggregate liquidation amount of the global preferred security for the
preferred securities as shown on its records. ACE INA also expects that
payments by participants to owners of beneficial interests in the global
preferred security held through the participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in street name, and
will be the responsibility of the participants.
Unless otherwise set forth in the applicable prospectus supplement, the
trust agreement of each ACE Trust will provide that
. if ACE INA advises the ACE trustees in writing that the depositary is no
longer willing or able to act as depositary and ACE fails to appoint a
qualified successor within 90 days,
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. if ACE INA at its option advises the ACE trustees in writing that it
elects to terminate the book-entry system through the depositary or
. after the occurrence of an event of default under the corresponding ACE
INA subordinated debt securities, owners of preferred securities
representing at least a majority of liquidation amount of the preferred
securities advise the property trustee in writing that the continuation
of a book-entry system through the depositary is no longer in their best
interests,
then the global preferred securities will be exchanged for preferred securities
in definitive form in accordance with the instructions of the depositary. It is
expected that these instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in global preferred securities. Individual preferred securities so issued will
be issued in authorized denominations.
Payment and Paying Agency
Payments of distributions in respect of the preferred securities shall be
made to the depositary, which shall credit the relevant accounts at the
depositary on the applicable distribution dates, However, if any ACE Trust's
preferred securities are not held by the depositary, these payments shall be
made by check mailed to the address of the holder entitled to the payments as
it shall appear on the register of the ACE Trust. (Section 4.4)
Unless otherwise set forth in the applicable prospectus supplement, the
paying agent shall initially be Bank One Trust Company, N.A. and any co-paying
agent chosen by Bank One Trust Company, N.A. and acceptable to the
administrative trustees and ACE. The paying agent shall be permitted to resign
as paying agent upon 30 days' written notice to the administrative trustees,
the property trustee and ACE INA. If Bank One Trust Company, N.A. shall no
longer be the paying agent, the administrative trustees shall appoint a
successor, which shall be a bank or trust company acceptable to the
administrative trustees and ACE INA, to act as paying agent. (Section 5.9)
Registrar and Transfer Agent
Unless otherwise set forth in the applicable prospectus supplement, Bank One
Trust Company, N.A. will act as registrar and transfer agent for the preferred
securities.
Registration of transfers and exchanges of preferred securities will be
effected without charge by or on behalf of each ACE Trust. However, the holders
must pay any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The ACE Trusts will not be required
to register or cause to be registered the transfer of their preferred
securities after the preferred securities have been called for redemption.
(Section 5.4)
Information Concerning the Property Trustee
The property trustee undertakes to perform only those duties specifically
set forth in each trust agreement. However, the property trustee must exercise
the same degree of care as a prudent person would exercise in the conduct of
his or her own affairs. Subject to the preceding sentence, the property trustee
is under no obligation to exercise any of the powers vested in it by the
applicable trust agreement at the request of any holder of preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that it might incur. If, in performing its duties under the trust
agreement, the property trustee is required to decide between alternative
causes of action, construe ambiguous provisions in the applicable trust
agreement or is unsure of the application of any provision of the applicable
trust agreement, and the matter is not one on which holders of preferred
securities are entitled under the trust agreement to vote, then the property
trustee shall take the action as is directed by ACE INA. Otherwise, the
property trustee shall take the action as it deems advisable and in the best
interests of the holders of the trust securities and will have no liability
except for its own bad faith, negligence or willful misconduct. (Sections 8.1
and 8.3)
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Administrative Trustees
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the ACE Trusts in such a way that:
. no ACE Trust will be deemed to be an "investment company" required to be
registered under the Investment Company Act or classified as an
association taxable as a corporation for U.S. Federal income tax
purposes; and
. the corresponding ACE INA subordinated debt securities will be treated as
indebtedness of ACE INA for U.S. Federal income tax purposes.
In this regard, ACE INA and the administrative trustees are authorized to take
any action not inconsistent with applicable law, the certificate of trust of
each ACE Trust or each trust agreement, that ACE INA and the administrative
trustees determine, in their discretion, to be necessary or desirable for these
purposes, as long as the action does not materially adversely affect the
interests of the holders of the related preferred securities.
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DESCRIPTION OF PREFERRED SECURITIES GUARANTEES
Concurrently with the issuance by each ACE Trust of its preferred
securities, ACE will execute and deliver a preferred securities guarantee for
the benefit of the holders of the preferred securities. The Bank One Trust
Company, N.A. will act as the guarantee trustee under each preferred securities
guarantee for the purposes of compliance with the Trust Indenture Act, and each
preferred securities guarantee will be qualified as an indenture under the
Trust Indenture Act.
Because the following is a summary of the material provisions of the
preferred securities guarantees, it is not complete and you should refer to the
form of preferred securities guarantee and the Trust Indenture Act for more
complete information regarding the provisions of each preferred securities
guarantee, including the definitions of some of the terms used below. The form
of the preferred securities guarantee has been filed as an exhibit to the
registration statement of which this prospectus is a part. Reference in this
summary to preferred securities means the ACE Trust's preferred securities to
which the preferred securities guarantee relates. The guarantee trustee will
hold each preferred securities guarantee for the benefit of the holders of the
related ACE Trust's preferred securities.
General
ACE will irrevocably agree to pay in full on a subordinated basis, to the
extent described below, the guarantee payments, without duplication of amounts
previously paid by or on behalf of the ACE Trust, to the holders of the
preferred securities as and when due, regardless of any defense, right of
setoff or counterclaim that the ACE Trust may have or assert other than the
defense of payment. The following payments with respect to the preferred
securities, to the extent not paid by or on behalf of the related ACE Trust,
are referred to in this prospectus as the guarantee payments:
. any accrued and unpaid distributions required to be paid on the preferred
securities, to the extent that the ACE Trust has funds on hand available
for payment at that time;
. the redemption price, including all accrued and unpaid distributions to
the redemption date, with respect to any preferred securities called for
redemption, to the extent that the ACE Trust has funds on hand available
for payment at that time; and
. upon a voluntary or involuntary dissolution, winding up or liquidation of
the ACE Trust, unless the corresponding ACE INA subordinated debt
securities are distributed to holders of the preferred securities, the
lesser of:
. the liquidation distribution, to the extent the ACE Trust has funds
available for payment at that time; and
. the amount of assets of the ACE Trust remaining available for
distribution to holders of preferred securities.
ACE's obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by ACE to the holders of the applicable
preferred securities or by causing the ACE Trust to pay these amounts to the
holders. (Section 5.1)
Each preferred securities guarantee will be an irrevocable guarantee on a
subordinated basis of the related ACE Trust's payment obligations under the
preferred securities, but will apply only to the extent that the applicable ACE
Trust has funds sufficient to make the payments. Each preferred securities
guarantee is, to that extent, a guarantee of payment and not a guarantee of
collection. See "--Status of the Preferred Securities Guarantees."
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If ACE INA or ACE, as the case may be, does not make interest payments on
the corresponding ACE INA subordinated debt securities held by an ACE Trust,
the ACE Trust will not be able to pay distributions on the preferred securities
and will not have funds legally available for payment. Each preferred
securities guarantee will rank subordinate and junior in right of payment to
all senior indebtedness of ACE, including all ACE debt securities and ACE's
obligations as guarantor under the ACE INA subordinated indenture, as described
below under "--Status of the Preferred Securities Guarantees."
Because ACE is a holding company, its rights and the rights of its
creditors, including the holders of preferred securities who are creditors of
ACE by virtue of a preferred securities guarantee, and shareholders to
participate in any distribution of assets of any subsidiary upon the
subsidiary's liquidation, reorganization or otherwise would be subject to the
prior claims of the subsidiary's creditors, except to the extent that ACE may
itself be a creditor with recognized claims against the subsidiary. The right
of creditors of ACE, including the holders of preferred securities who are
creditors of ACE by virtue of a preferred securities guarantee, to participate
in the distribution of stock owned by ACE in its subsidiaries, including ACE's
insurance subsidiaries, may also be subject to approval by insurance regulatory
authorities having jurisdiction over the subsidiaries. Generally, the preferred
securities guarantees do not limit the ability of ACE or ACE INA to incur or
issue other secured or unsecured debt, whether under an indenture or otherwise.
ACE's obligations described in this prospectus through the applicable
preferred securities guarantee, the ACE INA subordinated indenture, including
the ACE guarantee of the ACE INA subordinated debt securities, and any
supplemental indentures and the expense agreement described below, taken
together, constitute a full, irrevocable and unconditional guarantee by ACE of
payments due on the preferred securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitute
this guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
ACE Trust's obligations under the preferred securities. See "The ACE Trusts,"
"Description of Preferred Securities," and "Description of ACE INA Debt
Securities and ACE Guarantee."
ACE will also agree to guarantee the obligations of each ACE Trust with
respect to the common securities issued by the ACE Trust to the same extent as
under the preferred securities guarantee. However, if an event of default under
the ACE INA subordinated indenture has occurred and is continuing, the holders
of preferred securities under the preferred securities guarantee will have
priority over the holders of the common securities under the common securities
guarantee with respect to distributions and payments on liquidation, redemption
or otherwise.
Status of the Preferred Securities Guarantees
Each preferred securities guarantee will constitute an unsecured obligation
of ACE and will rank subordinate and junior in right of payment to all senior
indebtedness of ACE, including all ACE debt securities and ACE's obligations as
guarantor under the ACE INA subordinate indenture. (Section 6.2) For purposes
of any preferred securities guarantee, "senior indebtedness" means all
indebtedness of ACE, including its obligations as guarantor under the ACE INA
subordinated indenture, outstanding at any time, except:
. the indebtedness under the preferred securities guarantee;
. indebtedness as to which, by the terms of the instrument creating or
evidencing the same, it is provided that the indebtedness is subordinated
to or ranks equally with the preferred securities guarantee or to other
indebtedness of ACE which is subordinated to or ranks equally with the
preferred securities guarantee;
. indebtedness of ACE to an affiliate of ACE;
. interest accruing after the filing of a petition initiating any
bankruptcy, insolvency or other similar proceeding unless the interest is
an allowed claim enforceable against ACE in a proceeding under federal or
state bankruptcy laws;
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. trade accounts payable; and
. similar preferred securities guarantees issued by ACE on behalf of
holders of preferred securities of any other ACE Trust or any trust,
partnership or other entity affiliated with ACE which is a financing
vehicle of ACE or any affiliate of ACE in connection with the issuance by
the entity of preferred securities or other similar securities that are
guaranteed by ACE pursuant to an instrument that ranks equally with or
junior in right of payment to the preferred securities guarantee.
"Indebtedness" has the same meaning given to that term under the ACE
indentures. (Section 1.1)
Each preferred securities guarantee will rank equally with all other similar
preferred securities guarantees issued by ACE on behalf of holders of preferred
securities of any other ACE Trust or any trust, partnership or other entity
affiliated with ACE which is a financing vehicle of ACE or any affiliate of ACE
in connection with the issuance by the entity of preferred securities or other
similar securities that are guaranteed by ACE pursuant to an instrument that
ranks equally with or junior in right of payment to the preferred securities
guarantee. (Section 6.3). Each preferred securities guarantee will constitute a
guarantee of payment and not of collection, which means that the guaranteed
party may generally institute a legal proceeding directly against ACE to
enforce its rights under the preferred securities guarantee without first
instituting a legal proceeding against any other person or entity, including
the applicable ACE Trust. (Section 5.4)
No preferred securities guarantee will be discharged except by payment of
the guarantee payments in full to the extent not paid by the ACE Trust or upon
distribution to the holders of the preferred securities of the corresponding
ACE INA subordinated debt securities. None of the preferred securities
guarantees places a limitation on the amount of additional indebtedness that
may be incurred by ACE or ACE INA. ACE expects from time to time to incur
additional indebtedness that will rank senior to the preferred securities
guarantees.
Payment of Additional Amounts
ACE will make all guarantee payments without withholding or deduction at
source for, or on account of, any present or future taxes, fees, duties,
assessments or governmental charges of whatever nature imposed or levied by or
on behalf of the Cayman Islands or Bermuda, each, referred to in this
prospectus as a taxing jurisdiction, or any political subdivision or taxing
authority of the taxing jurisdiction, unless the taxes, fees, duties,
assessments or governmental charges are required to be withheld or deducted by:
. the laws or any regulations or rulings promulgated under the laws of a
taxing jurisdiction or any political subdivision or taxing authority of
the taxing jurisdiction; or
. an official position regarding the application, administration,
interpretation or enforcement of any laws, regulations or rulings,
including, without limitation, a holding by a court of competent
jurisdiction or by a taxing authority in a taxing jurisdiction or any
political subdivision of the taxing jurisdiction.
If a withholding or deduction at source is required, ACE will, subject to
limitations and exceptions described below, pay to the holder of any related
preferred securities the additional amounts as may be necessary so that every
guarantee payment made to the holder, after this withholding or deduction, will
not be less than the amount provided for in the preferred securities guarantee
to be then due and payable.
ACE will not be required to pay any additional amounts for or on account of:
. any tax, fee, duty, assessment or governmental charge of whatever nature
which would not have been imposed but for the fact that you:
. were a resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or were physically present in,
the relevant taxing jurisdiction or any political subdivision of the
taxing jurisdiction or otherwise had some connection with the relevant
taxing jurisdiction other than by reason of the mere ownership of
preferred securities, or receipt of payment under the preferred
securities;
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. presented the preferred security for payment in the relevant taxing
jurisdiction or any political subdivision of the taxing jurisdiction,
unless the preferred security could not have been presented for
payment elsewhere; or
. presented the preferred security for payment more than 30 days after
the date on which the payment in respect of the preferred security
first became due and payable or provided for, whichever is later,
except to the extent that you would have been entitled to the
additional amounts if you had presented the preferred security for
payment on any day within that 30-day period;
. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
. any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by you or the beneficial owner of the
preferred security to comply with any reasonable request by ACE or the
applicable ACE Trust addressed to you within 90 days of the request to:
. provide information concerning your nationality, residence or identity
or of the beneficial owner; or
. make any declaration or other similar claim or satisfy any information
or reporting requirement, which in either case is required or imposed
by statute, treaty, regulation or administrative practice of the
relevant taxing jurisdiction or any political subdivision of the
taxing jurisdiction as a precondition to exemption from all or part of
the tax, assessment or other governmental charge; or
. any combination of the above items.
In addition, ACE will not pay you any additional amounts with respect to any
guarantee payment if you are a fiduciary or partnership or other than the sole
beneficial owner of the related preferred security, to the extent the payment
would be required by the laws of the relevant taxing jurisdiction, or any
political subdivision or relevant taxing authority of or in the taxing
jurisdiction, to be included in the income for tax purposes of a beneficiary or
partner or settlor with respect to the fiduciary or a member of the partnership
or a beneficial owner who would not have been entitled to the additional
amounts had it been the holder of the preferred security. (Section 5.8)
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related preferred securities, in which case no
consent will be required, no preferred securities guarantee may be amended
without the prior approval of the holders of not less than a majority of the
aggregate liquidation amount of the outstanding preferred securities. (Section
8.2) All guarantees and agreements contained in each preferred securities
guarantee shall bind the successors, assigns, receivers, trustees and
representatives of ACE and shall inure to the benefit of the holders of the
related preferred securities then outstanding. (Section 8.1) ACE may not assign
its obligations under the preferred securities guarantee except in connection
with a consolidation, amalgamation or merger or conveyance, transfer or lease
involving ACE that is permitted under the ACE INA subordinated indenture and
under which the person formed by the consolidation or amalgamation or into
which ACE is merged or which acquires or leases the properties and assets of
ACE agrees in writing to perform ACE's obligations under the preferred
securities guarantee.
Events of Default
An event of default under each preferred securities guarantee will occur
upon the failure of ACE to perform any of its payment or other obligations
under the preferred securities guarantee. The holders of not less than a
majority in aggregate liquidation amount of the related preferred securities
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the guarantee trustee or to direct the
exercise of any trust or power conferred upon the guarantee trustee. (Section
5.4)
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Any holder of the preferred securities may institute a legal proceeding
directly against ACE to enforce its rights under the preferred securities
guarantee without first instituting a legal proceeding against the ACE Trust,
the guarantee trustee or any other person or entity. (Section 5.4)
ACE, as guarantor, is required to file annually with the guarantee trustee a
certificate as to whether or not ACE is in compliance with all the conditions
and covenants applicable to it under the preferred securities guarantee.
(Section 2.4)
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance of a
default by ACE in performance of any preferred securities guarantee, undertakes
to perform only the duties specifically set forth in each preferred securities
guarantee. After default with respect to any preferred securities guarantee,
the guarantee trustee must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
(Section 3.1) Subject to the preceding sentence, the guarantee trustee is under
no obligation to exercise any of the powers vested in it by any preferred
securities guarantee at the request of any holder of any preferred securities
unless it is offered reasonable indemnity against the costs, expenses, and
liabilities that it might incur. (Section 3.2)
Termination of the Preferred Securities Guarantees
Each preferred securities guarantee will terminate and be of no further
force and effect upon:
. full payment of the redemption price of the related preferred securities;
. the distribution of the corresponding ACE INA subordinated debt
securities to the holders of the related preferred securities; or
. upon full payment of the amounts payable upon liquidation of the related
ACE Trust.
Each preferred securities guarantee will continue to be effective or will be
reinstated, as the case may be, if, at any time, any holder of the related
preferred securities must restore payment of any sums paid with respect to the
preferred securities or the preferred securities guarantee. (Section 7.1)
New York Law to Govern
Each preferred securities guarantee will be governed by and construed in
accordance with the laws of the state of New York. (Section 8.5)
The Expense Agreement
Pursuant to the expense agreement entered into by ACE under each trust
agreement, ACE will irrevocably and unconditionally guarantee to each person or
entity to whom an ACE Trust becomes indebted or liable, the full payment of any
costs, expenses or liabilities of the ACE Trust, other than obligations of the
ACE Trust to pay to the holders of the preferred securities or other similar
interests in the ACE Trust of the amounts due them pursuant to the terms of the
preferred securities or other similar interests, as the case may be.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
ACE may issue stock purchase contracts, representing contracts obligating
you to purchase from ACE, and obligating ACE to sell to you, a specified number
of ordinary shares at a future date or dates. The price per ordinary share may
be fixed at the time the stock purchase contracts are issued or may be
determined by reference to a specific formula set forth in the stock purchase
contracts.
The stock purchase contracts may be issued separately or as a part of stock
purchase units consisting of a stock purchase contract and, as security for
your obligations to purchase the ordinary shares under the stock purchase
contracts, either:
. senior debt securities or subordinated debt securities of ACE INA, fully
and unconditionally guaranteed by ACE;
. debt obligations of third parties, including U.S. Treasury securities; or
. preferred securities of an ACE Trust.
The stock purchase contracts may require ACE to make periodic payments to you
or vice versa, and these payments may be unsecured or prefunded on some basis.
The stock purchase contracts may require you to secure your obligations in a
specified manner, and, in some circumstances, we may deliver newly issued
prepaid stock purchase contracts upon release to you of any collateral securing
your obligations under the original stock purchase contract.
The applicable prospectus supplement will describe the specific terms of any
stock purchase contracts or stock purchase units and, if applicable, prepaid
stock purchase contracts. However, that description will not purport to be
complete and will be qualified in its entirety by reference to:
. the stock purchase contracts;
. the collateral arrangements and depositary arrangements, if applicable,
relating to the stock purchase contracts or stock purchase units; and
. if applicable, the prepaid stock purchase contracts and the document
pursuant to which the prepaid stock purchase contracts will be issued.
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PLAN OF DISTRIBUTION
ACE, ACE INA and/or any ACE Trust may sell offered securities in any one or
more of the following ways from time to time:
. through agents;
. to or through underwriters;
. through dealers; or
. directly to purchasers.
The applicable prospectus supplement will set forth the specific terms of the
offering of the offered securities, including:
. the name or names of any underwriters, dealers or agents;
. the purchase price of the offered securities and the proceeds to ACE, ACE
INA and/or an ACE Trust from the sale;
. any underwriting discounts and commissions or agency fees and other items
constituting underwriters' or agents' compensation; and
. any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchange on
which the offered securities may be listed, any of which initial public
offering price, discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
The distribution of the offered securities may be effected from time to time:
in one or more transactions at a fixed price or prices, which may be changed;
. at market prices prevailing at the time of sale;
. at prices related to the prevailing market prices; or
. at negotiated prices.
Offers to purchase offered securities may be solicited by agents designated
by ACE from time to time. Any agent involved in the offer or sale of the
offered securities in respect of which this prospectus is delivered will be
named, and any commissions payable by ACE, ACE INA and/or the applicable ACE
Trust to the agent will be set forth, in the applicable prospectus supplement.
Unless otherwise set forth in the applicable prospectus supplement, any agent
will be acting on a reasonable best efforts basis for the period of its
appointment. Any agent may be deemed to be an underwriter, as that term is
defined in the Securities Act, of the offered securities so offered and sold.
If offered securities are sold to the public by means of an underwritten
offering, either through underwriting syndicates represented by managing
underwriters or directly by the managing underwriters ACE, ACE INA and/or the
applicable ACE Trust will execute an underwriting agreement with an underwriter
or underwriters, and the names of the specific managing underwriter or
underwriters, as well as any other underwriters, which will be set forth in the
applicable prospectus supplement. In addition, the terms of the transaction,
including commissions, discounts and any other compensation of the underwriters
and dealers, if any, will be set forth in the applicable prospectus supplement,
which prospectus supplement will be used by the underwriters to make resales of
the offered securities. If underwriters are utilized in the sale of the offered
securities, the offered securities will be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including:
. negotiated transactions;
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. at fixed public offering prices; or
. at varying prices determined by the underwriters at the time of sale.
In addition, unless otherwise indicated in the prospectus supplement, the
underwriting agreement will provide that the obligations of the underwriters
are subject to specified conditions precedent and that the underwriters with
respect to a sale of offered securities will be obligated to purchase all of
the offered securities of a series if any are purchased.
ACE, ACE INA and/or the applicable ACE Trust may grant to the underwriters
options to purchase additional offered securities, to cover over-allotments, if
any, at the public offering price with additional underwriting discounts or
commissions, as may be set forth in the applicable prospectus supplement. If
ACE, ACE INA and/or the applicable ACE Trust grants any over-allotment option,
the terms of the over-allotment option will be set forth in the applicable
prospectus supplement.
If a dealer is utilized in the sales of offered securities, ACE, ACE INA
and/or the applicable ACE Trust will sell the offered securities to the dealer
as principal. The dealer may then resell the offered securities to the public
at varying prices to be determined by the dealer at the time of resale. Any
dealer may be deemed to be an underwriter of the offered securities so offered
and sold. The name of the dealer and the terms of the transaction will be set
forth in the applicable prospectus supplement.
Offers to purchase offered securities may be solicited directly by ACE, ACE
INA and/or the applicable ACE Trust and the sale of the offered securities may
be made by ACE, ACE INA and/or the applicable ACE Trust directly to
institutional investors or others with respect to any resale of the offered
securities. The terms of any of these sales will be described in the applicable
prospectus supplement.
Offered securities may also be offered and sold in connection with a
remarketing upon their purchase, in accordance with a redemption or repayment
pursuant to their terms, or otherwise by one or more remarketing firms acting
as principals for their own accounts or as agents for ACE, ACE INA and/or the
applicable ACE Trust. Any remarketing firm will be identified and the terms of
its agreements, if any, with ACE, ACE INA and/or an ACE Trust and its
compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters in connection with the
offered securities remarketed by them.
Agents, underwriters, dealers and remarketing firms may be entitled, under
agreements entered into with ACE, ACE INA and/or the applicable ACE Trust, to
indemnification by ACE, ACE INA and/or the applicable ACE Trust against some
civil liabilities, including liabilities under the Securities Act that may
arise from any untrue statement or alleged untrue statement of a material fact
or any omission or alleged omission to state a material fact in this
prospectus, any supplement or amendment hereto, or in the registration
statement of which this prospectus forms a part, or to contribution with
respect to payments which the agents, underwriters or dealers may be required
to make.
ACE, ACE INA and/or the applicable ACE Trust may authorize underwriters or
other persons acting as ACE's, ACE INA's and/or the applicable ACE Trust's
agents to solicit offers by specified institutions to purchase offered
securities from ACE, ACE INA and/or the applicable ACE Trust, pursuant to
contracts providing for payments and delivery on a future date, which will be
set forth in the applicable prospectus supplement. Institutions with which
these contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others. However, in all cases, these institutions must be
approved by ACE, ACE INA and/or the applicable ACE Trust. The obligations of
any purchaser under any contract will be subject to the condition that the
purchase of the offered securities shall not, at the time of delivery, be
prohibited under the laws of the jurisdiction to which the purchaser is
subject. The underwriters and other agents will not have any responsibility in
respect of the validity or performance of these contracts.
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Each series of offered securities will be a new issue and, other than the
ordinary shares, which are listed on the NYSE, will have no established trading
market. ACE, ACE INA and/or the applicable ACE Trust may elect to list any
series of offered securities on an exchange and, in the case of the ordinary
shares, on any additional exchange. However, unless otherwise specified in the
applicable prospectus supplement, none of ACE, ACE INA or any ACE Trust shall
be obligated to do so. No assurance can be given as to the liquidity of the
trading market for any of the offered securities.
Underwriters, dealers, agents and remarketing firms may be customers of,
engage in transactions with, or perform services for, ACE and its subsidiaries
in the ordinary course of business.
LEGAL OPINIONS
Legal matters with respect to United States and New York law will be passed
upon for ACE, ACE INA and the ACE Trusts by Mayer, Brown, Rowe & Maw, Chicago,
Illinois. The validity of the preferred securities under Delaware law will be
passed upon on behalf of ACE, ACE INA and the ACE Trusts by Richards, Layton &
Finger, P.A., Wilmington, Delaware. Legal matters with respect to Cayman
Islands law will be passed upon for ACE by Maples and Calder, George Town,
Grand Cayman, Cayman Islands, British West Indies. Legal matters with respect
to Bermuda law will be passed upon for ACE by Conyers Dill & Pearman, Hamilton,
Bermuda. Mayer, Brown, Rowe & Maw will rely on the opinion of Maples and Calder
with respect to Cayman Islands law and the opinion of Conyers Dill & Pearman
with respect to Bermuda law.
EXPERTS
The consolidated financial statements and financial statement schedules
incorporated in this prospectus by reference to ACE's Annual Report on Form
10-K for the year ended December 31, 2001 have been so incorporated in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing. Any audited
financial statements and schedules that are incorporated or that are deemed to
be incorporated by reference into this prospectus that are the subject of a
report by independent accountants will be so incorporated by reference in
reliance upon such reports and upon the authority of such firm as experts in
accounting and auditing to the extent covered by consents of these accountants
filed with the SEC.
ENFORCEMENT OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
ACE is a Cayman Islands company. In addition, some of its officers and
directors, as well as some of the experts named in this prospectus, reside
outside the United States, and all or much of ACE's assets and some of the
officers' and directors' assets are or may be located in jurisdictions outside
the United States. Therefore, investors may have difficulty effecting service
of process within the United States upon those persons or recovering against
ACE or them on judgments of U.S. courts, including judgments based upon the
civil liability provisions of the U.S. Federal securities laws. However,
investors may serve ACE with process in the United States with respect to
actions against it arising out of or in connection with violations of U.S.
Federal securities laws relating to offers and sales of the securities covered
by this prospectus by serving ACE INA Holdings, its United States agent
irrevocably appointed for that purpose.
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ACE has been advised by Maples and Calder, its Cayman Islands counsel, that
there is doubt as to whether the courts of the Cayman Islands would enforce:
. judgments of U.S. courts based upon the civil liability provisions of the
U.S. Federal securities laws obtained in actions against it or its
directors and officers, as well as experts named in this prospectus, who
reside outside the United States; or
. original actions brought in the Cayman Islands against these persons or
ACE predicated solely upon U.S. Federal securities laws.
ACE has also been advised by Maples and Calder that there is no treaty in
effect between the United States and the Cayman Islands providing for this
enforcement, and there are grounds upon which Cayman Islands courts may not
enforce judgments of United States courts. Some remedies available under the
laws of United States jurisdictions, including some remedies available under
the U.S. Federal securities laws, would not be allowed in Cayman Islands courts
as contrary to that nation's public policy.
WHERE YOU CAN FIND MORE INFORMATION
ACE
ACE files annual, quarterly and special reports, proxy statements and other
information with the SEC. ACE's SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may read and copy
any document ACE files in the SEC's Public Reference Room, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. You may also obtain copies of this
information by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. You may
obtain information on the operation of the SEC's Public Reference Room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. ACE's SEC filings are
also available at the office of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005. For further information on obtaining copies of ACE's
public filings at the NYSE, you should call (212) 656-5060.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information about issuers, like ACE, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
The SEC file number for documents filed by ACE Limited under the Exchange Act
is 1-11778.
Incorporation by Reference
ACE is allowed to "incorporate by reference" the information it files with
the SEC, which means that ACE can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that ACE files
subsequently with the SEC will automatically update and supersede the
information included and/or incorporated by reference in this prospectus. ACE
incorporates by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the initial filing of the registration
statement that contains this prospectus and prior to the time that ACE, ACE INA
and the ACE Trusts sell all of the securities offered by this prospectus:
. ACE's Annual Report on Form 10-K for the fiscal year ended December 31,
2001 (File No. 001-11778);
. ACE's Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, June 30 and September 30, 2002 (File No. 001-11778); and
. ACE's Current Reports on Form 8-K filed January 9, 2002, March 22, 2002
and August 14, 2002 (File No. 001-11778).
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You may request a copy of these filings, other than exhibits unless that
exhibit is specifically incorporated by reference into that filing, at no cost,
by writing or telephoning ACE at the following address:
Investor Relations
ACE Limited
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton, HM 08, Bermuda
Telephone: (441) 299-9283
ACE INA
ACE INA has no direct operations. ACE INA is directly and wholly owned by
ACE. The obligations of ACE INA under its debt securities will be fully and
unconditionally guaranteed by ACE. See "Description of ACE INA Debt Securities
and ACE Guarantee." ACE INA is not currently subject to the information
reporting requirements under the Exchange Act. ACE INA will become subject to
the reporting requirements upon the effectiveness of the registration statement
that contains this prospectus, although ACE INA intends to seek and expects to
receive an exemption from those requirements. So long as any guaranteed debt
securities of ACE INA are outstanding, ACE will include in the footnotes to its
audited consolidated financial statements summarized consolidated financial
information concerning ACE INA.
The ACE Trusts
There are no separate financial statements of the ACE Trusts in this
prospectus. ACE does not believe the financial statements would be helpful to
the holders of the preferred securities of the ACE Trusts because:
. ACE, a reporting company under the Exchange Act, will directly or
indirectly own all of the voting securities of each ACE Trust;
. neither of the ACE Trusts has any independent operations or proposes to
engage in any activity other than issuing securities representing
undivided beneficial interests in the assets of the ACE Trust and
investing the proceeds in subordinated debt securities issued by ACE INA
and fully and unconditionally guaranteed by ACE; and
. the obligations of each ACE Trust under the preferred securities will be
fully and unconditionally guaranteed by ACE. See "Description of ACE INA
Debt Securities and ACE Guarantee" and "Description of Preferred
Securities Guarantees."
Neither of the ACE Trusts is currently subject to the information reporting
requirements of the Exchange Act. Each ACE Trust will become subject to the
requirements upon the effectiveness of the registration statement that contains
this prospectus, although each ACE Trust intends to seek and expects to receive
an exemption from those requirements. If the ACE Trusts did not receive this
exemption, the expenses of operating the ACE Trusts would increase, as would
the likelihood that ACE would exercise its option to dissolve and liquidate the
ACE Trusts early.
83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities registered hereby, other than
underwriting discounts and commissions:
Securities and Exchange Commission registration fee $ 38,000
Trustee's fees and expenses........................ 15,000
Printing and engraving expenses.................... 150,000
Rating agency fees................................. 412,500
Accounting fees and expenses....................... 150,000
Legal fees and expenses............................ 250,000
Blue Sky fees and expenses......................... 10,000
Miscellaneous...................................... 124,500
----------
Total........................................... $1,250,000
==========
Item 15. Indemnification of Officers and Directors.
ACE
Section 100 of ACE's Articles of Association, filed as Exhibit 4.2 to its
registration statement (File No. 333-78841), contains provisions with respect
to indemnification of ACE's officers and directors. This provision provides
that ACE shall indemnify, in accordance with and to the full extent now or
hereafter permitted by law, any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of ACE), by reason
of his acting as a director, officer, employee or agent of, or his acting in
any other capacity for or on behalf of, ACE against any liability or expense
actually and reasonably incurred by such person in respect thereof. ACE may
also advance the expenses of defending any such act, suit or proceeding in
accordance with and to the full extent now or hereafter permitted by law. This
indemnification and advancement of expenses are not exclusive of any other
right to indemnification or advancement of expenses provided by law or
otherwise.
The Companies Law (Revised) of the Cayman Islands does not set out any
specific restrictions on the ability of a company to indemnify officers or
directors. However, the application of basic principles and certain
Commonwealth case law which is likely to be persuasive in the Cayman Islands
would indicate that indemnification is generally permissible except if there
had been fraud or willful default on the part of the officer or director or
reckless disregard of his duties and obligations to the company.
Directors and officers of ACE are also provided with indemnification against
certain liabilities pursuant to a directors' and officers' liability insurance
policy. Coverage is afforded for any loss that the insureds become legally
obligated to pay by reason of any claim or claims first made against the
insureds or any of them during the policy period from any wrongful acts that
are actually or allegedly caused, committed or attempted by the insureds prior
to the end of the policy period. Wrongful acts are defined as any actual or
alleged error, misstatement, misleading statement or act, omission, neglect or
breach of duty by the insureds while acting in their individual or collective
capacities as directors or officers of ACE, or any other matter claimed against
them by reason of their being directors or officers of ACE. Certain of ACE's
directors are provided by their employer with indemnification against certain
liabilities incurred as directors of ACE.
Reference is made to the forms of Underwriting Agreement filed as Exhibits
1.1 though 1.5 of ACE's registration statement (File No. 333-78841). The
Underwriting Agreements provide, among other things, that the underwriters are
obligated, under some circumstances, to indemnify directors, specified officers
and controlling persons of ACE against specified liabilities, including
liabilities under the Securities Act of 1933, as amended.
II-1
ACE INA
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts of omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for payments of unlawful dividends or unlawful stock repurchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit. ACE INA's Certificate of Incorporation contains such
a provision.
Under Article VI of ACE INA's By-laws as currently in effect, as well as
under Section 10 of ACE INA's Certificate of Incorporation, each person who is
or was a director or officer of ACE INA, or who serves or served any other
enterprise or organization at the request of ACE INA, shall be indemnified by
ACE INA to the full extent permitted by the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who, by reason of the fact that the person
is or was a director, officer, employee or agent of the corporation, is made
(or threatened to be made) a party to an action other than one brought by or on
behalf of the corporation, against reasonable expenses (including attorneys'
fees), judgments, fines and settlement payments, if the person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of such corporation and, with respect to any criminal actions,
also had no reasonable cause to believe his conduct was unlawful. In the case
of actions on behalf of the corporation, indemnification may extend only to
reasonable expenses (including attorneys' fees) and only if such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, provided that no such indemnification is
permitted in respect of any claim as to which such person is adjudged liable to
the corporation for negligence or misconduct in the performance of his duty to
the corporation unless and only to the extent that a court otherwise provides.
To the extent that a person has been successful in defending any action (even
one on behalf of the corporation), he is entitled to indemnification for
reasonable expenses (including attorneys' fees).
The indemnification provided for by the Delaware General Corporation Law is
not exclusive of any other rights of indemnification, and a corporation may
maintain insurance against liabilities for which indemnification is not
expressly provided by the Delaware General Corporation Law. ACE INA maintains a
liability insurance policy providing coverage for its directors and officers.
Item 16. Exhibits and Financial Statement Schedules.
See Exhibit Index included herewith which is incorporated herein by
reference.
Item 17. Undertakings.
The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
II-2
provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrants pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
ACE's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrants hereby undertake that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective; and
(b) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions set forth or described in Item 15 of
this registration statement, or otherwise, the registrants have been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. If
a claim for indemnification against such liabilities (other than the payment by
a registrant of expenses incurred or paid by a director, officer or controlling
person of the 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, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ACE Limited
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Hamilton, Bermuda, on the 27th day of November, 2002.
ACE LIMITED
By: /s/ PHILIP V. BANCROFT
-----------------------------
Name: Philip V. Bancroft
Title: Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 18th day of November, 2002.
Signature Title
--------- -------------------------------------------------------
/s/ BRIAN DUPERREAULT Chairman and Chief Executive
- ----------------------------- Officer; Director
Brian Duperreault
/s/ PHILIP V. BANCROFT
- ----------------------------- Chief Financial Officer (Principal Financial Officer)
Philip V. Bancroft
/s/ ROBERT A. BLEE
- -----------------------------
Robert A. Blee Chief Accounting Officer (Principal Accounting Officer)
*
- ----------------------------- Vice Chairman; Director
Donald Kramer
*
- ----------------------------- Vice Chairman; Director
Evan Greenberg
* President and Chief Operating
- ----------------------------- Officer; Director
Dominic J. Frederico
*
- ----------------------------- Director
Michael G. Atieh
*
- ----------------------------- Director
Bruce L. Crockett
*
- ----------------------------- Director
Robert M. Hernandez
- ----------------------------- Director
Robert G. Mendoza
Signature Title
--------- -----------------------------
*
- ----------------------------- Director
Peter Menikoff
*
- ----------------------------- Director
Thomas J. Neff
*
- ----------------------------- Director
John A. Krol
*
- ----------------------------- Director
Robert Ripp
*
- ----------------------------- Director
Walter A. Scott
*
- ----------------------------- Director
Dermot F. Smurfit
*
- ----------------------------- Director
Robert W. Staley
*
- ----------------------------- Director
Gary M. Stuart
*
- ----------------------------- Director
Sidney F. Wentz
BY: /s/ PETER N. MEAR
-------------------------
Attorney-in-Fact
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the undersigned as the duly
authorized representative of ACE Limited in the United States.
/s/ BRIAN DUPERREAULT
-----------------------------
Brian Duperreault
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ACE INA Holdings
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Hamilton, Bermuda, on the 27th day of November, 2002.
ACE INA HOLDINGS INC.
By: /s/ ROBERT B. JEFFERSON
-----------------------------
Robert B. Jefferson
Treasurer and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 27th day of November, 2002.
Name Title
---- -----------------------------
/s/ BRIAN DUPERREAULT Director
- -----------------------------
Brian Duperreault
/s/ DOMINIC J. FREDERICO Chairman and Director
- -----------------------------
Dominic J. Frederico
/s/ PHILIP V. BANCROFT Director
- -----------------------------
Philip V. Bancroft
/s/ SUSAN RIVERA President and Director
- ----------------------------- (Principal Executive Officer)
Susan Rivera
/s/ ROBERT B. JEFFERSON Treasurer and Chief Financial
- ----------------------------- Officer
Robert B. Jefferson (Principal Financial and
Accounting Officer)
/s/ DONALD KRAMER Director
- -----------------------------
Donald Kramer
/s/ TIMOTHY A. BOROUGHS Director
- -----------------------------
Timothy A. Boroughs
- ----------------------------- Director
Brian E. Dowd
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ACE Capital
Trust III certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hamilton, Bermuda, on the 27th day of November, 2002.
ACE CAPITAL TRUST III
By: ACE INA Holdings Inc., as
Depositor
By: /s/ ROBERT B. JEFFERSON
-----------------------------
Treasurer and Chief Financial
Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ACE Capital
Trust IV certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hamilton, Bermuda, on the 27th day of November, 2002.
ACE CAPITAL TRUST IV
By: ACE INA Holdings Inc., as
Depositor
By: /s/ ROBERT B. JEFFERSON
-----------------------------
Treasurer and Chief Financial
Officer
EXHIBIT INDEX
* 1.1 Form of Underwriting Agreement relating to ordinary shares, preferred shares, depositary shares, debt
securities and warrants of ACE Limited.
1.2 Form of Underwriting Agreement relating to debt securities of ACE INA Holdings Inc., fully and
unconditionally guaranteed by ACE Limited (incorporated by reference to Exhibit 1.2 to
Amendment No. 2 to Registration Statement on Form S-3 (No. 333-78841) filed August 12, 1999).
* 1.3 Form of Underwriting Agreement relating to preferred securities issued of ACE Capital Trust III and
ACE Capital Trust IV and preferred securities guarantees of ACE Limited.
* 1.4 Form of Underwriting Agreement relating to stock purchase contracts of ACE Limited.
* 1.5 Form of Underwriting Agreement relating to stock purchase units of ACE Limited.
4.1 Memorandum of Association of ACE Limited (incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 of ACE Limited (No. 33-57206)).
4.2 Articles of Association of the ACE Limited (incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 of ACE Limited (No. 33-57206)).
4.3 Special Resolutions adopted January 22, 2002 increasing the number of authorized ordinary shares and
other shares (incorporated by reference to Exhibit 3.3 to Form 10-K of ACE Limited for the year
ended December 31, 2001).
4.4 Senior Indenture between ACE Limited and Bank One Trust Company, N.A. (formerly, The First
National Bank of Chicago), as trustee, dated March 15, 2002 (incorporated by reference to Exhibit
4.1 to Form 8-K filed March 19, 2002).
4.5 Form of Subordinated Indenture between ACE Limited and Bank One Trust Company, N.A.
(formerly, The First National Bank of Chicago), as trustee (incorporated by reference to Exhibit 4.4
to Amendment No. 2 to Registration Statement on Form S-3 (No. 333-78841) filed August 12,
1999).
4.6 Form of Senior Indenture between ACE INA Holdings Inc., ACE Limited and Bank One Trust
Company, N.A. (formerly, The First National Bank of Chicago), as trustee, dated August 1, 1999
(incorporated by reference to Exhibit 4.5 to Amendment No. 2 to Registration Statement on Form
S-3 (No. 333-78841) filed August 12, 1999).
4.7 Form of Subordinated Indenture between ACE INA Holdings, Inc., ACE Limited and Bank One Trust
Company, N.A. (formerly, The First National Bank of Chicago), as trustee (incorporated by
reference to Exhibit 4.6 to Amendment No. 2 to Registration Statement on Form S-3 (No. 333-
78841) filed August 12, 1999).
*** 4.8 Form of Standard Stock Warrant Provisions.
*** 4.9 Form of Standard Debt Warrant Provisions.
4.10 Certificate of Trust of ACE Capital Trust III (incorporated by reference to Exhibit 4.11 to Amendment
No. 2 to Registration Statement on Form S-3 (No. 333-78841) filed August 12, 1999).
** 4.11 Certificate of Trust of ACE Capital Trust IV.
4.12 Trust Agreement of ACE Capital Trust III (incorporated by reference to Exhibit 4.14 to Amendment
No. 2 to Registration Statement on Form S-3 (No. 333-78841) filed August 12, 1999).
** 4.13 Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital
Trust III.
** 4.14 Amendment No. 2 to the Trust Agreement of ACE Capital Trust III.
** 4.15 Trust Agreement of ACE Capital Trust IV.
4.16 Form of Amended and Restated Trust Agreement of ACE Capital Trust III (incorporated by reference
to Exhibit 4.17 to Amendment No. 2 to Registration Statement on Form S-3 (No. 333-78841) filed
August 12, 1999).
** 4.17 Form of Amended and Restated Trust Agreement of ACE Capital Trust IV.
4.18 Form of Preferred Securities Guarantee Agreement with respect to the preferred securities issued by
ACE Capital Trust III (incorporated by reference to Exhibit 4.20 to Amendment No. 2 to
Registration Statement on Form S-3 (No. 333-78841) filed August 12, 1999).
** 4.19 Form of Preferred Securities Guarantee Agreement with respect to the preferred securities issued by
ACE Capital Trust IV.
* 5.1 Opinion of Maples and Calder as to the legality of the ordinary shares and preferred shares.
* 5.2 Opinion of Mayer, Brown, Rowe & Maw as to the legality of the debt securities, stock warrants, debt
warrants, depositary shares, preferred securities, preferred securities guarantees, stock purchase
contracts and stock purchase units.
5.3A Opinion of Richards, Layton & Finger, P.A. relating to ACE Capital Trust III (incorporated by
reference to Exhibit 5.3C to Amendment No. 2 to Registration Statement on Form S-3 (No. 333-
78841) filed August 12, 1999).
* 5.3B Opinion of Richards, Layton & Finger, P.A. relating to ACE Capital Trust IV.
* 12.1 Statement regarding the computation of ratio of combined fixed charges and preference dividends to
earnings.
* 23.1 Consent of Maples and Calder (included in Exhibit 5.1).
* 23.2 Consent of Mayer, Brown, Rowe & Maw (included in Exhibit 5.2).
23.3 Consent of Richards, Layton & Finger, P.A. (incorporated by reference to Exhibit 23.4 to Amendment
No. 2 to Registration Statement on Form S-3 (No. 333-78841) filed August 12, 1999).
23.4 Consent of PricewaterhouseCoopers LLP.
** 24.1 Powers of Attorney.
** 25.1 Statement of Eligibility of Bank One Trust Company, N.A. on Form T-1, as trustee for the ACE
Limited debt securities and as preferred securities guarantee trustee under the Preferred Securities
Guarantee Agreement of ACE Limited for the benefit of the holders of preferred securities of ACE
Capital Trust III and ACE Capital Trust IV.
** 25.2 Statement of Eligibility of Bank One Trust Company, N.A. on Form T-1, as trustee for the ACE INA
debt securities.
** 25.3 Statement of Eligibility of Bank One Trust Company, N.A. on Form T-1, as property trustee for the
preferred securities of ACE Capital Trust III.
** 25.4 Statement of Eligibility of Bank One Trust Company, N.A. on Form T-1, as property trustee for the
preferred securities of ACE Capital Trust IV.
- --------
* To be filed by amendment.
** Previously filed.
*** To be filed, if necessary, subsequent to the effectiveness of this
registration statement by an amendment to this registration statement or
incorporated by reference pursuant to a Current Report on Form 8-K in
connection with an offering of securities.