-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SubO2VWqWv8KWRA1r2Euvnv/Vy2E6+mwDYh9WoftBaVZ0ZPVI5FpLAZXEG4zFXT6 hwOI1SkfSEMKG7pDryH2gw== 0000925600-97-000019.txt : 19970918 0000925600-97-000019.hdr.sgml : 19970918 ACCESSION NUMBER: 0000925600-97-000019 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19970916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMONS INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0001013698 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 351707115 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-35713 FILM NUMBER: 97681250 BUSINESS ADDRESS: STREET 1: 4720 KINGSWAY DRIVE CITY: INDIANAPOLIS STATE: IN ZIP: 46205 BUSINESS PHONE: 3172596400 MAIL ADDRESS: STREET 1: 11 SOUTH MERIDIAN STREET STREET 2: SUITE 1313 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 S-4 1 TRUST PREFERRED SECURITIES As filed with the Securities and Exchange Commission on September 16,1997 Registration No. 333-___________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SYMONS INTERNATIONAL GROUP, INC. SIG CAPITAL TRUST I (Exact name of Registrant as (Exact name of Registrant as specified specified in its charter) in its trust agreement) INDIANA DELAWARE (State or other jurisdiction of ) (State or other jurisdiction of incorporation or organization) incorporation or organization) 6331 6331 (Primary Standard Industrial (Primary Standard Industrial Classifi- Classification Code Number) cation Code Number) 35-1707115 35-6650328 (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 4720 KINGSWAY DRIVE INDIANAPOLIS, INDIANA 46205 (317) 259-6300 (Address, including zip code, and telephone number, including area code, of Registrants' principal executive offices) DAVID L. BATES, ESQ. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY SYMONS INTERNATIONAL GROUP, INC. 4720 KINGSWAY DRIVE INDIANAPOLIS, INDIANA 46205 (317) 259-6300 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: ROBERT A. ROSE, ESQ. DANN PECAR NEWMAN & KLEIMAN, P.C. 2300 One American Square, Box 82008 Indianapolis, Indiana 46282 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. |_|
CALCULATION OF REGISTRATION FEE AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE (2) (3) Trust Preferred Securities of SIG Capital Trust I . . . . . . . . . . . . . . . . . . . . . . .$135,000,000 100% $135,000,000 $40,909 Senior Subordinated Notes of Symons International Group, Inc.(2) Symons International Group, Inc. Guarantee with respect to Trust Preferred Securities(3) Total . . . . . . . . . . . . . . . . . . . . . . . $135,000,000(4) 100% $135,000,000(5) $40,909
(1) Estimated solely for the purpose of computing the registration fee. (2) No separate consideration will be received for the Senior Subordinated Notes of Symons International Group, Inc. distributed upon any liquidation of SIG Capital Trust I. (3) No separate consideration will be received for the Symons International Group, Inc. Guarantee. (4) This Registration Statement is deemed to cover rights of holders of Senior Subordinated Notes under an Indenture, the rights of holders of Trust Preferred Securities of the SIG Capital Trust I under the Amended and Restated Declaration of Trust, the rights of holders of such Trust Preferred Securities under a Guarantee and certain backup undertakings as described herein. (5) Such amount represents the Liquidation Amount of the SIG Capital Trust I Preferred Securities to be exchanged hereunder and the principal amount of Senior Subordinated Notes that may be distributed to holders of such Trust Preferred Securities upon any liquidation of the SIG Capital Trust I. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. Subject to Completion, Dated September 16, 1997 SIG CAPITAL TRUST I OFFER TO EXCHANGE ITS 9 1/2% TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY) WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 9 1/2% TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY SYMONS INTERNATIONAL GROUP, INC. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED ------------------------------------ SEE "RISK FACTORS" COMMENCING ON PAGE 23 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER PREFERRED SECURITIES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------------ SIG Capital Trust I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (as the same may be amended or supplemented from time to time, the "Prospectus") and in the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange up to $135,000,000 aggregate Liquidation Amount of its 9 1/2% Trust Preferred Securities (the "Exchange Preferred Securities") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for a like Liquidation Amount of its outstanding 9 1/2% Trust Preferred Securities (the "Preferred Securities"), of which $135,000,000 aggregate Liquidation Amount is outstanding. Pursuant to the Exchange Offer, Symons International Group, Inc., an Indiana corporation (the "Company"), is also offering to exchange (i) its guarantee of payments of cash distributions and payments on liquidation of the Trust or redemption of the Preferred Securities (the "Company Guarantee") for a like guarantee in respect of the Exchange Preferred Securities (the "Exchange Guarantee") and (ii) all of its 9 1/2% Senior Subordinated Notes due August 15, 2027 (the "Old Senior Subordinated Notes") for a like aggregate principal amount of its 9 1/2% Senior Subordinated Notes due August 15, 2027 (the "Exchange Notes"), which Exchange Guarantee and Exchange Notes also have been registered under the Securities Act. The Preferred Securities, the Company Guarantee and the Old Senior Subordinated Notes are collectively referred to herein as the "Old Securities" and the Exchange Preferred Securities, the Exchange Guarantee and the Exchange Notes are collectively referred to herein as the "Exchange Securities." The terms of the Exchange Securities are identical in all material respects to the respective terms of the Old Securities, except that (i) the Exchange Securities have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Old Securities, (ii) the Exchange Preferred Securities will not contain the $100,000 minimum Liquidation Amount transfer restriction, (iii) the Exchange Preferred Securities will not provide for any increase in the Distribution rate thereon, (iv) the Exchange Notes will not contain the $100,000 minimum principal amount transfer restriction and (v) the Exchange Notes will not provide for any increase in the interest rate thereon. See "Description of Exchange Preferred Securities" and "Description of Old Securities." The Exchange Securities are being offered for exchange in order to satisfy certain obligations of the Company and the Trust under the Registration Rights Agreement dated as of August 12, 1997 (the "Registration Rights Agreement") among the Company, the Trust and the Initial Purchasers (as defined herein). In the event that the Exchange Offer is consummated, any Preferred Securities which remain outstanding after consummation of the Exchange Offer and the Exchange Preferred Securities issued in the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding Liquidation Amount thereof have taken certain actions or exercised certain rights under the Declaration (as defined herein). This Prospectus and the Letter of Transmittal are first being mailed to all holders of Preferred Securities on September , 1997. The date of this Prospectus is September , 1997. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can also be obtained at prescribed rates by writing to the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such information may also be accessed electronically by means of the Commission's home page on the Internet (http://www.sec.gov). No separate financial statements of the Trust have been included herein. The Company and the Trust do not consider that such financial statements would be material to holders of the Preferred Securities or Exchange Preferred Securities because the Trust is a newly formed special purpose entity, has no operating history or independent operations and is not engaged in and does not propose to engage in any activity other than holding as trust assets the Exchange Notes and issuing the Trust Securities. See "SIG Capital Trust I" and "Description of Exchange Preferred Securities." In addition, the Company does not expect that the Trust will file reports under the Exchange Act with the Commission. This Prospectus constitutes a part of a registration statement on Form S-4 (the "Registration Statement") filed by the Company and the Trust with the Commission under the Securities Act. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company, the Trust and the Exchange Preferred Securities. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. 2 The Exchange Preferred Securities and the Preferred Securities (collectively, the "Securities") represent beneficial interests in the assets of the Trust. The Company is the owner of all of the beneficial interests represented by common securities of the Trust (the "Common Securities," and together with the Securities, the "Trust Securities"). Wilmington Trust Company is the Preferred Trustee of the Trust. The Trust exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in the Exchange Notes (as defined herein). The Exchange Notes will mature on August 15, 2027 (the "Stated Maturity Date"). The Securities will have a preference over the Common Securities under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise. See "Description of Exchange Preferred Securities." As more fully described herein, the Company has entered into several contractual undertakings which, the Company believes, taken together, guarantee to the holders of the Exchange Preferred Securities a full and unconditional right to enforce the payment of the distributions with respect to the Exchange Preferred Securities, the payment of the redemption price upon redemption of the Exchange Preferred Securities and the payment of the Liquidation Amount with respect to the Exchange Preferred Securities upon liquidation of the Trust. See "Risk Factors -- Rights Under the Exchange Guarantee." Those contractual arrangements include the Company's obligations under (i) the Exchange Guarantee, (ii) the Declaration, (iii) the Exchange Notes and (iv) the Indenture. As used herein, (i) the "Indenture" means the Senior Subordinated Indenture, dated as of August 12, 1997, as amended and supplemented from time to time, between the Company and Wilmington Trust Company, as Indenture Trustee (the "Indenture Trustee"), (ii) the "Declaration" means the Amended and Restated Declaration of Trust relating to the Trust, dated as of August 12, 1997, among the Company, as Sponsor, Wilmington Trust Company as Preferred Trustee (the "Preferred Trustee"), Wilmington Trust Company, as Delaware Trustee (the "Delaware Trustee"), and the Company Trustees named therein (collectively, with the Preferred Trustee and the Delaware Trustee, the "Issuer Trustees"). In addition, as the context may require, unless otherwise expressly stated, (i) the term "Securities" includes the Preferred Securities and the Exchange Preferred Securities, (ii) the term "Trust Securities" includes the Securities and the Common Securities, (iii) the term "Senior Subordinated Notes" includes the Old Senior Subordinated Notes and the Exchange Notes and (iv) the term "Guarantee" includes the Company Guarantee and the Exchange Guarantee. Holders of the Exchange Preferred Securities will be entitled to receive preferential cumulative cash distributions arising from the payment of interest on the Exchange Notes, accruing from August 12, 1997, and payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 1998, at the annual rate of 9 1/2% of the Liquidation Amount of $1,000 per Exchange Preferred Securities ("Distributions"). Unless an Event of Default has occurred and is continuing, the Company will have the right under the Indenture at any time during the term of the Exchange Notes to defer the payment of interest at any time or from time to time for a period not exceeding ten consecutive semi-annual periods with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity Date. As a consequence of any such deferral, semi-annual Distributions on the Securities by the Trust will be deferred during any such Extension Period. At the end of an Extension Period, the Company must pay all interest then accrued and unpaid (together with interest then accrued at the annual rate of 9 1/2%, compounded semi-annually, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Exchange Notes (and holders of the Trust Securities while Trust Securities are outstanding) will be required to accrue interest income (in the form of OID) for United States federal income tax purposes prior to the receipt of cash attributable to such income. See "Certain United States Federal Income Tax Considerations -- Interest Income and Original Issue Discount." During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's Capital Stock (which includes common and preferred stock), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Exchange Notes or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu with or junior in right of payment to the Exchange Notes (other than (a) dividends or distributions in shares of or options, warrants or rights to subscribe for or purchase shares of, Common Stock of the Company, (b) any declaration of a dividend in connection with the 3 implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, (d) as a result of a reclassification of the Company's Capital Stock or the exchange or conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, (e) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the security being converted or exchanged and (f) purchases or issuances of Common Stock under any of the Company's stock option, stock purchase, stock loan or other benefit plans for its directors, officers or employees or any of the company's dividend reinvestment plans, in each case as now existing or hereafter established or amended). Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed ten consecutive semi-annual periods or to extend beyond the Stated Maturity Date. Upon the termination of any such Extension Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must give the Preferred Trustee and Indenture Trustee notice of its election of any Extension Period (or an extension thereof) at least five Business Days prior to the earlier of (i) the date the Distributions on the Securities would have been payable except for the election to begin or extend such Extension Period or (ii) the date the Trustees are required to give notice to any securities exchange or to holders of Trust Securities of the record date or the date such Distributions are payable, but in any event not less than five Business Days prior to such record Date. The Indenture Trustee shall give notice of the Company's election to begin or extend a new Extension Period to the holders of the Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period. Through the Guarantee, the guarantee agreement of the Company relating to the Common Securities (the "Common Guarantee"), the Declaration, the Senior Subordinated Notes and the Indenture, taken together, the Company has guaranteed or will guarantee, as the case may be, fully, irrevocably and unconditionally, all of the Trust's obligations under the Trust Securities. See "Relationship Among the Exchange Preferred Securities, the Declaration, the Exchange Notes and the Exchange Guarantee -- Full And Unconditional Guarantee." The Company Guarantee and the Common Guarantee guarantees, and the Exchange Guarantee will guarantee, payments of Distributions and payments on liquidation or redemption of the Trust Securities, but in each case only to the extent that the Trust holds funds on hand legally available therefor and has failed to make such payments, as described herein. See "Description of Exchange Preferred Securities - -- Description of Exchange Guarantee." If the Company fails to make a required payment on the Senior Subordinated Notes, the Trust will not have sufficient funds to make the related payments, including Distributions, on the Trust Securities. The Guarantee and the Common Guarantee will not cover any such payment when the Trust does not have sufficient funds on hand legally available therefor. In such event, a holder of Securities may institute a legal proceeding directly against the Company to enforce its rights in respect of such payment. See "Description of Exchange Preferred Securities -- Description of Exchange Notes -- Enforcement Rights of Holders of Exchange Preferred Securities." The obligations of the Company under the Guarantee, the Common Guarantee and the Senior Subordinated Notes will be subordinate and junior in right of payment to all Senior Indebtedness (as defined in "Description of Exchange Preferred Securities -- Description of Exchange Notes"). The Trust Securities will be subject to mandatory redemption in a Like Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity Date upon repayment of the Senior Subordinated Notes at a redemption price equal to the principal amount of, plus accrued interest on, the Senior Subordinated Notes (the "Maturity Redemption Price"), (ii) in whole or in part, on or after August 15, 2007, contemporaneously with the optional prepayment by the Company of the Senior Subordinated Notes, at a redemption price equal to the Optional Prepayment Price (as defined below) (the "Optional Redemption Price"), (iii) upon the occurrence of a Change of Control Triggering Event (as defined herein) at a redemption price equal to 101% of the principal amount, of any Senior Subordinated Notes received in exchange for Trust Securities plus any accrued and unpaid interest thereon (the "Change of Control Redemption Price") or (iv) in whole upon acceleration of the Senior Subordinated Notes upon the occurrence of an Event of Default at a redemption price equal to the principal amount of, plus accrued interest on, the Senior Subordinated Notes (the "Default Redemption Price"). 4 Further, the Trust Securities are subject to redemption at the option of the Company in a Like Amount upon the occurrence of a Tax Event (as defined herein) in certain circumstances at a redemption price equal to the principal amount of, plus accrued interest on, the Senior Subordinated Notes (the "Event Redemption Price"). Any of the Maturity Redemption Price, the Change of Control Redemption Price, the Default Redemption Price, the Event Redemption Price or the Optional Redemption Price may be referred to herein as the "Redemption Price." See "Description of Exchange Preferred Securities." "Like Amount" means (i) with respect to a redemption of the Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Senior Subordinated Notes to be paid in accordance with their terms and (ii) with respect to a distribution of Senior Subordinated Notes upon the liquidation of the Trust, Senior Subordinated Notes having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Senior Subordinated Notes are distributed. The Exchange Notes will be prepayable prior to the Stated Maturity Date at the option of the Company (i) on or after August 15, 2007, in whole or in part, at a prepayment price (the "Optional Prepayment Price") equal to the principal amount thereof outstanding, plus accrued interest thereon to the date of prepayment or (ii) at any time, in whole but not in part, upon not less than thirty or more than sixty days' notice, at the Redemption Prices (as defined in the Indenture) (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest to the Redemption Date (as defined in the Indenture) (subject to the right of holders of record on the relevant Regular Record Date (as defined in the Indenture) to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) if redeemed during the twelve-month period beginning on August 15 of the years indicated below: Percentage of Year Principal Amount 2007...............................................................104.750% 2008...............................................................103.167% 2009...............................................................101.583% 2010 and thereafter................................................100.000% Either of the Optional Prepayment Price or the Change of Control Redemption Price may be referred to herein as the "Prepayment Price." See "Description of Exchange Preferred Securities." The Company will have the right at any time to terminate the Trust and cause a Like Amount of the Senior Subordinated Notes to be distributed to the holders of the Trust Securities in liquidation of the Trust, subject to the Company having received an opinion of counsel to the effect that such distribution will not be a taxable event to holders of Trust Securities. Unless the Senior Subordinated Notes are distributed to the holders of the Trust Securities, in the event of a liquidation of the Trust as described herein, after satisfaction of liabilities to creditors of the Trust as required by applicable law, the holders of Trust Securities generally will be entitled to receive a Liquidation Amount of $1,000 per Trust Security plus accumulated Distributions thereon to the date of payment. See "Description of Exchange Preferred Securities." Based on existing interpretations of the Securities Act by the staff of the Division of Corporate Finance of the Commission ("Staff") set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company and the Trust believe that the Exchange Preferred Securities, Exchange Guarantee and Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by the holders thereof (other than holders who are broker-dealers) without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of Preferred Securities who is an affiliate of the Trust or the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Preferred Securities, or any broker-dealer who purchased the Preferred Securities from the Trust to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretation of the Staff set forth in the above-mentioned no-action letters, (ii) will not be entitled to tender its Preferred Securities 5 in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Preferred Securities unless such sale or transfer is made pursuant to an exemption from such requirements. Neither the Company nor the Trust intends to seek its own no-action letter and there can be no assurance that the Staff would make a similar determination with respect to the Exchange Preferred Securities, Exchange Guarantee and Exchange Notes as it has in such no-action letters to third parties. Each holder of the Preferred Securities (other than certain specified holders) who wishes to exchange the Preferred Securities for Exchange Preferred Securities in the Exchange Offer will be required to represent that (i) it is not an affiliate of the Trust or the Company, (ii) the Exchange Preferred Securities to be received by it were acquired in the ordinary course of its business and (iii) at the time of the Exchange Offer, it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Preferred Securities. In addition, in connection with any resales of Exchange Preferred Securities, any broker-dealer (a "Participating Broker- Dealer") who acquired the Exchange Preferred Securities for its own account as a result of market-making or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Preferred Securities (other than a resale of an unsold allotment from the original sale of the Preferred Securities) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Trust is required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Preferred Securities. In that regard, each Participating Broker-Dealer who surrenders Preferred Securities pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal, that, upon receipt of notice from the Company or the Trust of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Exchange Preferred Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) pursuant to this Prospectus until the Company or the Trust has amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Company or the Trust has given notice that the sale of the Exchange Preferred Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) may be resumed, as the case may be. If the Company or the Trust gives such notice to suspend the sale of the Exchange Preferred Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) it shall extend the 90-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of Exchange Preferred Securities by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker- Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the Exchange Preferred Securities or to and including the date on which the Company or the Trust has given notice that the sale of the Exchange Preferred Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) may be resumed, as the case may be. Prior to the Exchange Offer, there has been only a limited secondary market and no public market for the Preferred Securities. The Exchange Preferred Securities will be a new issue of securities for which there currently is no market. Although the Initial Purchasers have informed the Company and the Trust that they each currently intend to make a market in the Exchange Preferred Securities, they are not obligated to do so, and any such market-making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Preferred Securities. The Company and the Trust currently do not intend to apply for listing of the Exchange Preferred Securities on any securities exchange or for quotation through the NASDAQ Stock Market. 6 Any Preferred Securities not tendered and accepted in the Exchange Offer will remain outstanding and will be entitled to all the same rights and will be subject to the same limitations applicable thereto under the Declaration (except for those rights which terminate upon consummation of the Exchange Offer). Following consummation of the Exchange Offer, the holders of Preferred Securities will continue to be subject to all of the existing restrictions upon transfer thereof and neither the Company nor the Trust will have any further obligation to such holders (other than under certain limited circumstances) to provide for registration under the Securities Act of the Preferred Securities held by them. To the extent that Preferred Securities are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Preferred Securities could be adversely affected. See "Risk Factors -- Consequences of a Failure to Exchange Preferred Securities." THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION. HOLDERS OF PREFERRED SECURITIES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER. Preferred Securities may be tendered for exchange on or prior to 5:00 p.m., New York City time, on , 1997 (such time on such date being hereinafter called the "Expiration Date"), unless the Exchange Offer is extended by the Company or the Trust (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). Tenders of Preferred Securities may be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum Liquidation Amount of Preferred Securities being tendered for exchange. However, the Exchange Offer is subject to certain events and conditions which may be waived by the Company or the Trust and to the terms and provisions of the Registration Rights Agreement. Preferred Securities may be tendered in whole or in part having an aggregate Liquidation Amount of not less than $100,000 (100 Preferred Securities) or any integral multiple of $1,000 Liquidation Amount (one Preferred Security) in excess thereof. The Company will pay all fees, expenses, debts and obligations (other than the Trust Securities) related to the Trust and the offering and exchange of the Preferred Securities and will pay, directly or indirectly, all ongoing costs, expenses and liabilities of the Trust. See "The Exchange Offer -- Fees and Expenses." Holders of the Preferred Securities whose Preferred Securities are accepted for exchange will not receive Distributions on such Preferred Securities and will be deemed to have waived the right to receive any Distributions on such Preferred Securities accumulated from and after August 12, 1997. See "The Exchange Offer -- Distributions of Exchange Preferred Securities." Neither the Company nor the Trust will receive any cash proceeds from the issuance of the Exchange Preferred Securities offered hereby. No dealer-manager is being used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." ------------------------------------ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------------------ 7 TABLE OF CONTENTS Page Available Information..................................................... 2 Prospectus Summary........................................................ 9 Risk Factors.............................................................. 23 Use of Proceeds........................................................... 37 Accounting Treatments..................................................... 37 Capitalization............................................................ 38 Unaudited Pro Forma Consolidated Financial Statements..................... 39 Selected Consolidated Financial Data of the Company....................... 45 Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company...................... 50 Selected Consolidated Historical Financial Data of Superior Insurance Company.............................................. 60 Management's Discussion and Analysis of Financial Condition and Results of Operations of Superior Insurance Company.................. 61 Business.................................................................. 67 The Exchange Offer........................................................ 99 Description of Exchange Preferred Securities.............................. 109 Description of the Exchange Notes......................................... 122 Description of Exchange Guarantee......................................... 142 Relationship Among the Exchange Preferred Securities, the Declaration, the Exchange Notes and the Exchange Guarantee.......... 146 Description of Old Securities............................................. 148 Certain United States Federal Income Tax Considerations................... 149 ERISA Considerations...................................................... 154 Plan of Distribution...................................................... 155 Legal Matters............................................................. 156 Experts................................................................... 156 Glossary of Terms......................................................... 157 Index to Financial Statements............................................. F-1 8 PROSPECTUS SUMMARY See "Glossary of Terms" ("Glossary") for the definitions of certain of the capitalized and defined terms used herein. The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and consolidated financial statements, and the notes thereto, appearing elsewhere in this Prospectus. Unless the context indicates otherwise, (i) the "Company" or "SIG" refers to Symons International Group, Inc., an Indiana corporation, and its Subsidiaries, (ii) the "Subsidiaries" refer to the direct and indirect subsidiaries of the Company, (iii) the "Insurers" refer to IGF Insurance Company, an Indiana property and casualty insurance company and a wholly owned subsidiary of the Company ("IGF"), and through the Company's ownership of GGS Management Holdings, Inc. ("GGS Holdings"), Pafco General Insurance Company, an Indiana property and casualty insurance company ("Pafco"), and Superior Insurance Company, a Florida property and casualty insurance company, together with its subsidiaries ("Superior") and (iv) "Goran" refers to Goran Capital Inc. and its subsidiaries, other than the Company and the Subsidiaries. Unless otherwise indicated, (i) all data in this Prospectus takes into effect the 7,000-for-1 stock split of the Company's Common Stock prior to its Initial Public Offering in November 1996 and (ii) all financial information and operating statistics applicable to the Company, set forth in this Prospectus are based on generally accepted accounting principles ("GAAP") and not statutory accounting practices ("SAP"). In conformity with industry practice, data derived from A.M. Best Company, Inc. ("A.M. Best") and the National Association of Insurance Commissioners ("NAIC"), generally used herein for industry comparisons, are based on SAP. SIG Capital Trust I The Trust is a statutory business trust formed under Delaware law pursuant to (i) the Declaration executed by the Company, as Sponsor, Wilmington Trust Company, as Preferred Trustee and Wilmington Trust Company, as Delaware Trustee, and the three individual Company Trustees named therein and (ii) the filing of a certificate of trust with the Delaware Secretary of State on August 4, 1997. The Trust's business and affairs are conducted by the Issuer Trustees: the Preferred Trustee, the Delaware Trustee and the three Company Trustees who are employees or officers of or affiliated with the Company. The Trust exists for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using the proceeds from the sale of the Trust Securities to acquire the Senior Subordinated Notes issued by the Company and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Securities). Accordingly, the Senior Subordinated Notes will be the sole assets of the Trust, and payments under the Senior Subordinated Notes will be the sole revenues of the Trust. All of the Common Securities are owned by the Company. The Company Overview Symons International Group, Inc., a specialty property and casualty insurer, underwrites and markets nonstandard private passenger automobile insurance and crop insurance. Through its Subsidiaries, the Company writes business in the United States exclusively through independent agencies and seeks to distinguish itself by offering high quality, technology-based services for its agents and policyholders. The Company had consolidated Gross Premiums Written of approximately $305.5 million and $279.1 million for the twelve months ended December 31, 1996 and the six months ended June 30, 1997, respectively. The Company believes that, based on the Company's Gross Premiums Written in 1996, it is the twelfth largest underwriter of nonstandard automobile insurance in the United States. Based on premium information compiled in 1996 by the National Crop Insurance 9 Services, Inc. ("NCIS"), the Company believes that IGF is the fifth largest underwriter of Multi-Peril Crop Insurance ("MPCI") in the United States. The Company generated EBITDA of $29.8 million and $21.2 million for the twelve months ended December 31, 1996 and the six months ended June 30, 1997, respectively. The Company's nonstandard automobile business and crop businesses are operated autonomously and, as a result, are not dependent on one another nor are they impacted by similar events. In the first half of 1997, the nonstandard automobile business and crop business accounted for approximately 36.9% and 63.1% of the Company's EBITDA, respectively. Through a disciplined underwriting philosophy, the Company has generated Combined Ratios of 93.4% and 98.3% for the twelve months ended December 31, 1996 and six months ended June 30, 1997, respectively. The Company markets its nonstandard automobile business through approximately 6,000 independent agents in eighteen states. Nonstandard insureds are those individuals who are unable to obtain insurance through standard market carriers due to factors such as poor premium payment history, driving experience, record of prior accidents or driving violations, particular occupation or type of vehicle. Premium rates for nonstandard risks are higher than for standard risks. Nonstandard policies have relatively short coverage periods and low limits of liability. According to A.M. Best, the nonstandard automobile market accounted for $17.4 billion in premiums in 1995. The nonstandard automobile market is the fastest growing sector of the personal lines market resulting primarily from (i) the increased regulatory pressure on previously uninsured motorists to purchase insurance and (ii) the increasing number of young adults reaching driving age. The Company's nonstandard automobile insurance business generated $187.2 million and $165.5 million of Gross Premiums Written and had Combined Ratios of 98.8% and 99.3% for the twelve months ended December 31, 1996 and the six months ended June 30, 1997, respectively. The Company also underwrites MPCI, crop hail insurance and other named peril crop insurance policies through approximately 1,200 independent agencies in 39 states. MPCI, a federally subsidized program, is designed to provide farmers who suffer an insured crop loss due to the weather or other natural perils with the funds needed to continue operations and plant crops for the next growing season. For the year ended December 31, 1996, the Company wrote approximately $82.1 million in MPCI premiums and $28.0 million in crop hail gross premiums. For the first six months of 1997, the Company wrote approximately $79.0 million in MPCI premiums and $29.3 million in crop hail gross premiums. In addition to premium revenues, for 1996, the Company received from the Federal Crop Insurance Corporation ("FCIC"): (i) CAT Coverage Fees in the amount of $1.2 million, (ii) Buy-up Expense Reimbursement Payments in the amount of $25.0 million and (iii) CAT LAE Reimbursement Payments and MPCI Excess LAE Reimbursement Payments in the aggregate amount of $5.8 million. See "Management's Discussion and Analysis -- Certain Accounting Policies for Crop Insurance Operations." As of June 30, 1997, 75.5% of the Company's investment portfolio was invested in fixed maturities, of which 87.3% had ratings of "A" or equivalent or better and 97.6% had ratings of "BBB" or equivalent or better. Company Strategy The Company employs separate operating strategies for its nonstandard automobile and crop insurance businesses. Nonstandard Automobile Insurance Business o The Company seeks to achieve profitability through a combination of internal growth and the acquisition of other insurers and blocks of business. The Company regularly evaluates acquisition opportunities. 10 o The Company seeks to expand the multi-tiered marketing approach currently employed in certain states in order to offer to its independent agency network a broader range of products with different premium and commission structures. o The Company is committed to the use of integrated technologies which permit it to rate, issue, bill and service policies in an efficient and cost effective manner. o The Company competes primarily on the basis of underwriting criteria and service to agents and insureds and generally does not match price decreases implemented by competitors which are directed towards obtaining market share. o The Company encourages agencies to place a large share of their profitable business with its Subsidiaries by offering, in addition to fixed commissions, a contingent commission based on a combination of volume and profitability. o The Company responds to claims in a manner designed to reduce the costs of claims settlements by reducing the number of pending claims and uses computer databases to verify repair and vehicle replacement costs and to increase subrogation and salvage recoveries. Crop Insurance Business o The Company seeks to enhance underwriting profits and reduce the volatility of its crop insurance business through geographic diversification and the appropriate allocation of risks among the federal reinsurance pools and the effective use of federal and third-party catastrophic reinsurance arrangements. o The Company also limits the risks associated with crop insurance through selective underwriting of crop risks based on its historical loss experience data base. o The Company continues to develop and maintain a proprietary knowledge-based underwriting system which utilizes a database of Company-specific underwriting rules. o The Company has further strengthened its independent agency network by using technology to provide fast, efficient service to its agencies and providing application documentation designed for simplicity and convenience. o Unlike many of its competitors, the Company employs approximately 85 full-time claims adjusters, most of whom are agronomy trained, to reduce the Losses experienced by IGF. o The Company stops selling its crop hail policies after certain selected dates to prevent farmers from adversely selecting against IGF by purchasing crop insurance when a storm is forecast or hail damage has already occurred. o The Company continues to explore growth opportunities and product diversification through new specialty coverages, including Crop Revenue Coverage and named peril insurance. o The Company continues to explore new opportunities in administrative efficiencies and product underwriting made possible by advances in precision farming software, Global Positioning System (GPS) software and Geographical Information System (GIS) technology, all of which continue to be adopted by insureds in their farming practices. 11 Company Structure In April 1996, the Company acquired Superior from Fortis, Inc., through GGS Management Holdings, Inc. ("GGS Holdings"), which is 100% owned by the Company. The following chart shows the current organizational structure of the Company with all Subsidiaries being 100% directly or indirectly owned by the Company. SYMONS INTERNATIONAL GROUP, INC. ("SIG" or the "Company") ----------- | |-----100%-------------------|---------------100%---------| | | IGF HOLDINGS, INC. GGS MANAGEMENT ("IGF Holdings") HOLDINGS, INC. - ----------------- ("GGS Holdings") | ---------------- | | | | IGF INSURANCE GGS MANAGEMENT, INC. COMPANY ("GGS Management") ("IGF") ------------------ ------- | | |---------------------------------------| | | PAFCO GENERAL SUPERIOR INSURANCE INSURANCE COMPANY COMPANY ("Pafco") ("Superior") --------- ------------ The address and telephone number of the Company's principal executive offices are 4720 Kingsway Drive, Indianapolis, Indiana 46205, (317) 259-6300. 12 The Exchange Offer The Exchange Offer Up to $135,000,000 aggregate Liquidation Amount of Exchange Preferred Securities are being offered in exchange for a like aggregate Liquidation Amount of Preferred Securities. Preferred Securities may be tendered for exchange in whole or in part in a Liquidation Amount of $100,000 (100 Preferred Securities) or any integral multiple of $1,000 (one Preferred Security) in excess thereof. The Company and the Trust are making the Exchange Offer in order to satisfy their obligations under the Registration Rights Agreement relating to the Preferred Securities. For a description of the procedures for tendering Preferred Securities, see "The Exchange Offer-- Procedures for Tendering Preferred Securities." Expiration Date 5:00 p.m., New York City time, on __________________, 1997, unless the Exchange Offer is extended by the Company or the Trust (in which case the Expiration Date will be the latest date and time to which the Exchange Offer is extended). See "The Exchange Offer-- Terms of the Exchange Offer." Conditions to the The Exchange Offer is subject to certain onditions, which Exchange Offer may be waived by the Company and the Trust in their sole discretion. The Exchange Offer is not conditioned upon any minimum Liquidation Amount of Preferred Securities being tendered. See "The Exchange Offer -- Conditions to the Exchange Offer." Offer The Company and the Trust reserve the right in their sole and absolute discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Preferred Securities for exchange, (ii) to terminate the Exchange Offer if certain specified conditions have not been satisfied and (iii) to extend the Expiration Date of the Exchange Offer and retain all Preferred Securities tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Preferred Securities to withdraw their tendered Preferred Securities. See "The Exchange Offer-- Terms of the Exchange Offer." Withdrawal Rights Tenders of Preferred Securities may be withdrawn at any time on or prior to the Expiration Date by delivering a written notice of such withdrawal to the Exchange Agent in conformity with certain procedures set forth below under "The Exchange Offer-- Withdrawal Rights." Procedures for Tendering holders of Preferred Securities must complete and Tendering sign a Letter of Transmittal in accordance with the Preferred instructions contained therein and forward the same by mail, Securities facsimile or hand delivery, together with any other required documents, to the Exchange Agent, either with the Preferred Securities to be tendered or in compliance with the specified procedures for guaranteed delivery of Preferred Securities. Certain brokers, dealers, commercial banks, trust companies and other nominees may also effect tenders by an Agent's Message (defined herein) in case of book-entry delivery to the Exchange Agent prior to the Expiration Date. Holders of Preferred Securities registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such person promptly if they wish to tender Preferred Securities pursuant to the Exchange Offer. See "The Exchange Offer -- Procedures for Tendering Preferred Securities." 13 Letters of Transmittal and certificates representing Preferred Securities should not be sent to the Company or the Trust. Such documents should only be sent to the Exchange Agent. Resales of Exchange The Company and the Trust are making the Exchange Offer in Preferred reliance on the position of the Staff as set forth in Securities certain interpretive letters addressed to third parties in other transactions. However, neither the Company nor the Trust has sought its own interpretive letter and there can be no assurance that the Staff would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the Staff, and subject to the two immediately following sentences, the Company and the Trust believe that Exchange Preferred Securities issued pursuant to this Exchange Offer in exchange for Preferred Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Preferred Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Preferred Securities. However, any holders of Preferred Securities who is an "affiliate" of the Company or the Trust or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Preferred Securities, or any broker-dealer who purchased the Preferred Securities from the Trust to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the Staff set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Preferred Securities in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Preferred Securities unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Preferred Securities acquired for its own account as a result of market-making or other trading activities and exchanges such Preferred Securities for Exchange Preferred Securities, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Preferred Securities. Each holder of Preferred Securities who wishes to exchange Preferred Securities for Exchange Preferred Securities in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company or the Trust, (ii) any Exchange Preferred Securities to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Preferred Securities and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Preferred Securities. Each broker-dealer that receives Exchange Preferred Securities for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Exchange Preferred Securities for its own account as the result of market-making activities or other trading activities and it will deliver a prospectus meeting the requirements of the 14 Securities Act in connection with any resale of such Exchange Preferred Securities. The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the Staff in the interpretive letters referred to above, the Company and the Trust believe that Participating Broker-Dealers who acquired Preferred Securities for their own accounts as a result of market-making activities or other trading activities may fulfill their prospectus delivery requirements with respect to the Exchange Preferred Securities received upon exchange of such Preferred Securities (other than Preferred Securities which represent an unsold allotment from the original sale of the Preferred Securities) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such Exchange Preferred Securities. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Preferred Securities received in exchange for Preferred Securities where such Preferred Securities were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement and to the limitations described below under "The Exchange Offer -- Resales of Exchange Preferred Securities," the Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Preferred Securities for a period ending 90-days after the Expiration Date (subject to extension under certain limited circumstances) or, if earlier, when all such Exchange Preferred Securities have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of the Company or the Trust may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer -- Resales of Exchange Preferred Securities." Exchange Agent The exchange agent with respect to the Exchange Offer is Wilmington Trust Company (the "Exchange Agent"). The addresses, and telephone and facsimile numbers, of the Exchange Agent are set forth in "The Exchange Offer- Exchange Agent" and in the Letter of Transmittal. Use of Proceeds Neither the Company nor the Trust will receive any cash pro- ceeds from the issuance of the Exchange Preferred Securities offered hereby. See "Use of Proceeds." Certain United Holders of Preferred Securities should review the States Federal information set forth under "Certain United States Federal Income Tax Income Tax Considerations" and "ERISA Considerations" Considerations; prior to tendering Preferred Securities in the Exchange ERISA Offer Considerations" 15 The Exchange Preferred Securities Securities Offered Up to $135,000,000 aggregate Liquidation Amount of the Trust's Exchange Preferred Securities which have been registered under the Securities Act (Liquidation Amount $1,000 per Exchange Preferred Security). The Exchange Preferred Securities will be issued and the Preferred Securities were issued under the Declaration. The Exchange Preferred Securities and any Preferred Securities which remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding Liquidation Amount thereof have taken certain actions or exercised certain rights under the Declaration. See "Description of Exchange Preferred Securities-- Voting Rights; Modification of the Declaration." The terms of the Exchange Preferred Securities are identical in all material respects to the terms of the Preferred Securities, except that the Exchange Preferred Securities have been registered under the Securities Act and will not be subject to the $100,000 minimum Liquidation Amount transfer restriction and certain other restrictions on transfer applicable to the Preferred Securities and will not provide for any increase in the Distribution rate thereon. See "The Exchange Offer-- Purpose of the Exchange Offer," "Description of Exchange Securities" and "Description of Old Securities." Distribution Dates February 15 and August 15 of each year, commencing February 15, 1998. Extension Periods Distributions on the Exchange Preferred Securities will be deferred for the duration of any Extension Period elected by the Company with respect to the payment of interest on the Exchange Notes. No Extension Period will exceed ten consecutive semi-annual periods or extend beyond the Stated Maturity Date. See "Description of Exchange Notes-- Option to Extend Interest Payment Date" and "Certain United States Federal Income Tax Considerations-- Interest Income and Original Issue Discount." Ranking The Exchange Preferred Securities will rank pari passu, and payments thereon will be made pro rata, with the Preferred Securities and the Common Securities except as described under "Description of Exchange Preferred Securities-- Subordination of Common Securities." The Exchange Notes will rank pari passu with the Old Senior Subordinated Notes and all other junior subordinated debentures to be issued by the Company (collectively, with the Old Senior Subordinated Notes, the "Other Notes") and sold (if at all) to other trusts to be established by the Company (if any), in each case similar to the Trust (the "Other Trusts"), and will be unsecured and subordinate and junior in right of payment to all Senior Indebtedness to the extent and in the manner set forth in the Indenture. At June 30, 1997, the aggregate principal amount of outstanding Senior Indebtedness was approximately $44.8 million. See "Description of Exchange Preferred Securities" and "Description of Exchange Notes." The Exchange Guarantee will rank pari passu with the Company Guarantee and will constitute an unsecured obligation of the Company and will rank subordinate and junior in right of payment to all Senior Indebtedness to the extent and in the manner set forth in the Exchange Guarantee. See "Description of Exchange Preferred Securities" and "Description of Exchange Guarantee." 16 Optional The Company is permitted to redeem the Senior Subordinated Redemption Notes at the redemption prices set forth herein in whole or in part, from time to time, after August 15, 2007. Upon any such redemption, the proceeds from such redemption shall simultaneously be applied by the Trust to redeem Securities and Common Securities at the Redemption Price (as defined herein). In the event that fewer than all the outstanding Senior Subordinated Notes are to be so redeemed, then the proceeds from such redemption shall be allocated to the redemption pro rata of the Securities and the Common Securities. See "Description of the Exchange Preferred Securities-- Optional Redemption." Mandatory The Preferred Securities will be subject to mandatory Redemption redemption upon the repayment of the Senior Subordinated Notes at their stated maturity, upon acceleration, earlier redemption or otherwise. See "Description of the Exchange Preferred Securities -- Mandatory Redemption." Change of Control Upon the occurrence of a Change of Control Triggering Event Redemption (as defined herein), a Holder of Trust Securities has the right to require the Trust to exchange all or any part of the Holder's Trust Securities for Senior Subordinated Notes having an aggregate principal amount equal to the aggregate Liquidation Amount of the Trust Securities so offered. Upon the occurrence of such an event, the Company will be required to immediately redeem any Senior Subordinated Notes so exchanged at a redemption price equal to 101% of the principal amount thereof plus any accrued and unpaid interest. See "Description of the Exchange Preferred Securities-- Change of Control Redemption" and "Description of the Exchange Notes-- Change of Control." Tax Event or Upon the occurrence of a Tax Event or an Investment Company Investment Event (each as defined herein), except in certain limited Company Event circumstances, the Company will cause the Trustees (as Redemption or defined herein) to dissolve and liquidate the Trust and, Distribution after satisfaction of liabilities to creditors of the Trust, cause Senior Subordinated Notes to be distributed to the holders of the Securities. Upon the occurrence of a Tax Event, in certain circumstances, the Company will have the right to redeem the Senior Subordinated Notes in whole (but not in part) at 100% of the principal amount plus accrued and unpaid interest, in lieu of a distribution of the Senior Subordinated Notes, in which event all the Trust Securities will be redeemed by the Trust at the Liquidation Amount of $1,000 per each of the Securities plus accrued and unpaid Distributions. See "Description of the Exchange Preferred Securities-- Tax Event or Investment Company Event Redemption or Distribution." Rating The Preferred Securities were rated BB+ by Standard & Poor's Ratings Services and Ba3 by Moody's Investors Service, Inc. 17 Absence of Market The Exchange Preferred Securities will be a new issue of for the securities for which there currently is no market. Exchange Preferred Although Donaldson, Lufkin & Jenrette Securities Securities Corporation, Goldman, Sachs & Co., CIBC Wood Gundy Securities Corp. and Mesirow Financial, Inc., the initial purchasers of the Preferred Securities (the "Initial Purchasers"), have informed the Company and the Trust that they each currently intend to make a market in the Exchange Preferred Securities, they are not obligated to do so, and any such market-making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Preferred Securities. The Trust and the Company do not intend to apply for listing of the Exchange Preferred Securities on any securities exchange or for quotation through the NASDAQ Stock Market. See "Plan of Distribution." 18 Summary Company Consolidated Financial Data The following tables set forth summary consolidated financial information with respect to the Company for the periods indicated. The historical financial information was prepared in accordance with Generally Accepted Accounting Principles. The financial information for the Company as of June 30, 1997 is unaudited; however, in management's opinion, it includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of results for such interim periods. Interim results are not necessarily indicative of results for the full year. The pro forma consolidated statement of operations data for the year ended December 31, 1996 and for the six months ended June 30, 1997 present results for the Company as if the Formation Transaction, the Acquisition and the other Transactions (as defined herein), the Initial Public Offering and the Buyout Transaction had occurred as of January 1, 1996. The pro forma consolidated financial information and the Offering presents pro forma consolidated balance sheet data of the Company as if the Buyout Transaction described above had occurred as of June 30, 1997. 19
For the Year Ended December 31, For The Six Months Ended June 30, ------------------------------------------------- ------------------------------------ (dollars in thousands) Pro Pro Forma Forma 1994 1995 1996 1996 (1) 1996 1997 1997 (1) ---- ---- ---- -------- ---- ---- -------- Consolidated Statement of Operations Data: (2) (3) Gross Premiums Written $103,134 $124,634 $305,499 $349,492 $146,950 $279,065 $279,065 Net Premiums Written 35,139 53,447 209,592 253,210 77,042 150,524 150,524 Net Premiums Earned 32,126 49,641 191,759 231,146 59,066 136,012 136,012 Net Investment Income 1,241 1,173 6,733 9,185 1,533 5,276 5,276 Other Income 1,632 2,170 9,286 11,503 4,062 10,791 10,791 Net Realized Capital Gain (Loss) (159) (344) (1,015) (986) 228 1,684 1,684 ----- ----- ------- ----- --- ----- ----- Total Revenues 34,840 52,640 206,763 250,848 64,889 153,763 153,763 ------ ------ ------- ------- ------ ------- ------- Net Earnings (4) $2,117 $4,821 $13,256 $12,162 $4,304 $9,586 $8,089 ===== ===== ====== ====== ===== ===== ===== Other Data: EBITDA (5) $3,259 $9,430 $29,835 $35,721 $7,552 $21,242 $21,242 Adjusted EBITDA (6) $3,418 $9,774 $30,850 $36,707 $7,324 $19,558 $19,558 Ratio of EBITDA to interest expense and Distributions on Preferred Securities 2.78x 3.29x Ratio of Adjusted EBITDA to interest expense and Distri- butions on Preferred Securities (6) 2.86x 3.03x Total Preferred Securities to Adjusted EBITDA (6) 3.68x (8) GAAP Ratios: (2) (7) Loss and LAE Ratio 82.4% 72.5% 71.5% 70.9% 76.7% 75.9% 75.9% Expense Ratio 18.1% 16.1% 21.9% 23.9% 20.8% 22.4% 22.9% ----- ----- ----- ----- ----- ----- ----- Combined Ratio 100.5% 88.6% 93.4% 94.8% 97.5% 98.3% 98.8% ====== ===== ===== ===== ===== ===== =====
At December 31, At June 30, 1997 --------------- ----------------------------------- (dollars in thousands) As Adjusted for 1996 Actual the Offering Consolidated Balance Sheet Data: (2) Cash and cash equivalents $13,095 $18,329 $18,329 Investments 168,137 190,500 214,728 Total Assets 344,679 567,641 632,081 Losses and Loss Adjustment Expenses 101,719 137,924 137,924 Total Debt 48,000 44,872 --- Minority Interest: Preferred Securities --- --- 135,000 Equity in net assets of subsidiary 21,610 26,724 --- Total Shareholders' Equity 60,900 71,900 73,327 Statutory Capital and Surplus: (9) Crop (IGF) $29,412 $36,760 $36,760 Nonstandard automobile (Pafco and Superior) $75,233 $82,291 $82,291
20 - --------------- (1) Results of operations of Superior for the years ended December 31, 1994 and 1995 and for the six months ended June 30, 1996 are presented herein in "Selected Consolidated Historical Financial Data of Superior Insurance Company." The pro forma consolidated statement of operations data for the year ended December 31, 1996 and for the six months ended June 30, 1997 present results of the Company as if the Formation Transaction, the Acquisition and the other Transactions, the Initial Public Offering and the Buyout Transaction had occurred as of January 1, 1996. The as adjusted consolidated balance sheet data as of June 30, 1997 gives effect to the Buyout Transaction and Offering as if they had occurred as of June 30, 1997. See "Unaudited Pro Forma Consolidated Financial Statements" for a discussion. (2) See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" for a discussion of the accounting treatment accorded to the crop insurance business. (3) Consolidated results of operations reflect the results of Superior subsequent to its acquisition by the Company on April 30, 1996. (4) Pro forma net earnings for the six month period ended June 30, 1997 and the year ended December 31, 1996 exclude ($725,000) and ($901,000), respectively, for the effects of the assumed write-off of debt issuance costs incurred on the GGS Senior Credit Facility upon repayment of that debt from the proceeds of the Offering. Such amounts will be presented as extraordinary items in accordance with Generally Accepted Accounting Principles. (5) EBITDA consists of earnings before interest, taxes, minority interest, depreciation and amortization. EBITDA is presented here not as a measure of operating results, but rather as a measure of the Company's cash flow and debt service ability, and should not be considered as an alternative to net earnings and cash flows determined in accordance with GAAP. Because the Company's ability to obtain dividends from its insurance subsidiaries may be subject to certain restrictions, EBITDA is not necessarily indicative of the Company's ability to service its indebtedness. (6) Adjusted EBITDA is comprised of EBITDA excluding realized gains or losses on sales of investments. (7) The Loss and LAE Ratio is calculated by dividing Losses and Loss Adjustment Expenses by Net Premiums Earned. The Expense Ratio is calculated by dividing policy acquisition and general and administrative expenses by Net Premiums Earned. The Combined Ratio is the sum of the Loss and LAE and Expense Ratios. As a result of the accounting treatment accorded to the MPCI business, the Company's GAAP Loss and LAE, Expense and Combined Ratios are not comparable to the ratios for other property and casualty insurers. (8) This ratio is not meaningful for interim periods. (9) Statutory capital and surplus is calculated under SAP and is relevant for insurance regulatory purposes in determining the amount of business an insurance company may write. Statutory capital and surplus for Pafco and Superior individually is as follows: (dollars in thousands) ------------------------------------------------------------------------------- June 30, As Adjusted, December 31, 1996 1997 June 30, 1997 ----------------------- ---------------------- ------------------- Pafco $18,112 $17,273 $17,273 Superior $57,121 $65,018 $65,018 21 The Trust The Trust is a statutory business trust created under the laws of the State of Delaware pursuant to (i) a declaration of trust executed by the Company, as sponsor of the Trust, and certain of the trustees of the Trust and (ii) the filing of a certificate of trust with the Secretary of the State of Delaware on August 4, 1997. The original declaration of trust of the Trust was amended and restated in its entirety in the form of the Amended and Restated Declaration of Trust of the Trust (the "Declaration"). The Company acquired Common Securities in an aggregate Liquidation Amount equal to not less than 3% of the total capital of the Trust representing all of the Common Securities of the Trust. The Common Securities rank pari passu, and payment will be made thereon pro rata, with the Preferred Securities, except that, upon the occurrence and during the continuance of a Declaration Event of Default (as defined herein), the rights of the Company as 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. See "Description of the Exchange Preferred Securities -- Subordination of Common Securities." The assets of the Trust consist of the Senior Subordinated Notes. The Trust exists for the exclusive purpose of (i) issuing and selling the Trust Securities representing undivided beneficial ownership interests in the assets of the Trust, (ii) investing the proceeds of the Trust Securities in the Senior Subordinated Notes and (iii) engaging in only those other activities necessary or incidental thereto. Accordingly, the Senior Subordinated Notes will be the sole assets of the Trust, and payments under the Senior Subordinated Notes will be the sole revenue of the Trust. The Trust has a term of approximately fifty years but may dissolve earlier as provided in the Declaration. The Trust business and affairs are conducted by its trustees (the "Trustees"), each appointed by the Company as sole holder of the Common Securities. Pursuant to the Declaration, the number of Trustees is five. Three of the Trustees (the "Company Trustees") will be individuals who are employees or officers of, or who are affiliated with the Company. The fourth trustee is a financial institution that is unaffiliated with the Company (the "Preferred Trustee"). The fifth trustee is an entity that maintains its principal place of business in the State of Delaware (the "Delaware Trustee"). Wilmington Trust Company acts as Preferred Trustee and as Delaware Trustee until, in each case, removed or replaced by the Holder of the Common Securities. Wilmington Trust Company also acts as trustee under the Guarantee (the "Guarantee Trustee") and under the Indenture (the "Indenture Trustee"). See "Description of the Exchange Guarantee" and "Description of the Exchange Preferred Securities." The Preferred Trustee will hold title to the Senior Subordinated Notes for the benefit of the holders of the Trust Securities and will have the power to exercise all rights, powers and privileges under the Indenture as the holder of the Senior Subordinated Notes. In addition, the Preferred Trustee maintains exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments made in respect of the Senior Subordinated Notes for the benefit of the holders of Securities. The Company, as the direct or indirect holder of all the Common Securities, will have the right to appoint, remove or replace any of the Trustees and to increase or decrease the number of Trustees, provided that the number of Trustees shall be at least three, a majority of which shall be Company Trustees. The holder of the Common Securities of the Trust, or the holders of a majority in Liquidation Amount of the Securities if a Declaration Event of Default has occurred and is continuing, will be entitled to appoint, remove or replace the Preferred Trustee and/or the Delaware Trustee for such Trust. In no event will the holders of the Securities have the right to vote to appoint, remove or replace the Company Trustees; such voting rights are vested exclusively in the holder of the Common Securities. The duties and obligations of each of the Trustees are governed by the Declaration. In the Indenture, the Company, as borrower, has agreed to pay for all fees and expenses related to the Trust, including fees and expenses of the Trustees and any income taxes, duties and other governmental charges, and all costs and expenses with respect thereto to which the Trust may become subject and all fees and expenses related to this Offering and will pay, directly or indirectly, all ongoing costs, expenses and liabilities of the Trust. See "Description of the Exchange Notes." The rights of the holders of the Securities, including economic rights, rights to information and voting rights, if any, are as set forth in the Declaration and the Delaware Business Trust Act, as amended (the "Trust Act"). See "Description of the Preferred Securities." The Declaration, the Indenture and the Guarantee also incorporate by reference the terms of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Declaration, the Indenture and the Company Guarantee will be qualified under the Trust Indenture Act. The place of business and the telephone number of the Trust is: 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890-0001, (307) 651-8516. 23 RISK FACTORS Prospective investors should consider carefully, in addition to the other information contained in this Prospectus, the following factors in connection with the Exchange Offer and the Exchange Preferred Securities offered hereby and should particularly consider the following matters. Certain statements in the Prospectus and documents incorporated herein by reference are forward-looking and are identified by the use of forward-looking words or phrases such as "intended," "will be positioned," "expects," is or are "expected," "anticipates," and "anticipated." These forward-looking statements are based on the Company's current expectations. To the extent any of the information contained in this Prospectus constitutes a "forward-looking statement" as defined in section 27a(i)(1) of the Securities Act, the risk factors set forth below are cautionary statements identifying important factors that could cause results to differ materially from those in the forward-looking statement. Factors Relating to the Exchange Preferred Securities Subordination of the Guarantee and Senior Subordinated Notes The Company's obligations under the Guarantee and the Senior Subordinated Notes are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined herein) of the Company. No payment of principal (including redemption payments, if any), premium, if any, or interest on the Senior Subordinated Notes may be made if (i) any Senior Indebtedness of the Company having an outstanding principal amount at the time of determination in excess of $10 million (the "Specified Senior Indebtedness"), is not paid when due or (ii) any other default on Specified Senior Indebtedness occurs and the maturity of such Specified Senior Indebtedness is accelerated in accordance with its terms, unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Specified Senior Indebtedness has been paid in full. Although the ability of the Company and its Subsidiaries to incur Indebtedness (as defined herein) is restricted under the Senior Subordinated Notes, the Company and its Subsidiaries will have the ability to incur substantial additional Indebtedness, which may be senior to the Senior Subordinated Notes. See "Description of the Exchange Notes -- Certain Covenants." Because the Company's assets consist of stock of its Subsidiaries, and because the Company relies on dividends, management fees and billing fees from its Subsidiaries to meet its obligations for payment of principal and interest on its outstanding debt obligations and corporate expenses, the Senior Subordinated Notes are also effectively subordinate to all existing and future liabilities of the Company's Subsidiaries. See "Risk Factors -- Holding Company Structure; Dividend and Other Restrictions; Management Fees." Option to Extend Interest Payment Period; Tax Considerations So long as no Event of Default (as defined in the Indenture) has occurred and is continuing, the Company has the right under the Indenture to defer the payment of interest on the Senior Subordinated Notes at any time or from time to time for a period not exceeding ten consecutive semi-annual periods with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity of the Senior Subordinated Notes. See "Description of Exchange Notes -- Option to Extend Interest Payment Date." As a consequence of any such deferral, semi-annual Distributions on the Securities by the Trust will be deferred during any such Extension Period. Distributions to which holders of the Securities are entitled will accumulate additional Distributions thereon during any Extension Period at the rate of 9 1/2% per annum, compounded semi-annually from the relevant payment date for such Distributions, computed on the basis of a 360-day year of twelve thirty-day months and the actual days elapsed in a partial month in such period. The term "Distribution" as used herein will include any such additional Distributions. During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock, (ii) make any payment or principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Senior Subordinated Notes or (iii) make any guarantee payments with respect to any guarantee of the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu with or junior in right of payment to the Senior Subordinated Notes (other than (a) dividends or distributions in share of, or options, warrants or rights to subscribe for or purchase shares of, Common Stock of the 23 Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, (d) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (e) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged and (f) purchases or issuances of Common Stock in connection with any of the Company's stock option, stock purchase, stock loan or other benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans, in each case as now existing or hereafter established or amended). Prior to the termination of any such Extension Period, the Company may further defer the payment of interest, provided that no Extension Period may exceed ten consecutive semi-annual periods or extend beyond the Stated Maturity of the Senior Subordinated Notes. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid (together with interest thereon at the annual rate of 9 1/2%, compounded semi-annually, to the extent permitted by applicable law), the Company may elect to begin a new Extension Period subject to the above conditions. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must give the Preferred Trustee and the Indenture Trustee notice of its election to begin an Extension Period at least five Business Days (as defined herein) prior to the earlier of (i) date the Distributions on the Securities would have been payable but for the election to begin such Extension Period or (ii) the date the Trustees are required to give notice to any securities exchange or to holders of Trust Securities of the record date or the date such Distributions are payable, but in any event, not less than five Business Days prior to such record date. The Trustees will give notice of the Company's election to begin a new Extension Period to the holders of the Securities. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extension Period. See "Description of the Preferred Securities -- Distributions" and "Description of the Exchange Notes -- Option to Extend Interest Payment Date." Should an Extension Period occur, a holder of Securities will be required to accrue income (in the form of original issue discount ("OID")) for United States federal income tax purposes in respect of its pro rata share of the Senior Subordinated Notes held by the Trust. As a result, a holder of Securities will be required to include such amount in gross income for United States federal income tax purposes in advance of the receipt of cash attributable to such income, and will not receive the cash related to such income from the Trust if the holder disposes of the Securities prior to the record date for the payment of Distributions with respect to such Extension Period. See "Certain United States Federal Income Tax Considerations." The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Senior Subordinated Notes. However, should the Company elect to exercise such right in the future, the market price of the Securities is likely to be affected. A holder that disposes of his, her or its Securities during an Extension Period, therefore, might not receive the same return on his, her or its investment as a holder that continues to hold its Securities. In addition, as a result of the existence of the Company's right to defer interest payments, the market price of the Securities (which represent undivided beneficial ownership interests in the assets of the Trust) may be more volatile than the market prices of other securities with respect to which the issuer does not have such right to defer interest payments. Exchange of Securities for Senior Subordinated Notes The holders of all the outstanding Common Securities have the right at any time to dissolve the Trust and, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, cause the Senior Subordinated Notes to be distributed to the holders of the Securities in liquidation of the Trust. See "Description of the Exchange Preferred Securities - -- Liquidation Distribution Upon Dissolution." Under current United States federal income tax law interpretations and assuming, as expected, that the Trust would not be taxable as a corporation, a distribution of the Senior Subordinated Notes upon a liquidation of the Trust would not be a taxable event to holders of the Securities. However, if a Tax Event were to occur that would cause the Trust to be subject to United States federal income tax with respect to income received or accrued on the Senior 24 Subordinated Notes, a distribution of the Senior Subordinated Notes by the Trust could be a taxable event to the Trust and the holders of the Securities. See "Certain United States Federal Income Tax Considerations." Trust's Dependence on the Company The Trust exists for the exclusive purpose of (i) issuing and selling the Trust Securities representing undivided beneficial ownership interests in the assets of the Trust, (ii) investing the proceeds of the Trust Securities in the Senior Subordinated Notes and (iii) engaging in only those other activities necessary or incidental thereto. Accordingly, the Senior Subordinated Notes will be the sole assets of the Trust, and payments under the Senior Subordinated Notes will be the sole revenue of the Trust. The ability of the Trust to make distributions or other payments on the Securities is wholly dependent upon the Company making interest and other payments on the Senior Subordinated Notes as and when required. The Company is highly leveraged. See " -- Risks Relating to the Business of the Company -- Leverage" and " -- Holding Company Structure; Dividend and Other Restrictions; Management Fees." The Company's level of debt presents the risk that the Company might not generate sufficient cash to service the Company's indebtedness, including the Senior Subordinated Notes. If the Company were not to make payments on the Senior Subordinated Notes, the Trust would be unable to make payments on the Securities as and when required. In such an event, holders of the Securities would not be able to rely on the Guarantee since distributions or other payments on the Securities are subject to such Guarantee only if and to the extent that the Company has made a payment to the Trust of interest or principal on the Senior Subordinated Notes. The Indenture provides that the Company, as borrower, shall pay for all debts and obligations (other than with respect to the Trust Securities) and all costs and expenses of the Trust, including any taxes and all costs and expenses with respect thereto to which the Trust may become subject, except for United States withholding taxes. No assurance can be given that the Company will have sufficient resources to enable it to pay any such debts, obligations, costs and expenses on behalf of the Trust. See "Description of the Exchange Guarantee." Rights Under the Exchange Guarantee The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Securities. The Guarantee guarantees to the holders of the Securities the payment of (i) any accrued and unpaid distributions that are required to be paid on the Securities to the extent the Trust has funds legally available therefor, (ii) the amount payable upon redemption, including all accrued and unpaid distributions, of the Securities called for redemption by the Trust, to the extent the Trust has funds legally available therefor and (iii) upon a voluntary or involuntary dissolution, winding up or termination of the Trust (other than in connection with the distribution of Senior Subordinated Notes to the holders of Securities or redemption of all of the Securities), the lesser of (a) the aggregate of the Liquidation Amount and all accrued and unpaid distributions on the Securities to the date of payment to the extent the Trust has funds legally available therefor and (b) the amount of cash assets of the Trust remaining available for distribution to holders of the Securities upon the liquidation of the Trust. The holders of a majority in Liquidation Amount of the 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 under the Guarantee. In addition, in the event of a payment default on the Securities, any holder of Securities may institute a legal proceeding directly against the Company to enforce such holder's rights in respect thereof under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee, or any other person or entity. If the Company were to default on its obligations under the Senior Subordinated Notes, the Trust would lack available funds for the payment of Distributions or amounts payable on redemption of the Securities or otherwise, and in such event, the holders of the Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, holders of the Securities could rely on the enforcement (i) by the Preferred Trustee of its rights as registered holder of the Senior Subordinated Notes, against the Company pursuant to the terms of the Senior Subordinated Notes or (ii) by a Special Trustee elected by 25% in Liquidation Amount of the Securities of the Trust's rights under the Senior Subordinated Notes or (iii) if the Preferred Trustee or the Special Trustee do not enforce the Trust's rights against the Company, by 25 such holder of its right of direct action against the Company on behalf of the Trust to enforce payments on the Senior Subordinated Notes. See "Description of the Exchange Guarantee" and "Description of the Exchange Notes -- Subordination" herein. The Declaration provides that each holder of Securities, by acceptance thereof, agrees to the provisions of the Guarantee (including the subordination provisions thereof) and the Indenture. Change of Control Redemption Upon the occurrence of a Change of Control Triggering Event (as defined herein), a holder of Trust Securities has the right to require the Trust to exchange all or any part of the holder's Trust Securities for Senior Subordinated Notes having an aggregate principal amount equal to the aggregate Liquidation Amount of the Trust Securities so offered. Upon the occurrence of such an event, the Company will be required to immediately redeem any Senior Subordinated Notes so exchanged at a redemption price equal to 101% of the principal amount thereof plus any accrued and unpaid interest. See "Description of the Exchange Preferred Securities" and "Description of the Exchange Notes -- Change of Control." Tax Event or Investment Company Event Redemption or Distribution Upon the occurrence of a Tax Event or Investment Company Event, the Company will, except in certain limited circumstances, cause the Trustees to dissolve and liquidate the Trust and, after satisfaction of liabilities to creditors of the Trust, cause Senior Subordinated Notes to be distributed pro rata to the holders of Trust Securities. Upon the occurrence of a Tax Event, in certain circumstances, the Company will have the right to redeem the Senior Subordinated Notes, in whole (but not in part), at 100% of principal amount plus accrued and unpaid interest, in lieu of a distribution of the Senior Subordinated Notes, in which event the Securities will be redeemed in whole at the Liquidation Amount of $1,000 per each of the Securities plus accrued and unpaid Distributions. In the case of a Tax Event, the Company may also elect to cause the Securities to remain outstanding. See "Description of the Exchange Preferred Securities -- Tax Event or Investment Company Event Redemption or Distribution." Under current United States federal income tax law and assuming, as expected, that the Trust is not taxable as a corporation, a distribution of the Senior Subordinated Notes would not be a taxable event to holders of the Preferred Securities. However, in the event of a Tax Event which results in the Trust being treated as an association taxable as a corporation, the distribution would likely constitute a taxable event to holders of the Securities. See "Certain United States Federal Income Tax Considerations -- Distribution of Notes or Cash Upon Liquidation of the Trust." There can be no assurance as to the market prices for the Securities or the Senior Subordinated Notes that may be distributed in exchange for Securities if a dissolution or liquidation of the Trust were to occur. Accordingly, the Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Senior Subordinated Notes that a holder of Securities may receive on dissolution and liquidation of the Trust, may trade at a discount to the price that the investor paid to purchase the Preferred Securities. Because holders of Securities may receive Senior Subordinated Notes upon the occurrence of a Tax Event or Investment Company Event, Holders of Securities are also making an investment decision with regard to the Exchange Notes and should carefully review all the information regarding the Exchange Notes contained herein. See "Description of the Exchange Preferred Securities" and "Description of the Exchange Notes." Limited Voting Rights Except in the limited circumstances described herein, holders of Securities will have no voting rights, including the right to vote to appoint, remove or replace the Trustees, or increase or decrease their number, the right to which is vested in the holder(s) of the Common Securities. See "Description of the Exchange Preferred Securities -- Voting Rights." 26 Proposed Tax Law Changes The United States Congress has recently passed and the President has approved certain changes to United States federal income tax law. While President Clinton proposed as part of the legislation a denial to an issuer of an interest deduction, for United States federal income tax purposes, on instruments such as the Senior Subordinated Notes, the law does not include any such provision. There can be no assurance, however, that future legislation will not adversely affect the ability of the Company to deduct interest on the Senior Subordinated Notes or otherwise affect the tax treatment of the transactions described herein. Moreover, such legislation could give rise to a Tax Event which would permit the Company to distribute the Senior Subordinated Notes to the holders of the Securities or cause a redemption of the Exchange Securities as described more fully under "Description of the Exchange Notes" and "Description of the Exchange Preferred Securities." See also "Certain United States Federal Income Tax Considerations -- Possible Tax Law Changes." Modification of the Declaration The Declaration may be modified and amended by the Trustees and the Company, provided, that if any proposed amendment provides for, or the Trustees or the Company otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or termination of the Trust other than pursuant to the terms of the Declaration, then the holders of the Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority in Liquidation Amount of the Trust Securities affected thereby; provided that if any amendment or proposal referred to in clause (i) above would adversely affect only the Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority in Liquidation Amount of such class of Trust Securities. Notwithstanding the foregoing, no amendment or modification maybe made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity, (ii) reduce or otherwise adversely affect the powers of the Trustees or (iii) cause the Trust to be deemed an "investment company" which is required to be registered under the 1940 Act. Consequences of a Failure to Exchange Preferred Securities The Preferred Securities have not been registered under the Securities Act or any state securities laws and therefore may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in compliance with certain other conditions and restrictions. Preferred Securities which remain outstanding after consummation of the Exchange Offer will continue to bear a legend reflecting such restrictions on transfer. In addition, upon consummation of the Exchange Offer, holders of Preferred Securities which remain outstanding will not be entitled to any rights to have such Preferred Securities registered under the Securities Act or to any similar rights under the Registration Rights Agreement (subject to certain limited exceptions). The Company and the Trust do not intend to register under the Securities Act any Preferred Securities which remain outstanding after consummation of the Exchange Offer (subject to such limited exceptions, if applicable). To the extent that Preferred Securities are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Preferred Securities could be adversely affected. The Exchange Preferred Securities and any Preferred Securities which remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding Liquidation Amount thereof have taken certain actions or exercised certain rights under the Declaration. See "Description of Exchange Preferred Securities -- Voting Rights; Modification of the Declaration." 27 If a registration statement relating to the Exchange Offer has not been filed by September 30, 1997 and declared effective by February 9, 1998, the Distribution rate borne by the Preferred Securities commencing on September 16, 1997 will increase by 0.25% per annum until the Exchange Offer is consummated. Upon consummation of the Exchange Offer, holders of Preferred Securities will not be entitled to any increase in the Distribution rate thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Description of Exchange Preferred Securities." Absence of Public Market The Preferred Securities were issued to, and the Company believes such securities are currently owned by, a relatively small number of beneficial owners. The Preferred Securities have not been registered under the Securities Act and will be subject to restrictions on transferability if they are not exchanged for the Exchange Preferred Securities. Although the Exchange Preferred Securities may be resold or otherwise transferred by the holders (who are not affiliates of the Company or the Trust) without compliance with the registration requirements under the Securities Act, they will constitute a new issue of securities with no established trading market. Preferred Securities may be transferred by the holders thereof only in blocks having a Liquidation Amount of not less than $100,000 (100 Preferred Securities). Exchange Preferred Securities may be transferred by the holders thereof in blocks having a Liquidation Amount of $1,000 (one Exchange Preferred Security) or integral multiples thereof. The Company and the Trust have been advised by the Initial Purchasers that the Initial Purchasers presently intend to make a market in the Exchange Preferred Securities. However, the Initial Purchasers are not obligated to do so and any market-making activity with respect to the Exchange Preferred Securities may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer. Accordingly, no assurance can be given that an active public or other market will develop for the Preferred Exchange Securities or the Preferred Securities or as to the liquidity of or the trading market for the Exchange Preferred Securities or the Preferred Securities. If an active public market does not develop, the market price and liquidity of the Exchange Preferred Securities may be adversely affected. If a public trading market develops for the Exchange Preferred Securities, future trading prices will depend on many factors, including, among other things, prevailing interest rates, the Company's results and the market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the Exchange Preferred Securities may trade at a discount. Notwithstanding the registration of the Exchange Preferred Securities in the Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities Act) of the Company or the Trust may publicly offer for sale or resell the Exchange Preferred Securities only in compliance with the provisions of Rule 144 under the Securities Act. Each broker-dealer who receives Exchange Preferred Securities for its own account in exchange for Preferred Securities, where such Preferred Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Preferred Securities. See "Plan of Distribution." Exchange Offer Procedures Issuance of the Exchange Preferred Securities in exchange for Preferred Securities pursuant to the Exchange Offer will be made only after a timely receipt by the Trust of such Preferred Securities, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of the Preferred Securities desiring to tender such Preferred Securities in exchange for Exchange Preferred Securities should allow sufficient time to ensure timely delivery. Neither the Company nor the Trust is under any duty to give notification of defects or irregularities with respect to the tenders of Preferred Securities for exchange. 28 Risks Relating to the Business of the Company Leverage As of June 30, 1997, after giving pro forma effect to the Offering, the Company would have had aggregate outstanding indebtedness of approximately $135 million. For the fiscal year ended December 31, 1996, on a pro forma basis, after giving effect to the Offering as if it had occurred on January 1, 1996, the Company's ratio of earnings to fixed charges would have been 2.47 to 1. See "Capitalization" and "Unaudited Pro Forma Consolidated Financial Statements." The Indenture pursuant to which the Senior Subordinated Notes are or will be issued permits the Company to incur additional indebtedness, subject to certain limitations. Management believes that cash flow from the operations of the Insurers will be adequate to permit the Company to make required payments of principal and interest on its indebtedness, although there can be no assurance that this will be the case. To the extent that cash flow from operations is insufficient to satisfy the Company's cash requirements, the Company may seek to obtain funds from additional borrowings, restructure or refinance additional equity capital or acquire other businesses that would provide cash flow (in all such cases to the extent permitted by the Indenture). See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance that such actions could be effected on satisfactory terms, in a timely manner or at all, that they would enable the Company to make any payments due on the Senior Subordinated Notes or that any such actions would be permitted under the Indenture. The degree to which the Company is leveraged could have adverse consequences to holders of the Securities, including the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for other purposes, (ii) the Company's ability to obtain additional financing in the future for working capital, acquisitions or other purposes may be impaired, (iii) certain of the Company's borrowings will be at variable rates of interest, which will expose the Company to the risk of higher interest rates, (iv) the Company's flexibility in planning for or reacting to changes in market conditions may be limited, (v) the Company may be substantially more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage and (vi) the Company may be more vulnerable in the event of a downturn in its business. The Company's ability to satisfy its obligations will be dependent upon its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors, including factors beyond the control of the Company. Uncertain Pricing and Profitability One of the distinguishing features of the property and casualty industry is that its products generally are priced before its costs are known, because premium rates usually are determined before losses are reported. Premium rate levels are related in part to the availability of insurance coverage, which varies according to the level of surplus in the industry. Increases in surplus have generally been accompanied by increased price competition among property and casualty insurers. The nonstandard automobile insurance business in recent years has experienced very competitive pricing conditions and there can be no assurance as to the Company's ability to achieve adequate pricing. Changes in case law, the passage of new statutes or the adoption of new regulations relating to the interpretation of insurance contracts can retroactively and dramatically affect the liabilities associated with known risks after an insurance contract is in place. New products also present special issues in establishing appropriate premium levels in the absence of sufficient experience with such products' performance. The number of competitors and the similarity of products offered, as well as regulatory constraints, limit the ability of property and casualty insurers to increase prices in response to declines in profitability or market demand. In states which require prior approval of rates, it may be more difficult for the Company to achieve premium rates which are commensurate with the Company's underwriting experience with respect to risks located in those states. In addition, the Company does not control rates on its MPCI business, which are instead set by the FCIC. Accordingly, there can be no assurance that these rates will be sufficient to produce an underwriting profit. 29 The reported profits and losses of a property and casualty insurance company are also determined, in part, by the establishment of, and adjustments to, reserves reflecting estimates made by management as to the amount of losses and loss adjustment expenses ("LAE") that will ultimately be incurred in the settlement of claims. The ultimate liability of the insurer for all Losses and LAE reserved at any given time will likely be greater or less than these estimates, and material differences in the estimates may have a material adverse effect on the insurer's financial position, results of operations or cash flows in future periods. Nature of Nonstandard Automobile Insurance Business The nonstandard automobile insurance business is affected by many factors which can cause fluctuations in the results of operations of this business. Many of these factors are not subject to the control of the Company. The size of the nonstandard market can be significantly affected by, among other factors, the underwriting capacity and underwriting criteria of standard automobile insurance carriers. In addition, an economic downturn in the states in which the Company writes business could result in fewer new car sales and less demand for automobile insurance. Severe weather conditions could also adversely affect the Company's business through higher Losses and LAE. These factors, together with competitive pricing and other considerations, could result in fluctuations in the Company's underwriting results and net income. Nature of Crop Insurance Business The Company's operating results from its crop insurance program can vary substantially from period to period as a result of various factors, including timing and severity of losses from storms, droughts, floods, freezes and other natural perils and crop production cycles. Therefore, the results for any quarter or year are not necessarily indicative of results for any future period. The underwriting results of the crop insurance business are recognized throughout the year with a reconciliation for the current crop year in the fourth quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" for examples of recent events that could adversely affect the Company's operating results. The Company expects that for the foreseeable future a majority of its crop insurance business will continue to be derived from MPCI business. The MPCI program is federally regulated and supported by the federal government by means of premium subsidies to farmers, expense reimbursement and federal reinsurance pools for private insurers. As such, legislative or other changes affecting the MPCI program could impact the Company's business prospects. The MPCI program has historically been subject to modification at least annually since its establishment in 1980, and some of these modifications have been significant. No assurance can be given that future changes will not significantly affect the MPCI program and the Company's crop insurance business. The 1994 Reform Act also reduced the maximum expense reimbursement rate payable to the Company for its costs of servicing MPCI policies that exceed the basic CAT Coverage level (such policies, "Buy-up Coverage") for the 1997, 1998 and 1999 crop years to 29.0%, 28.0% and 27.5%, respectively, of the MPCI Premium serviced, a decrease from the 31% level established for the 1994, 1995 and 1996 crop years. Historically, the FCIC has paid the maximum MPCI Buy-up Expense Reimbursement Payment rate allowable under law, although no assurance can be given that this practice will continue. Although the 1994 Reform Act directs the FCIC to alter program procedures and administrative requirements so that the administrative and operating costs of private insurance companies participating in the MPCI program will be reduced in an amount that corresponds to the reduction in the expense reimbursement rate, there can be no assurance that the Company's actual costs will not exceed the Buy-up Expense Reimbursement Payment. The FCIC has appointed several committees comprised of members of the insurance industry to make recommendations concerning this matter. The crop insurance industry has recently completed negotiation of the 1998 Standard Reinsurance Agreement ("1998 SRA") with the FCIC, with the 1998 SRA providing for a 27% MPCI Expense Reimbursement and no change to the CAT Coverage program from prior years. 30 The 1994 Reform Act also directs the FCIC to establish adequate premiums for all MPCI coverages at such rates as the FCIC determines are actuarially sufficient to attain a targeted loss ratio. Since 1980, the average MPCI loss ratio has exceeded this target ratio. There can be no assurance that the FCIC will not increase rates to farmers in order to achieve the targeted loss ratio in a manner that could adversely affect participation by farmers in the MPCI program above the CAT Coverage level. The 1996 Reform Act limits the role of USDA offices in the delivery of MPCI coverage for the 1997 Crop Year and eliminated the linkage between CAT Coverage and qualifications for certain federal farm program benefits. Currently, MPCI coverage is not required for federal farm program benefits if producers sign a written waiver that waives eligibility for emergency crop loss assistance. The 1996 Reform Act also provides that, effective for the 1997 Crop Year, the Secretary of Agriculture may continue to offer CAT Coverage through USDA offices if the Secretary of Agriculture determines that the number of approved insurance providers operating in a state is insufficient to adequately provide catastrophic risk protection coverage to producers. Effective June 9, 1997, the Secretary of Agriculture announced that the USDA would no longer provide CAT Coverage through USDA offices in any state. This is to be implemented by transferring the collection of premium and administration of CAT policies to the various members of the crop insurance industry. At this time, the Company has been preliminarily informed that it will receive approximately 17,000 policies that were formerly written by USDA offices, although there can be no assurance that the Company will receive this number of policies. Based on historical, per-policy averages, the Company has preliminarily estimated that it will receive approximately an additional $6 to $7 million in premiums from such transferred policies, however, there can be no assurance that this number will be realized. This estimate assumes that IGF will retain 100% of such premiums. Total MPCI Premium for each farmer depends upon the kind of crops grown, acreage planted and other factors determined by the FCIC. Each year, the FCIC sets, by crop, the maximum per unit commodity price ("Price Election") to be used in computing MPCI Premiums. Any reduction of the Price Election by the FCIC will reduce the MPCI Premium charged per policy, and accordingly will adversely impact MPCI Premium volume. The Company's crop insurance business is also affected by market conditions in the agricultural industry which vary depending on such factors as federal legislation and administration policies, foreign country policies relating to agricultural products and producers, demand for agricultural products, weather, natural disasters, technological advances in agricultural practices, international agricultural markets and general economic conditions both in the United States and abroad. For example, the number of MPCI Buy-up Coverage policies written has historically tended to increase after a year in which a major natural disaster adversely affecting crops occurs, and to decrease following a year in which favorable weather conditions prevail. For further information about the Company's MPCI business, see "Business -- Crop Insurance." Highly Competitive Businesses Both the nonstandard automobile insurance and crop insurance businesses are highly competitive. Many of the Company's competitors in both the nonstandard automobile insurance and crop insurance business segments have substantially greater financial and other resources than the Company, and there can be no assurance that the Company will be able to compete effectively against such competitors in the future. In its nonstandard automobile business, the Company competes with both large national writers and smaller regional companies. The Company's competitors include other companies which, like the Company, serve the independent agency market, as well as companies which sell insurance directly to customers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, loyalty of the customer base to the insurer rather than an independent agency and, potentially, reduced acquisition costs. In addition, certain competitors of the Company have from time to time decreased their prices in an apparent attempt to gain market share. Also, in certain states, state assigned risk plans may provide nonstandard automobile insurance products at a lower price than private insurers. See "Business -- Nonstandard Automobile Insurance -- Competition." 31 In the crop insurance business, the Company competes against other crop insurance companies. In addition, the crop insurance industry has become increasingly consolidated. From the 1985 crop year to the 1995 crop year, the number of insurance companies that have entered into agreements with the FCIC to sell and service MPCI policies has declined from fifty to seventeen. The Company believes that to compete successfully in the crop insurance business it will have to market and service a volume of premiums sufficiently large to enable the Company to continue to realize operating efficiencies in conducting its business. No assurance can be given that the Company will be able to compete successfully if this market consolidates further. See "Business -- Crop Insurance." Importance of Ratings A.M. Best has currently assigned Superior a B+ (Very Good) rating and Pafco a B- (Adequate) rating. A "B+" and a "B-" rating are A.M. Best's sixth and eighth highest rating classifications, respectively, out of 15 ratings. A "B+" rating is awarded to insurers which, in A.M. Best's opinion, "have demonstrated very good overall performance when compared to the standards established by the A.M. Best Company" and "have a good ability to meet their obligations to policyholders over a long period of time." A "B-" rating is awarded to insurers which, in A.M. Best's opinion, "have demonstrated adequate overall performance when compared to the standards established by the A.M. Best Company" and "have an adequate ability to meet their obligations to policyholders, but their financial strength is vulnerable to unfavorable changes in underwriting or economic conditions." IGF is currently not assigned a rating by A.M. Best. A.M. Best bases its ratings on factors that concern policyholders and agents and not upon factors concerning investor protection. Such ratings are subject to change and are not recommendations to buy, sell or hold securities. One factor in an insurer's ability to compete effectively is its A.M. Best rating. The A.M. Best ratings for the Company's rated Insurers are lower than for many of the Company's competitors. There can be no assurance that such ratings or future changes therein will not affect the Company's competitive position. See "Business -- Ratings." Geographic Concentration The Company's nonstandard automobile insurance business is concentrated in the states of Florida, California, Texas, Indiana, Missouri and Virginia; consequently the Company will be significantly affected by changes in the regulatory and business climate in those states. See "Business -- Nonstandard Automobile Insurance -- Marketing." The Company's crop insurance business is concentrated in the states of Iowa, Texas, Illinois, Kansas, Montana and Minnesota. The Company will be significantly affected by weather conditions, natural perils and other factors affecting the crop insurance business in those states. See "Business -- Crop Insurance." Future Growth and Continued Operations Dependent on Access to Capital Property and casualty insurance is a capital intensive business. The Company must maintain minimum levels of surplus in the Insurers in order to continue to write business, meet the other related standards established by insurance regulatory authorities and insurance rating bureaus and satisfy financial ratio covenants in loan agreements. Historically, the Company has achieved premium growth as a result of both acquisitions and internal growth. It intends to continue to pursue acquisition and new internal growth opportunities. Among the factors which may restrict the Company's future growth is the availability of capital. Such capital will likely have to be obtained through debt or equity financing or retained earnings. There can be no assurance that the Insurers will have access to sufficient capital to support future growth and also satisfy the capital requirements of rating agencies and regulators. In addition, the Company will require additional capital to finance future acquisitions. See " -- Control by Goran," " -- Potential Limitations on Ability to Raise Additional Capital," and " -- Conflicts of Interest" below. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Liquidity and Capital Resources." 32 Uncertainty Associated with Estimating Reserves for Unpaid Losses and LAE The reserves for unpaid Losses and LAE established by the Company are estimates of amounts needed to pay reported and unreported claims and related LAE based on facts and circumstances then known. These reserves are based on estimates of trends in claims severity, judicial theories of liability and other factors. Although the nature of the Company's insurance business is primarily Short-Tail, the establishment of adequate reserves is an inherently uncertain process, and there can be no assurance that the ultimate liability will not materially exceed the Company's reserves for Losses and LAE and have a material adverse effect on the Company's results of operations and financial condition. Due to the inherent uncertainty of estimating these amounts, it has been necessary, and may over time continue to be necessary, to revise estimates of the Company's reserves for Losses and LAE. The historic development of reserves for Losses and LAE may not necessarily reflect future trends in the development of these amounts. Accordingly, it may not be appropriate to extrapolate redundancies or deficiencies based on historical information. See "Business -- Reserves for Losses and Loss Adjustment Expenses." Reliance upon Reinsurance In order to reduce risk and to increase its underwriting capacity, the Company purchases Reinsurance. Reinsurance does not relieve the Company of liability to its insureds for the risks Ceded to reinsurers. As such, the Company is subject to credit risk with respect to amounts not recoverable from reinsurers. Although the Company places its Reinsurance with reinsurers, including the FCIC, which the Company generally believes to be financially stable, a significant reinsurer's insolvency or inability to make payments under the terms of a reinsurance treaty could have a material adverse effect on the Company's financial condition or results of operations. The amount and cost of Reinsurance available to companies specializing in property and casualty insurance are subject, in large part, to prevailing market conditions beyond the control of such companies. The Company's ability to provide insurance at competitive premium rates and coverage limits on a continuing basis depends upon its ability to obtain adequate Reinsurance in amounts and at rates that will not adversely affect its competitive position. Due to continuing market uncertainties regarding reinsurance capacity, no assurances can be given as to the Company's ability to maintain its current reinsurance facilities, which generally are subject to annual renewal. If the Company is unable to renew such facilities upon their expiration, the Company may need to reduce the levels of its underwriting commitments. See "Business -- Nonstandard Automobile Insurance -- Reinsurance" and "Business -- Crop Insurance - -- Reinsurance Pools and Third-Party Reinsurance in Effect for 1997." Risks Associated with Investments The Company's results of operations depend in part on the performance of its invested assets. As of June 30, 1997, 75.5% of the Company's investment portfolio was invested in fixed maturity securities, 16.8% in equity securities, 6.2% in short-term investments and 1.5% in real estate and mortgage loans. Certain risks are inherent in connection with fixed maturity securities including loss upon default and price volatility in reaction to changes in interest rates and general market factors. Equity securities involve risks arising from the financial performance of, or other developments affecting, particular issuers as well as price volatility arising from general stock market conditions. See "Business -- Investments." 33 Comprehensive State Regulation The Insurers are subject to comprehensive regulation by government agencies in the states in which they operate. The nature and extent of that regulation vary from jurisdiction to jurisdiction, but typically involve prior approval of the acquisition of control of an insurance company or of any company controlling an insurance company, regulation of certain transactions entered into by an insurance company with any of its affiliates, limitations on dividends, approval or filing of premium rates and policy forms for many lines of insurance, solvency standards, minimum amounts of capital and surplus which must be maintained, limitations on types and amounts of investments, restrictions on the size of risks which may be insured by a single company, limitation of the right to cancel or non-renew policies in some lines, regulation of the right to withdraw from markets or agencies, requirements to participate in residual markets, licensing of insurers and agents, deposits of securities for the benefit of policyholders, reporting with respect to financial condition and other matters. In addition, state insurance department examiners perform periodic financial and market conduct examinations of insurance companies. Such regulation is generally intended for the protection of policyholders rather than security holders. No assurance can be given that future legislative or regulatory changes will not adversely affect the Company. See "Business -- Regulation." Holding Company Structure; Dividend and Other Restrictions; Management Fees Dividends The Company is a holding company whose principal asset is the capital stock of the Subsidiaries. The Company relies primarily on dividends and other payments from its Subsidiaries (including management fees), including the Insurers, to meet its obligations to creditors and to pay corporate expenses, including the principal and interest on the Senior Subordinated Notes. The Insurers are domiciled in the states of Indiana and Florida and each of these states limits the payment of dividends and other distributions by insurance companies. Under these laws, the maximum aggregate amounts of dividends permitted to be paid in 1997 by IGF and Pafco without prior regulatory approval is $12,122,000 and $561,000, respectively, none of which has been paid. In the consent order approving the Acquisition (the "Consent Order"), the Florida Department has prohibited Superior from paying any dividends (whether extraordinary or not) for four years from the date of Acquisition without the prior written approval of the Florida Department. Further, state insurance laws and regulations require that the statutory surplus of an insurance company following any dividend or distribution by such company be reasonable in relation to its outstanding liabilities and adequate for its financial needs. See "Business -- Regulation" and "Management Discussion and Analysis of Financial Condition and Results of Operations of the Company." Payment of dividends by IGF requires prior approval by the lender under the IGF Revolver. There can be no assurance that IGF will be able to obtain this consent. Management Fees The management agreement originally entered into between the Company and Pafco was assigned as of April 30, 1996 by the Company to GGS Management, Inc., a wholly owned subsidiary of GGS Holdings ("GGS Management"). This agreement provides for an annual management fee equal to 15% of Gross Premiums Written. A similar management agreement with a management fee of 17% of Gross Premiums Written has been entered into between GGS Management and Superior. Employees of the Company relating to the nonstandard automobile insurance business and all Superior employees became employees of GGS Management effective April 30, 1996. In the consent order approving the Acquisition, the Florida Department has reserved, for a period of three years, the right to reevaluate the reasonableness of fees provided for in the Superior management agreement at the end of each calendar year and to require Superior to make adjustments in the management fees based on the Florida Department's consideration of the performance and operating percentages of Superior and other pertinent data. There can be no assurance that either the Indiana Department or the Florida Department will not in the future require a reduction in these management fees. 34 Control by Goran The Company is a 67%-owned subsidiary of Goran. Goran has the power to control the Company, to elect its Board of Directors and to approve any action requiring shareholder approval, including adopting amendments to the Company's articles of incorporation and approving or disapproving mergers or sales of all or substantially all of the assets of the Company. Because Goran has the ability to elect the Board of Directors of the Company, it will be able to effectively control all of the Company's policy decisions. As long as Goran is the majority shareholder of the Company, third parties will not be able to obtain control of the Company through purchases of Common Stock not owned by Goran. G. Gordon Symons, Chairman of the Board of Goran, the Company and GGS Holdings and the father of Alan G. Symons, Chief Executive Officer of the Company, and Douglas H. Symons, President and Chief Operating Officer of the Company, and members of the Symons family beneficially own in the aggregate 61% of the outstanding common stock of Goran. Accordingly, since G. Gordon Symons and members of his family have the ability to elect the Board of Directors of Goran, they will have the ability to elect the Board of Directors of the Company and otherwise to significantly influence the Company's business and operations. Of the eight directors of the Company, five are current directors of Goran (three of whom are members of the Symons family and two of whom are independent directors of Goran) and three are outside directors. Directors and officers of the Company and Goran may have conflicts of interest with respect to certain matters affecting the Company, such as potential business opportunities and business dealings between the Company and Goran and its affiliated companies and interpretations of agreements. Potential Limitations on Ability to Raise Additional Capital Goran's failure to maintain ownership of at least 50% of the Company's voting securities will expose Goran to a risk that it will be characterized as an investment company within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), unless Goran's remaining voting securities of the Company, together with any other investment securities, represent not more than 40% of the total assets of Goran on an unconsolidated basis. In such event, Goran would be required to comply with the registration and other requirements of the 1940 Act, which would be significantly burdensome for Goran. This constraint makes it unlikely that Goran would approve a stock issuance by the Company that reduces Goran's ownership below 50% and therefor would likely limit the amount of additional capital which can be raised by the Company through the issuance of voting securities. Among other consequences, such a limit could affect the Company's ability to raise funds for acquisition opportunities which may become available to the Company. In addition, if Goran or the Company ever sold additional significant amounts of shares of common stock in the public market, those sales might have an adverse effect on the market price of the common stock of the Company. Conflicts of Interest Currently, Goran does not market property and casualty insurance products which compete with products sold by the Company. Although there are no restrictions on the activities in which Goran may engage, management of the Company does not expect that Goran and the Company will compete with each other to any significant degree in the sale of property and casualty insurance products. There can be no assurance, however, that the Company will not encounter competition from Goran in the future or that actions by Goran or its affiliates will not inhibit the Company's growth strategy. See "Risk Factors -- Control by Goran." Conflicts of interest between the Company and Goran could arise with respect to business dealings between them, including potential acquisitions of businesses or properties, the issuance of additional securities, the election of new or additional directors, the payment of dividends by the Company and interpretations of agreements. The Company has not instituted any formal plan or arrangement to address potential conflicts of interest that may arise between the Company and Goran. See "Risk Factors -- Control by Goran." 35 Dependence on Key Personnel in Connection with Future Success The future success of the Company depends significantly upon the efforts of certain key management personnel including G. Gordon Symons, Chairman of the Board of the Company, Alan G. Symons, Chief Executive Officer of the Company, Douglas H. Symons, President and Chief Operating Officer of the Company and Pafco, Dennis G. Daggett, President of IGF and Roger C. Sullivan, Jr., Executive Vice President of Superior. A loss of any of these officers could adversely affect the Company's business. Possible Liabilities Relating to Transactions Prior to the Offering, the Company entered into a number of transactions, including the Formation Transaction, the Acquisition, the Transfer, the Distribution, the Dividend and other transactions. The application of the tax laws to the factual circumstances relating to certain aspects of the Transactions is uncertain. In particular, while the Company believes that there is substantial authority for treating Pafco's contribution of IGF to IGF Holdings in exchange for all of the capital stock of IGF Holdings (the "Contribution") as a tax-free transaction under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"), and therefore that no tax penalties would in any event be payable, there can be no assurance that the Internal Revenue Service (the "IRS") would agree with the foregoing tax treatment. Among other things, the IRS could attempt to recharacterize the Contribution and the Dividend which could result in a material liability to the Company. The Company cannot predict with certainty whether or when any such liabilities might arise. Accordingly, the Company's results of operations in one or more future periods could be materially adversely affected by liabilities related to the Transactions. Goran has agreed to indemnify the Company against any of the foregoing liabilities; however, in the event that Goran was unable to pay any such amount, the Company would remain liable. 36 USE OF PROCEEDS Neither the Company nor the Trust will receive any cash proceeds from the issuance of the Exchange Preferred Securities offered hereby. In consideration for issuing the Exchange Preferred Securities in exchange for the Preferred Securities as described in this Prospectus, the Trust will receive Preferred Securities in like Liquidation Amount. The Preferred Securities surrendered in exchange for the Exchange Preferred Securities will be retired and canceled. All the proceeds to the Trust from the sale of the Preferred Securities were invested by the Trust in the Old Senior Subordinated Notes. The Company used the net proceeds received from the sale of the Old Senior Subordinated Notes primarily to (i) retire bank debt of approximately $44.9 million in principal amount, (ii) purchase the shares of GGS Holdings not owned by the Company and (iii) used the remainder for general corporate purposes. The Company invested the net proceeds in short-term, income-generating, investment-grade securities. ACCOUNTING TREATMENTS The Trust will be treated, for financial reporting purposes, as a Subsidiary of the Company and, accordingly, the accounts of the Trust will be included in the consolidated financial statements of the Company. The Securities will be presented as a separate line item in the consolidated balance sheet of the Company under the caption "Minority Interest -- Preferred Securities," and appropriate disclosures about the Securities, the Guarantee and the Senior Subordinated Notes will be included in the notes to consolidated financial statements. All future reports of the Company filed under the Exchange Act will (a) present the Trust Securities issued by the Trust on the balance sheet as a separate line item entitled "Minority Interest -- Preferred Securities," (b) include in a footnote to the financial statements disclosure that the sole assets of the Trust are the Senior Subordinated Notes (including the outstanding principal amount, interest rate and maturity date of such Senior Subordinated Notes) and (c) include in a footnote to the financial statements disclosure that the Company owns all of the Common Securities of the Trust, the sole assets of the Trust are the Senior Subordinated Notes, and the back-up obligations, in the aggregate constitute a full and unconditional guarantee by the Company of the obligations of the Trust under the Securities. 37 CAPITALIZATION Set forth below is the actual capitalization of the Company at June 30, 1997 and the capitalization of the Company at June 30, 1997, as adjusted to give effect to the Offering and the application of the net proceeds from the Offering as described in "Use of Proceeds." Six Months Ended June 30, 1997 ---------------------------------------- As Adjusted for (in thousands) Actual The Offering (1) ---------------- ------------------ Long-term bank debt $44,872 $ --- ---------------- ------------------ Minority interest: Preferred Securities --- 135,000 Equity in net assets of subsidiaries 26,724 --- Shareholders' Equity: Preferred Stock; 50,000,000 shares authorized; no shares outstanding --- --- outstanding Common Stock, no par value, and additional paid-in capital; 100,000,000 shares authorized; 10,450,000 shares issued and outstanding 39,019 39,019 Additional paid-in capital 5,905 5,905 Unrealized loss on investments 2,184 4,218 Retained earnings $24,792 $24,185 ---------------- ----------------- Total Shareholders' Equity $71,900 $73,327 ---------------- ----------------- Total Capitalization $143,496 $208,327 ======== ======== - --------------- (1) The information as adjusted excludes shares reserved for issuance pursuant to certain employment agreements with officers of IGF and the Company's stock option plan. 38 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following Unaudited Pro Forma Consolidated Balance Sheet of the Company as of June 30, 1997 and the Statements of Earnings of the Company for the year ended December 31, 1996 and for the six months ended June 30, 1997 present the financial position and results of operations for the Company as if the Transactions, including the Formation Transaction, the Acquisition and the Buyout Transaction, the Initial Public Offering and the Offering had occurred as of January 1, 1996. The pro forma adjustments are based on available information and certain assumptions the Company currently believes are reasonable in the circumstances. The Unaudited Pro Forma Consolidated Balance Sheet and Statements of Earnings have been derived from and should be read in conjunction with the historical Consolidated Financial Statements and Notes of the Company for the year ended December 31, 1996 and the unaudited six months ended June 30, 1997, contained elsewhere herein, and should be read in conjunction with the accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet and Statements of Earnings. The pro forma adjustments and pro forma consolidated amounts are provided for informational purposes only. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial position that would have occurred had the Transaction, including the Formation Transaction and the Acquisition, and the Buyout Transaction, the Initial Public Offering and the Offering been consummated on the dates assumed; nor is the pro forma information intended to be indicative of the Company's future results of operations. 40 Unaudited Pro Forma Consolidated Balance Sheet As of June 30, 1997 (in thousands)
Pro Forma SIG Pro Forma for the Historical Adjustments Offering -------------- -------------- -------------- Assets: Investments $190,500 $24,228 (1) $214,728 Cash and cash equivalents 18,329 --- 18,329 Receivables, net 176,045 --- 176,045 Reinsurance recoverable on paid and unpaid losses, net 70,694 --- 70,694 Prepaid reinsurance premiums 73,927 --- 73,927 Deferred policy acquisition costs 13,121 --- 13,121 Deferred income taxes 2,899 118 (2) 3,017 Property and equipment 9,555 --- 9,555 Investments in and advances to related parties 2,418 --- 2,418 --- 4,900 (3) --- --- (1,116) (4) --- --- 2,034 (5) --- Other 10,153 34,276 (6) 50,247 -------------- -------------- -------------- $567,641 $64,440 $632,081 ======== ======= ======== Liabilities: Losses and Loss Adjustment Expenses $137,924 $--- $137,924 Unearned premiums 160,741 --- 160,741 Reinsurance payable 100,475 --- 100,475 Federal income tax payable 1,594 (391) (7) 1,203 Term debt 44,872 (44,872) (8) --- Other 23,411 --- 23,411 -------------- ------------- -------------- 469,017 (45,263) 423,754 -------------- ------------- -------------- Minority interest: Preferred securities --- 135,000 (9) 135,000 Equity in net assets of subsidiary 26,724 (26,724) (10) --- -------------- ------------- -------------- Stockholders' Equity: Common Stock 39,019 --- 39,019 Additional paid-in capital 5,905 --- 5,905 Unrealized gain/(loss) on investments, net 2,184 2,034 (5) 4,218 --- (725) (11) --- Retained Earnings 24,792 118 (2) 24,185 -------------- ------------- -------------- 71,900 1,427 73,327 -------------- ------------- -------------- $567,641 $64,440 $632,081 ======== ======= ========
The accompanying notes are an integral part of the pro forma consolidated financial statements. 40 Unaudited Pro Forma Consolidated Statement of Earnings Six Months Ended June 30, 1997 (in thousands, except per share data and ratios)
Pro Forma Pro Forma for SIG Historical Adjustments the Offering -------------- -------------- -------------- Gross Premiums Written $279,065 $ --- $279,065 ======== ======== Net Premiums Written $150,524 --- $150,524 ======== ======== Net Premiums Earned $136,012 --- $136,012 Net investment income 5,276 --- 5,276 Other income 10,791 --- 10,791 Net realized capital gains 1,684 --- 1,684 -------------- -------------- Total Revenues 153,763 --- 153,763 -------------- -------------- Losses and loss adjustment expenses 103,293 --- 103,293 Policy acquisition and general and administration expenses --- 82 (12) --- --- (116) (13) --- 30,397 788 (14) 31,151 Interest Expense 2,744 (2,706) (15) 38 -------------- -------------- -------------- Total Expenses 136,434 (1,952) 134,482 -------------- -------------- -------------- Earnings before income taxes, minority interest and extraordinary item 17,329 1,952 19,281 Provision for income taxes --- 959 (16) --- 6,183 (118) (17) 7,024 Minority interest: Distributions on Preferred Securities --- 4,168 (18) 4,168 Equity in earnings of subsidiary 1,560 (1,560) (19) --- -------------- -------------- -------------- Net earnings from continuing operations (20) $9,586 $(1,497) $8,089 ====== ======= ====== Pro Forma for SIG Historical the Offering -------------- -------------- Net earnings per common share from continuing operations - primary (20) $0.90 $0.76 -------------- -------------- Weighted average shares outstanding 10,617 10,617 -------------- -------------- Other Data: EBITDA (21) --- $21,242 Adjusted EBITDA (22) --- $19,558 Ratio of EBITDA to interest expense and Distributions on Preferred --- 3.29x Securities Ratio of Adjusted EBITDA to interest expense and Distributions on Preferred Securities (22) --- 3.03x Ratio of earnings to fixed charges (23) --- 2.97x GAAP Ratios: Loss Ratio 75.9% 75.9% Expense Ratio 22.4% 22.9% -------------- -------------- Combined Ratio 98.3% 98.8% ==== ====
The accompanying notes are an integral part of the pro forma consolidated financial statements. 41 Unaudited Pro Forma Consolidated Statement of Earnings Year Ended December 31, 1996 (in thousands, except per share data and ratios)
Four Months Ended April Pro Forma Pro Forma for 30, 1996 Adjustments for the Trans- SIG Superior the Transactions actions and Pro Forma Pro Forma for Historical Historical and the IPO the IPO Adjustments the Offering ----------- ----------- ------------- ------------ ----------- ------------- Gross premiums written $305,499 $43,993 $ --- $349,492 $ --- $349,492 ======== ======= ======== ======== Net premiums written $209,592 $43,618 $ --- $253,210 $ --- $253,210 =========== =========== ============ ============= Net premiums earned $191,759 $39,387 --- $231,146 --- $231,146 Net investment income 6,733 2,452 --- 9,185 --- 9,185 Other income 9,286 2,217 --- 11,503 --- 11,503 Net realized capital gains/(losses) (1,015) 29 --- (986) --- (986) ----------- ----------- ------------ ------------- Total Revenues 206,763 44,085 --- 250,848 --- 250,848 ----------- ----------- ------------ ------------- Losses and loss adjustment expenses 137,109 26,715 163,824 163,824 --- --- 77 (24) --- --- --- --- --- 30 (25) --- 163 (12) --- Policy acquisition and --- --- (174) (26) --- (231) (13) --- general and administrative expenses 42,013 11,445 106 (27) 53,497 1,703 (14) 55,132 --- --- 1,330 (28) --- --- --- --- --- (719) (29) --- --- --- Interest expense 3,938 --- (434) (30) 4,115 (4,104) (15) 11 ----------- ----------- ------------- ------------ ----------- ------------- Total Expenses 183,060 38,160 216 221,436 (2,469) 218,967 ----------- ----------- ------------- ------------ ----------- ------------- Earnings before income taxes, minority interest and extraordinary item 23,703 5,925 (216) 29,412 2,469 31,881 Provision for income taxes 8,046 1,952 (75) (16) 9,923 1,460 (16) 11,383 Minority interest: Distributions on Preferred Securities --- --- --- --- 8,336 (18) 8,336 Equity in earnings of (19) --- subsidiary 2,401 --- 1,421 (31) 3,822 (3,822) ----------- ----------- ------------- ------------ ----------- ------------- Net earnings from continuing operations (20) $13,256 $3,973 $1,562 $15,667 $(3,505) $12,162 ======= ====== ====== ======= ======= ======= Net earnings per common share from continuing operations (20) $1.76 $1.13 ===== ===== Weighted average shares outstanding 7,537 3,193 (32) 10,730 ===== ===== ====== Other Data: EBITDA (21) --- --- 35,721 Adjusted EBITDA (22) --- --- 36,707 Ratio of EBITDA to interest expense and Distribution on Preferred Securities --- --- 2.78x Total Preferred Securities to EBITDA --- --- 3.78x Ratio of Adjusted EBITDA to interest expense and Distributions on Preferred Securities (22) --- --- 2.86x Total Preferred Securities to Adjusted EBITDA (23) --- --- 3.68x Ratio of earnings to fixed charges (31) --- --- 2.47x GAAP ratios: Loss Ratio 71.5% 70.9% Expense Ratio 21.9% 23.9% ----------- ------------- Combined Ratio 93.4% 94.8% ==== ====
The accompanying notes are an integral part of the pro forma consolidated financial statements. 42 Notes To Unaudited Pro Forma Consolidated Financial Statements (1) Application of the net proceeds from the Offering are invested as of June 30, 1997 as follows: (in thousands) Offering Proceeds $135,000 Estimated fees and expenses (4,900) Repayment of GGS Senior Credit Facility (44,872) Purchase of Minority Interest in GGS Holdings (61,000) ------------------- General corporate purposes $24,228 ------------------- The pro forma statement of earnings for the six months ended June 30, 1997 and the year ended December 31, 1996 assumes no interest earnings on funds remaining. However, the Company fully expects to invest such funds. (2) Deferred tax assets and retained earnings at June 30, 1997 increase by $118,000 related to the elimination of the deferred tax liability on the unremitted earnings of GGS Holdings due to the purchase of the remaining minority interest share of 48%. (3) Other assets at June 30, 1997 increase by $4,900,000 representing deferred Preferred Securities issuance costs to be amortized over their term (30 years). (4) Other assets at June 30, 1997 are reduced by $1,116,000 representing the write-off of unamortized debt issuance costs in connection with the GGS Senior Credit Facility that was repaid with the proceeds of the Offering. (5) Goodwill and equity at June 30, 1997 increase by $2,034,000 for the after tax effects of the elimination of the minority interest portion of the unrealized loss on investments held for sale. (6) Goodwill at June 30, 1997 is increased by $34,276,000 for the excess of the purchase price of the minority interest share, over the minority interest liability of $26,724,000 as the entire excess purchase price is applied to goodwill as all identifiable assets approximate fair value. Total goodwill at June 30, 1997, including that existing prior to the Offering aggregates $36,390,000. (7) Income taxes payable at June 30, 1997 are reduced by $391,000 for the tax effect of the write-off of the debt issuance costs associated with the term debt repaid from the proceeds of the Offering. (8) The GGS Senior Credit Facility is completely repaid with the proceeds of the Offering. (9) Issuance of Preferred Securities from the Offering. (10) Minority interest liability at June 30, 1997 is eliminated with the purchase of the minority interest share from the proceeds of the Offering. (11) Retained earnings at June 30, 1997 is reduced by $725,000 for the after tax effects of the write-off of the debt issuance costs associated with the GGS Senior Credit Facility repaid from the proceeds of the Offering. (12) Policy acquisition and general and administrative expenses for the six months ended June 30, 1997 and the year ended December 31, 1996 are increased by $82,000 and $163,000, respectively, for the amortization of the Preferred Securities issuance costs. Such costs are amortized over the life of the Preferred Securities of thirty years. (13) Policy acquisition and general and administrative expenses for the six months ended June 30, 1997 and the year ended December 31, 1996 are decreased by $116,000 and $231,000, respectively, for the amortization of the debt issuance costs associated with the GGS Senior Credit Facility. The adjustment for the year ended December 31, 1996 includes the pro forma adjustment described in Note 21. (14) Policy acquisition and general and administrative expenses for the six months ended June 30, 1997 and the year ended December 31, 1996 are increased by $788,000 and $1,703,000, respectively, for the amortization of goodwill created by the excess of the purchase price of the minority interest share in excess of the minority interest liability. Goodwill is amortized over a 25-year period on a straight line basis based upon management's estimate of the expected benefit period. (15) Interest expense for the six months ended June 30, 1997 and the year ended December 31, 1996 is decreased by $2,706,000 and $4,104,000, respectively, for the interest incurred on the GGS Senior Credit Facility which was repaid from the proceeds of the Offering. The adjustment for the year ended December 31, 1996 includes the pro forma adjustment described in Note 25. 43 Notes To Unaudited Pro Forma Consolidated Financial Statements (16) All applicable pro forma adjustments to operations are tax affected at a rate of 35%. (17) Income tax expense for the six months ended June 30, 1997 is reduced by $118,000 for the elimination of the deferred tax effects of the unremitted earnings to SIG of GGS Holdings due to the purchase of the remaining minority interest. (18) Distributions on Preferred Securities for the six months ended June 30, 1997 and the year ended December 31, 1996, net of income taxes at 35%, of $4,168,000 and $8,336,000, respectively, were based on an interest rate of 9.50%. (19) Minority interest earnings are eliminated with the purchase of the remaining minority interest share. (20) Net earnings and net earnings per common share from continuing operations for the six month period ended June 30, 1997 and the year ended December 31, 1996 exclude ($725,000) (($0.07) per share) and ($901,000) (($0.08) per share), respectively, for the effects of the write-off of debt issuance costs incurred on the GGS Senior Credit Facility upon repayment of that debt from the proceeds of the Offering. Such amounts will be presented as extraordinary items in accordance with GAAP. (21) EBITDA consists of earnings before interest, taxes, minority interest, depreciation and amortization. EBITDA is presented here not as a measure of operating results, but rather as a measure of the Company's cash flow and debt service ability, and should not be considered as an alternative to net earnings and cash flows determined in accordance with GAAP. Because the Company's ability to obtain dividends from its insurance subsidiaries may be subject to certain restrictions, EBITDA is not necessarily indicative of the Company's ability to service its indebtedness. (22) Adjusted EBITDA is comprised of EBITDA excluding realized gains or losses on investment sales. (23) In determining the pro forma ratio of earnings to fixed charges, earnings are defined as earnings from continuing operations before income taxes and fixed charges. Fixed charges consist of the total of interest on all indebtedness and amortization of deferred debt issuance costs. (24) Policy, acquisition and general and administrative expenses for the period prior to the Acquisition are increased by $77,000 for the year ended December 31, 1996 to reflect amortization of the deferred loan origination costs of $1,386,000 incurred related to the GGS Senior Credit Facility. The debt issuance costs are amortized over six years, the term of the GGS Senior Credit Facility. (25) Policy, acquisition and general and administrative expenses for the period prior to the Acquisition are increased by $30,000 for the year ended December 31, 1996 to reflect amortization of the goodwill of $2,217,000. Goodwill is amortized over a 25-year period on a straight-line basis based upon management's estimate of the expected benefit period. (26) Policy, acquisition and general and administrative expenses for the period prior to the Acquisition are decreased by $174,000 for the year ended December 31, 1996 to reflect the elimination of management fees charged by Superior's former parent, Fortis, for corporate expenses. (27) Policy, acquisition and general and administrative expenses for the period prior to the Formation Transaction are increased by $106,000 for the year ended December 31, 1996 to reflect amortization of organization costs of $1,597,000. Organizational costs are amortized over a five-year period on a straight-line basis. (28) Interest expense for the period prior to the Acquisition is increased by $1,330,000 for the year ended December 31, 1996 to reflect the GGS Senior Credit Facility financing of $48,000,000 related to the Acquisition. The interest rate utilized was 8.31% based upon the actual rate in 1996 after consideration of the interest rate swap. (29) Interest expense for the period prior to the Initial Public Offering is decreased by $719,000 for the year ended December 31, 1996 to reflect the retirement of the certain indebtedness of the Company to Goran and Granite Re aggregating $7,500,000 with a stated interest rate of 10% which was repaid with the proceeds from the Initial Public Offering. (30) Interest expense for the year ended December 31, 1996 is decreased by $434,000 reflecting the interest incurred on a $7,500,000 note payable to Bank at 9.25% (prime plus 1%) for the period from April 30, 1996 to the closing of the Initial Public Offering when such debt was repaid. (31) Minority interest for the period prior to the Formation Transaction has been increased by $1,421,000 for the year ended December 31, 1996 to reflect the 48% minority interest of the GS Funds in GGS Holdings. (32) The weighted average shares outstanding have been adjusted to reflect the 3,450,000 shares issued in the initial public offering, and have been further increased by 280,000 shares for the $3.5 million dividend paid to Goran from the proceeds of the Initial Public Offering, in accordance with accounting rules which require such presentation for purposes of pro forma earnings per share calculation. 44 SELECTED CONSOLIDATED FINANCIAL DATA OF SYMONS INTERNATIONAL GROUP, INC. The selected consolidated financial data presented below are derived from the consolidated financial statements of the Company and its Subsidiaries. Such financial statements for, and as of the end of, each of the years in the three-year period ended December 31, 1996, have been audited by Coopers & Lybrand L.L.P., independent accountants, and are included elsewhere in this Prospectus. The selected consolidated financial data presented below for, and as of the end of, each of the six month periods ended June 30, 1996 and 1997 are derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus. The results of the operations of the Company for the six months ended June 30, 1997 are not necessarily indicative of the results of operations that may be expected for the full year. In the opinion of management, the unaudited information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for such periods. The information set forth below should be read in conjunction with the consolidated financial statements of the Company and the notes thereto, included elsewhere in this Prospectus. The pro forma consolidated statement of operations data for the year ended December 31, 1996 and for the six months ended June 30, 1997 present results for the Company as if the Formation Transaction, the Acquisition, the other Transactions, the Initial Public Offering, the Buyout Transaction and the Offering had occurred as of January 1, 1996. The pro forma Consolidated Balance Sheet of the Company gives effect to the Buyout Transaction and the Offering as if they had occurred as of June 30, 1997. 45 Six Months Ended Year Ended December 31, June 30, ------------------------------------------------------------------------ ----------------------------------- Historical Historical ----------------------------------------------------------- ----------------------- (in thousands, except per share data)
Pro Pro Forma Forma 1992 1993 1994 1995 1996 1996 (1) 1996 1997 1997 (1) ---- ---- ---- ---- ---- -------- ---- ---- -------- Consolidated Statement of Operations Data: (2) (9) Gross Premiums Written $109,219 $88,936 $103,134 $124,634 $305,499 $349,492 $146,950 $279,065 $279,065 Net Premiums Written 35,425 31,760 35,139 53,447 209,592 253,210 77,042 150,524 150,524 Net Premiums Earned 35,985 31,428 32,126 49,641 191,759 231,146 59,066 136,012 136,012 Net Investment Income 1,319 1,489 1,241 1,173 6,733 9,185 1,533 5,276 5,276 Other Income 0 886 1,632 2,170 9,286 11,503 4,062 10,791 10,791 Net Realized Capital Gains/ (Losses) 486 (119) (159) (344) (1,015) (986) 228 1,684 1,684 --- ----- ----- ----- ------- ----- --- ----- ----- Total Revenues 37,790 33,684 34,840 52,640 206,763 250,848 64,889 153,763 153,763 ------ ------ ------ ------ ------- ------- ------ ------- ------- Losses and loss adjustment expenses 27,572 25,080 26,470 35,971 137,109 163,824 45,275 103,293 103,293 Policy acquisition and general and administrative expenses 7,955 8,914 5,801 7,981 42,013 55,132 12,283 30,397 31,151 Interest expense 459 996 1,184 1,248 3,938 11 1,261 2,744 38 --- --- ----- ----- ----- ---------- ----- ----- --------- Total expenses 35,986 34,990 33,455 45,200 183,060 218,967 58,819 136,434 134,482 ------ ------ ------ ------ ------- ------- ------ ------- ------- Earnings (loss) before taxes, discontinued operations, cumulative effect of an accounting change and minority interest 1,804 (1,306) 1,385 7,440 23,703 31,881 6,070 17,329 19,281 Income taxes 996 83 (718) 2,619 8,046 11,383 1,854 6,183 7,024 --- -- ----- ----- ----- ------ ----- ----- ----- Earnings (loss) before discontinued operations, cumulative effect of an accounting change and minority interest $808 $(1,389) $2,103 $4,821 $15,657 $20,498 $4,216 $11,146 $12,257 === ======= ===== ===== ====== ====== ===== ====== ====== Net Earnings (loss) (3) $817 $(323) $2,117 $4,821 $13,256 $12,162 $4,304 $9,586 $8,089 === ===== ===== ===== ====== ====== ===== ===== =====
46 Six Months Ended Year Ended December 31, June 30, ------------------------------------------------------------------------ ---------------------------------- Historical Historical ----------------------------------------------------------- ----------------------- (in thousands, except per share data)
Pro Pro Forma Forma 1992 1993 1994 1995 1996 1996 (1) 1996 1997 1997 (1) ---- ---- ---- ---- ---- -------- ---- ---- -------- Per common share data: Earnings (loss) before discontinued operations, extraordinary item, cumulative effect of an accounting change and minority interest $0.12 ($0.20) $0.30 $0.69 $2.08 $1.91 $0.60 $1.05 $1.15 Net Earnings (loss) $0.12 ($0.05) $0.30 $0.69 $1.76 $1.13 $0.61 $0.90 $0.76 Weighted average shares outstanding 7,000 7,000 7,000 7,000 7,537 10,730 7,000 10,617 10,617 Other Data: EBITDA (4) $3,259 $9,430 $29,835 $35,721 $7,552 $21,242 $21,242 Adjusted EBITDA (5) $3,418 $9,774 $30,850 $36,707 $7,324 $19,558 $19,558 Ratio of earnings to fixed changes (6) 4.93x (0.31x) 2.17x 6.96x 6.79x 2.47x 5.67x 7.06x 2.97x Ratio of EBITDA to interest expense and Distributions on Preferred Securities 2.78x 3.29x Ratio of Adjusted EBITDA to interest expense and Distributions on Preferred Securities (5) 2.86x 3.03x Total Preferred Securities to EBITDA (5) 3.78x Total Preferred Securities to Adjusted EBITDA (5) 3.68x GAAP Ratios: (2) (7) Loss and LAE Ratio 76.6% 79.8% 82.4% 72.5% 71.5% 70.9% 76.7% 75.9% 75.9% Expense Ratio 22.1% 28.4% 18.1% 16.1% 21.9% 23.9% 20.8% 22.4% 22.9% ----- ----- ----- ----- ----- ----- ----- ----- ----- Combined Ratio 98.7% 108.2% 100.5% 88.6% 93.4% 94.8% 97.5% 98.3% 98.8% ===== ====== ====== ===== ===== ===== ===== ===== =====
47 Six Months Ended Year Ended December 31, June 30, 1997 --------------------------------------------------------------- --------------------------- Historical --------------------------------------------------------------- (in thousands, except per share data)
Pro 1992 1993 1994 1995 1996 Actual Forma ---- ---- ---- ---- ---- ------ ----- Consolidated Balance Sheet Data: (2) (9) Investments $27,941 $21,497 $18,572 $25,902 $168,137 $190,500 $214,728 Total assets 75,001 81,540 66,628 110,516 344,679 567,641 632,081 Losses and Loss Adjustment Expenses 38,616 54,143 29,269 59,421 101,719 137,924 137,924 Total debt 11,528 9,341 10,683 11,776 48,000 44,872 --- Minority interest: Preferred Securities --- --- --- --- --- --- 135,000 Equity in net assets of subsidiary 55 --- 16 --- 21,610 26,724 --- Total shareholders' equity 1,193 2,219 4,255 9,535 60,900 71,900 73,327 Book value per share $0.17 $0.32 $0.61 $1.36 $5.83 $6.88 $7.02 Statutory Capital and Surplus: (8) Crop (IGF) $29,412 $36,760 $36,760 Nonstandard automobile (Pafco and Superior) $75,233 $82,291 $82,291 - ---------------
(1) Results of operations of Superior for the years ended December 31, 1994 and 1995 and for the six months ended June 30, 1996 are presented herein in "Selected Consolidated Historical Financial Data of Superior Insurance Company." The pro forma consolidated statement of operations data for the year ended December 31, 1996 and for the six months ended June 30, 1997 present results of the Company as if the Formation Transaction, the Acquisition and the other Transactions, the Initial Public Offering and the Buyout Transaction had occurred as of January 1, 1996. The as adjusted consolidated balance sheet data as of June 30, 1997 gives effect to the Buyout Transaction and Offering as if they had occurred as of June 30, 1997. See "Unaudited Pro Forma Consolidated Financial Statements" for a discussion of pro forma statement adjustments. (2) See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" for a discussion of the accounting treatment accorded to the crop insurance business. 48 (3) Pro forma net earnings (loss) and net earnings per common share for the six month period ended June 30, 1997 and the year ended December 31, 1996 exclude ($725,000) (($0.07) per share) and ($901,000) (($0.08) per share), respectively, for the assumed effects of the write-off of debt issuance costs incurred on the GGS Senior Credit Facility upon repayment of that debt from the proceeds of the offering. Such amounts will be presented as extraordinary items in accordance with Generally Accepted Accounting Principles. (4) EBITDA consists of earnings before interest, taxes, minority interest, depreciation and amortization. EBITDA is presented here not as a measure of operating results, but rather as a measure of the Company's cash flow and debt service ability, and should not be considered as an alternative to net earnings and cash flows determined in accordance with GAAP. Because the Company's ability to obtain dividends from its insurance subsidiaries may be subject to certain restrictions, EBITDA is not necessarily indicative of the Company's ability to service its indebtedness. (5) Adjusted EBITDA is comprised of EBITDA excluding realized gains or losses on sales of investments. (6) In determining the pro forma ratio of earnings to fixed charges, earnings are defined as earnings from continuing operations before income taxes and fixed charges. Fixed charges consist of the total of interest and distributions on all indebtedness and Preferred Securities and amortization of deferred debt issuance costs. (7) The Loss and LAE Ratio is calculated by dividing losses and loss adjustment expenses by Net Premiums Earned. The Expense Ratio is calculated by dividing policy acquisition and general and administrative expenses by Net Premiums Earned. The Combined Ratio is the sum of the Loss and LAE and Expense Ratios. As a result of the accounting treatment accorded to the MPCI business, the Company's GAAP Loss and LAE, Expense and Combined Ratios are not comparable to the ratios for other property and casualty insurers. (8) Statutory capital and surplus is calculated under SAP and is relevant for insurance regulatory purposes in determining the amount of business an insurance company may write. Statutory capital and surplus for Pafco and Superior individually is as follows: (in thousands) ------------------------------------------------------------- December 31, June 30, As Adjusted, 1996 1997 June 30, 1997 ------------------ --------------- ----------------- Pafco $18,112 $17,273 $17,273 Superior $57,121 $65,018 $65,018 (9) The results of operation and financial condition of the Company do not include any amounts related to Superior prior to the Acquisition. 49 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY Certain Accounting Policies for Crop Insurance Operations The majority of the Company's crop insurance business consists of MPCI. MPCI is a government-sponsored program with accounting treatment which differs in certain respects from more traditional property and casualty insurance lines. Farmers may purchase "CAT Coverage" (the minimum available level of MPCI coverage) upon payment of a fixed administrative fee of $50 per policy (the "CAT Coverage Fee") instead of a premium. This fee is included in other income. Commissions paid to agents to write CAT policies are partially offset by the CAT Coverage Fee. For purposes of the profit-sharing formula under the MPCI program referred to below, the Company is credited with an imputed premium (its "MPCI Imputed Premium") for all CAT Coverage policies it sells, determined in accordance with the profit-sharing formula established by the Federal Crop Insurance Corporation ("FCIC"). For income statement purposes under GAAP, Gross Premiums Written consist of the aggregate amount of premiums paid by farmers for "Buy-up Coverage" (MPCI coverage in excess of CAT Coverage), and any related federal premium subsidies, but do not include any MPCI Imputed Premium credited on CAT Coverage. By contrast, Net Premiums Written and Net Premiums Earned do not include any MPCI Premiums or premium subsidies, all of which are deemed to be ceded to the United States Government as reinsurer. The Company's profit or loss from its MPCI business is determined after the crop season ends on the basis of a complex profit-sharing formula established by federal regulation and the FCIC. For GAAP income statement purposes, any such profit or loss sharing earned or payable by the Company is treated as an adjustment to commission expense and is included in policy acquisition and general and administrative expenses. Amounts receivable from the FCIC are reflected on the Company's consolidated balance sheet as reinsurance recoverables. The Company also receives from the FCIC (i) an expense reimbursement payment equal to a percentage of Gross Premiums Written for each Buy-up Coverage policy it writes (the "Buy-up Expense Reimbursement Payment"), (ii) an LAE reimbursement payment equal to 13.0% of MPCI Imputed Premiums for each CAT Coverage policy it writes (the "CAT LAE Reimbursement Payment") and (iii) a small excess LAE Reimbursement Payment of two hundredths of one percent (0.02%) of MPCI Retention to the extent the Company's MPCI Loss Ratios on a per state basis exceed certain levels (the "MPCI Excess LAE Reimbursement Payment"). For GAAP income statement purposes, the Buy-up Expense Reimbursement Payment is treated as a contribution to income and reflected as an offset against policy acquisition and general and administrative expenses. The CAT LAE Reimbursement Payment and the MPCI Excess LAE Reimbursement Payment are, for income statement purposes, recorded as an offset against LAE, up to the actual amount of LAE incurred by the Company in respect of such policies, and the remainder of the payment, if any, is recorded as other income. In 1996, the Company instituted a policy of recognizing (i) 35% of its estimated MPCI Gross Premiums Written for each of the first and second quarters, (ii) commission expense at a rate of 16% of MPCI Gross Premiums Written and (iii) Buy-up Expense Reimbursement at a rate of 31% of MPCI Gross Premiums Written along with normal operating expenses incurred in connection with premium writings. In the third quarter, if a sufficient volume of policyholder acreage reports have been received and processed by the Company, the Company's policy is to recognize MPCI Gross Premiums Written for the first nine months based on a re-estimate. If an insufficient volume of policies have been processed, the Company's policy is to recognize 20% of its full year estimate of MPCI Gross Premiums Written in the third quarter. The remaining amount of MPCI Gross Premiums Written is recognized in the fourth quarter, when all amounts are reconciled. In prior years, recognition of MPCI Gross Premiums Written was 30%, 30%, 30% and 10%, for the first, second, third and fourth quarters, respectively. Commencing with its June 30, 1995 financial statements, the Company also began recognizing MPCI underwriting gain or loss during the first and second quarters, as well as the third quarter, reflecting the Company's best estimate of the amount of such gain or loss to be recognized for the full year, based on, among other things, historical results, plus a provision for adverse developments. In the fourth quarter, a reconciliation amount is recognized for the underwriting gain or loss based on final premium and loss information. 51 Selected Segment Data of the Company The following table presents historical segment data for the Company's nonstandard automobile and crop insurance operations. This data does not reflect results of operations attributable to corporate overhead, or commercial insurance operations, nor does it include the results of operations of Superior prior to May 1, 1996. Year Ended December 31, Six Months Ended June 30, ------------------------------------------ --------------------------- (in thousands)
1994 1995 1996 (1) 1996 1997 (1) ---- ---- ---- ---- ---- Nonstandard Automobile Insurance Operations: Gross Premiums Written (2 ) $45,593 $49,005 $187,176 $62,290 $165,547 Net Premiums Written (2) 28,114 37,302 186,579 62,089 133,843 Net Premiums Earned (2 ) 25,390 34,460 168,746 52,844 128,244 Net investment income 904 624 6,489 1,435 5,094 Other income 1,545 1,787 7,578 2,333 7,204 Net realized capital gains (losses) (55) (508) (1,014) 212 1,684 ---- ----- ------- --- ----- Total revenues 27,784 36,363 181,799 56,824 142,226 ------ ------ ------- ------ ------- Losses and Loss Adjustment Expenses 18,303 25,423 124,385 38,831 99,024 Policy acquisition and general and administrative expenses 8,709 12,929 46,796 15,774 35,492 Interest and amortization of intangibles 0 0 3,184 696 2,711 - - ----- --- ----- Total expenses 27,012 38,352 174,365 55,301 137,227 ------ ------ ------- ------ ------- Earnings (loss) before income taxes $772 $(1,989) $7,434 $1,523 $4,999 === ======= ===== ===== ===== GAAP Ratios (Nonstandard Automobile Only) Loss and LAE Ratio 72.1% 73.8% 73.7% 73.5% 77.2% Expense Ratio, net of billing fees 28.2% 32.3% 25.1% 25.4% 22.1% ----- ----- ----- ----- ----- Combined Ratio 100.3% 106.1% 98.8% 98.9% 99.3% ====== ====== ===== ===== ===== Crop Insurance Operations: 1(3) Gross Premiums Written (4) $54,455 $70,374 $110,059 $80,537 $108,356 Net Premiums Written (4) 4,565 11,608 23,013 14,953 16,680 Net Premiums Earned (4) 4,565 11,608 23,013 6,222 7,768 Net Investment Income 339 674 181 96 92 Other income 73 384 1,672 1,148 3,587 Net realized capital gain (loss) (104) 164 (1) 16 --- ----- --- --- -- --- Total revenues 4,873 12,830 24,865 7,482 11,447 ----- ------ ------ ----- ------ Losses and Loss Adjustment Expenses 7,031 8,629 12,724 6,444 4,269 Policy acquisition and general and administrative expenses (4,802) (7,466) (6,095) (4,266) (6,026) Interest expense 492 627 551 120 24 --- --- --- --- -- Total expenses 2,721 1,790 7,180 2,298 (1,733) ----- ----- ----- ----- ------- Earnings (loss) before income taxes $2,152 $11,040 $17,685 $5,184 $13,180 ===== ====== ====== ===== ====== Statutory Capital and Surplus: Pafco (5) $7,848 $11,875 $18,112 $14,872 $17,273 IGF $4,512 $9,219 $29,412 $11,559 $36,760 Superior $43,577 $49,277 $57,121 $48,036 $65,018
- --------------- (1) The nonstandard automobile insurance operations include the results of operations of Superior subsequent to the Acquisition. (2) Does not reflect Net Premiums Written for Superior for the years ended December 31, 1994 and 1995 and for the four months ended April 30, 1996. For the years ended December 31, 1994 and 1995, Superior and its subsidiaries had Gross Premiums Written of $112.9 million and $94.8 million, respectively, and Net Premiums Written of $112.5 million and $94.1 million, respectively. For the four months ended April 30, 1996, Superior and its subsidiaries had Gross Premiums Written of $44.0 million and Net Premiums Written of $43.6 million. (3) See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company." (4) Crop hail insurance premiums are primarily written in the second and third calendar quarters. (5) The statutory surplus of Pafco includes Pafco's share of IGF's statutory surplus prior to April 30, 1996. Pafco owned the following percentages of IGF at December 31 of each of the following years: 1994, 98.8%; 1995, 100%. At April 30, 1996, Pafco transferred IGF to SIG. Prior to the Transfer, IGF also paid a dividend to Pafco in the form of cash of $7,500,000 and a promissory note of $3,500,000. 51 Six Months Ended June 30, 1997 and 1996 Overview For the three and six months ended June 30, 1997, the Company recorded net earnings of $3,677,000 and $9,586,000 or $0.35 and $0.90 per share. This is approximately a 35.3% and 123% increase from 1996 comparable amounts of $2,718,000 and $4,304,000 or $0.39 and $0.61 per share. The improved earnings for the six months ended were attributable to continued premium growth and improved expense ratios of the nonstandard automobile segment and continued growth and profit in the crop segment. The improvement for the three months ended relates to the growth and profitability of the crop segment. The crop segment demonstrated enhanced profitability due to higher volume as well as normal crop underwriting expectations. Gross Premiums Written Consolidated Gross Premiums Written increased 41.4% in the second quarter and 89.9% year-to-date due to growth in both the nonstandard auto and crop segments. Gross Premiums Written for the nonstandard auto segment increased 104% in the second quarter and 166% year-to-date. Such increase was due primarily to Gross Premiums Written from Superior of $71,921,000 and $128,846,000 for the three and six months ended June 30, 1997, as compared to $25,202,000 in 1996 subsequent to its acquisition on April 30, 1996. While a portion of this increase relates to four additional months of premium in 1997 of Superior, additional premium growth relates to internal growth due to improved service, certain product improvements and tougher uninsured motorist laws in states such as California and Florida. Such increase was primarily due to volume rather than rate increases, although the Company adjusts rates on an ongoing basis. Gross Premiums Written for the crop segment decreased 4.2% in the second quarter and increase 34.5% year-to-date. The year-to-date increase was due to continued industry privatization and aggressive marketing efforts, while the decrease in the second quarter is a reflection of timing of processing of acreage reports. Remaining Gross Written Premiums represent commercial business which was ceded 100% effective January 1, 1996 to an affiliate, Granite Reinsurance Company Ltd. Net Premiums Written Net Premiums Written increased in the second quarter and year-to-date for 1997 as compared to 1996 due to the growth in Gross Premiums Written offset by quota share Reinsurance. In 1997, the Company ceded $15,876,000 and $31,353,000 of nonstandard automobile premiums during the second quarter and year-to-date as part of a 20% quota share treaty instituted January 1, 1997. No such treaty was in effect during 1996. In 1997, the Company ceded $6,903,000 and $11,805,000 of crop hail premiums during the second quarter and year-to-date as part of a 40% quota share treaty instituted January 1, 1997. In 1996, crop hail premiums were ceded at a rate of 10%. The nonstandard automobile quota share Reinsurance treaty is not expected to continue in effect subsequent to the Offering of the Preferred Securities. Net Premiums Earned Net Premiums Earned increased for the three and six months ended June 30, 1997 as compared to the corresponding periods of the prior year, reflecting the strong growth in Gross Written Premiums offset by the effects of the nonstandard automobile and crop hail quota share treaties. Net Investment Income Net investment income increased $1,863,000 and $3,743,000 for the three and six months ended June 30, 1997 as compared to the corresponding periods of the prior year. Such increases were due primarily to investment income from Superior and greater invested assets. 52 Other Income Other income increased $2,668,000 and $6,729,000 for the three and six months ended June 30, 1997 as compared to the corresponding periods of the prior year. Such increases were due to billing fee income on nonstandard automobile business at Superior and due to an increase in the in-force policy count. There was also an increase in the receipt of CAT Coverage Fees and CAT LAE Reimbursement Payments due to higher premium volume. Net Realized Capital Gains Realized gains of $1,684,000 in 1997 were due primarily to a change in equity managers and a repositioning of the portfolio. Loss and LAE The Loss and LAE Ratio for the nonstandard automobile segment was 82.5% and 77.2% for the three- and six- months ended June 30, 1997 as compared to 77.2% and 73.5% for the corresponding periods in 1996. The Company, as part of management's actions to reduce costs and combine operations of the nonstandard automobile division, combined the claims management as well as the reserving philosophies of Superior Insurance Company with Pafco General Insurance Company, the two nonstandard automobile insurance companies in the Group. In order to align the different reserving philosophies of its two subsidiaries, the Company adopted the more conservative methodology for the combined business which required an increase of reserves of $5.3 million. This adjustment increased the second quarter and year-to-date 1997 loss ratio by 8.1% and 4.1%. While the Company believes those actions were necessary, the establishment and monitoring of reserve levels are a highly subjective process involving numerous estimates and assumptions. Therefore, actual results may differ from current estimates. The Crop Hail Loss Ratio in 1997 is 54.2% compared to 62.0% in 1996. Policy Acquisition and General and Administrative Expenses Policy acquisition and general and administrative expenses have increased as a result of the increased volume of business produced by the Company combined with a higher percentage of net premiums retained and offset by increases in reinsurance commission income. Policy acquisition and general and administrative expenses rose to $17,514,000 and $30,397,000 or 24.0% and 22.4% of Net Premium Earned for the three and six months ended June 30, 1997 compared to $8,614,000 and $12,283,000 or 19.0% and 20.8% of Net Premium Earned in the corresponding periods of 1996. Such increase was due to a higher mix of nonstandard automobile premiums in 1997 as compared to 1996. The Expense Ratio, net of billing fees, for the nonstandard automobile segment improved to 21.6% and 22.1% for the three and six months ended June 30, 1997 as compared to 22.6% and 25.4% for the corresponding periods in 1996, due to technological and operational efficiencies, economies of scale and tighter expense controls. Due to the accounting for the crop insurance segment, operating expenses for the three and six months ended June 30, 1997 includes a contribution to earnings of $1,260,000 and $6,026,000, as compared to comparable amounts of $2,433,000 and $4,266,000 for the corresponding periods in 1996. Such increase was due to greater Buy-up Expense Reimbursement Payments and MPCI underwriting gain due to increased premium volumes. The nonstandard automobile quota share treaty reduced premiums earned, losses and LAE incurred and policy acquisition and general administrative expenses by $12,442,000, $8,631,000 and $3,501,000, and $15,812,000, $10,912,000, and $4,505,000, respectively, for the three and six months ending June 30, 1997, for a net pre-tax earnings reduction of $310,000 and $395,000 in the three and six months ending June 30, 1997. Reduction in expenses reflects ceding commission income net of a deferred acquisition cost adjustment. Interest Expense Interest expense increased $232,000 and $1,483,000 for the three and six months ended June 30, 1997 as compared to the corresponding periods in the prior year due primarily to interest incurred since April 30, 1996 on the 53 GGS Senior Credit Facility. The GGS Senior Credit Facility will be repaid with the proceeds from the Offering of the Preferred Securities. Income Tax Expense Income tax expense was 34.8% and 35.7% of pre-tax income for the three and six months ended June 30, 1997 as compared to 28.3% and 30.5% in 1996. The increase was due to the Company's selling of its tax exempt investments in the second half of 1996 as part of its restructuring of the investment portfolios. Year Ended December 31, 1995 Compared with 1994 Gross Premiums Written Gross Premiums Written in 1995 increased 20.8%, to $124,634,000 from $103,134,000 in 1994 reflecting an increase in Gross Premiums Written of 29.2% in crop insurance and 7.5% in nonstandard automobile insurance. The increase in Gross Premiums Written for the nonstandard automobile insurance segment was primarily attributable to an increase in policies in-force of 13.4%. The Company experienced a greater percentage increase in certain states due to the introduction of product improvements. In Colorado, Policies In-Force increased by 46% in 1995. In that state, the Company increased the number of its deductible options and implemented more favorable pricing for certain personal injury protection coverages. The crop insurance segment experienced growth in both the crop hail and MPCI business. The increase in crop hail Gross Premiums Written to $16,966,000 in 1995 from $10,130,000 in 1994 was due primarily to increased opportunities to market crop hail coverages to farmers as a result of the increases in sales of MPCI products (both Buy-up Coverage and CAT Coverage) due to the 1994 Reform Act. The net increase in MPCI Gross Premiums Written to $53,408,000 in 1995 from $44,325,000 in 1994 resulted from an increase in the number of acres insured in 1995 following the 1994 Reform Act. Net Premiums Written The Company's Net Premiums Written in 1995 increased 52.1%, to $53,447,000 from $35,139,000 in 1994 due to an increase in Gross Premiums Written and a reduction in premiums ceded to reinsurers under quota share reinsurance for both nonstandard automobile and crop hail insurance. The percentage of the Company's nonstandard automobile premiums ceded under its quota share reinsurance treaty was reduced to 25% from an effective percentage ceded of 38% in 1994 as a result of a reduction in the Company's need for the additional capacity provided by this reinsurance. Net Premiums Earned The Company's Net Premiums Earned in 1995 increased 54.5% reflecting an increase in Net Premiums Written and a reduction in quota share reinsurance on the nonstandard automobile insurance business. The ratio of Net Premiums Earned to Net Premiums Written for nonstandard automobile insurance in 1995 remained relatively unchanged at 92.4% as compared to 90.3% in 1994. Net Investment Income Net investment income in 1995 decreased 5.5% principally due to a decrease in the average yield earned on invested assets to 5.2% in 1995 from 6.0% in 1994. Although market interest rates increased in 1995, the average yield on investments declined primarily as a result of the repositioning of the Company's investment portfolio, begun in the latter part of 1995, into a higher concentration in fixed income securities, particularly including shorter term securities. The decrease in the average yield was partially offset by an increase in average invested assets to $22,653,000 in 1995 from $20,628,000 in 1994. 54 Other Income The Company's other income in 1995 increased 34.0% as a result of increased billing fee income of $351,000 on nonstandard automobile business due primarily to the increase in the in-force policy count as described above, with the remainder due primarily to the receipt of CAT Coverage Fees and CAT LAE Reimbursement Payments following the 1995 introduction of CAT Coverages. Net Realized Capital Gain (Loss) The Company recorded a net realized capital loss of $344,000 from the sale of investments in 1995 as compared to a net realized capital loss of $159,000 in 1994. The net realized capital loss in 1995 was the result of appointing a new investment manager in October 1995 and the resulting repositioning of the Company's investment portfolio described above, as well as certain write-downs taken on investments with an other than temporary decline in estimated fair value. Losses and LAE The nonstandard automobile segment Loss and LAE Ratio increased to 73.8% in 1995 from 72.1% in 1994 primarily due to increased repair costs for automobile parts resulting from the implementation of laws prohibiting use of reconditioned parts as well as general inflationary pressures on costs of settling claims. The crop hail Loss and LAE Ratio decreased to 74.3% in 1995 from 154.0% in 1994 due to more favorable weather conditions than in the prior year. Crop insurance Losses and LAE were also impacted by net MPCI Excess LAE Reimbursement Payment of $0 in 1995 and $936,000 in 1994, after reduction for LAE reimbursements of $3,324,000 in 1995 compared to $107,000 in 1994. These reimbursements are reflected in Losses and LAE up to the actual amount of LAE incurred with any excess reflected in other income. Policy Acquisition and General and Administrative Expenses The Company's policy acquisition and general and administrative expenses in 1995 increased 37.6%, to $7,981,000 from $5,801,000 in 1994. The nonstandard automobile segment Expense Ratio increased to 37.5% in 1995 from 34.3% in 1994 primarily due to a $2,390,000, or 44%, reduction in ceding commission income in 1995 arising from reduced reliance on quota share reinsurance. As a result of the accounting for the crop insurance segment, such segment experienced a contribution to income reflected in the policy acquisition and general and administrative expense line item of $7,466,000 in 1995 compared to a contribution to income of $4,802,000 in 1994. This increase in contribution resulted from an increase in Buy-Up Expense Reimbursement Payments of $2,521,000 due to higher Gross Premiums Written in 1995, together with an increase in the MPCI underwriting gain of $6,396,000. Interest Expense The Company's interest expense in 1995 increased 5.4% as a result of increased line of credit borrowings by IGF due to an increase in cash flow requirements and an increase in applicable interest rates. This was partially offset by interest savings in 1995 over 1994 resulting from debt principal repayments and the retirement of a Company term loan in June 1995. Income Tax Expense The effective tax rate in 1995 was 35.2% as compared to an effective tax rate of (52.2%) in 1994. The tax benefit in 1994 was due to a $1,492,000 reduction in the valuation allowance the Company had previously established for its deferred tax assets. 55 Liquidity and Capital Resources The primary source of funds available to the Company as a holding company are dividends from its primary subsidiaries, IGF, IGF Holdings and GGS Management. Subsequent to this Offering and the repayment of the GGS Senior Credit Facility and purchase of the remaining 48% minority interest, GGS Management will have no dividend restrictions. The Company also receives $150,000 quarterly pursuant to an administration agreement with IGF to cover the costs of executive management, accounting, investing, marketing, data processing and reinsurance. GGS Management collects billing fees charged to policyholders of Pafco and Superior who elect to make their premium payments in installments. GGS Management also receives management fees under its management agreement with Pafco and Superior. When the Florida Department approved the acquisition of Superior by GGS Holdings, it prohibited Superior from paying any dividends (whether extraordinary or not) for four years from the date of Acquisition without the prior written approval of the Florida Department, and extraordinary dividends, within the meaning of the Indiana Insurance Code, cannot be paid by Pafco without the prior approval of the Indiana Commissioner. The management fees charged to Pafco and Superior by GGS Management are subject to review by the Indiana and Florida Departments. See "Business -- Regulation." The nonstandard automobile insurance Subsidiaries' primary source of funds are premiums, investment income and proceeds from the maturity or sale of invested assets. Such funds are used principally for the payment of claims, operating expenses (primarily management fees), commissions, dividends and the purchase of investments. There is variability to cash outflows because of uncertainties regarding settlement dates for liabilities for unpaid losses. Accordingly, the Company maintains investment programs intended to provide adequate funds to pay claims without forced sales of investments. As claim payments tend to lag premium receipts and due to the growth in premium volume the Company has experienced an increase in its investment portfolio and has not experienced any problems with meeting its obligations for claims payments or management fees. The Company is also in the process of preparing a management agreement between IGF and IGF Holdings similar to that for the nonstandard automobile operations where IGF will pay IGF Holdings certain management fees for services rendered by IGF Holdings for IGF. IGF Holdings has no limitations on dividends to the Company thus providing a cash flow stream other than dividends from IGF for amounts in excess of IGF Holdings's expenses. As of December 31, 1997, IGF has the ability to pay $12,122,000 in dividends without prior regulatory approval. Cash flows in the Company's MPCI business differ from cash flows from certain more traditional lines. The Company pays insured losses to farmers as they are incurred during the growing season, with the full amount of such payments being reimbursed to the Company by the federal government within three business days. MPCI premiums are not received from farmers until covered crops are harvested. Such premiums are required to be paid over in full to the FCIC by the Company, with interest, if not paid by a specified date in each crop year. During 1996, IGF continued the practice of borrowing funds under a revolving line of credit to finance premium payables to the FCIC on amounts not yet received from farmers (the "IGF Revolver"). The maximum borrowing amount under the IGF Revolver was $6,000,000 until July 1, 1996, at which time the maximum borrowing amount increased to $7,000,000. The IGF Revolver carried a weighted average interest rate of 6.0%, 8.1%, 9.7% and 8.6%, in 1993, 1994, 1995 and 1996, respectively. IGF did not borrow on this line in the first quarter of 1997. These payables to the FCIC accrue interest at a rate of 15%, as do the receivables from farmers. By utilizing the IGF Revolver, which bears interest at a floating rate equal to the prime rate plus .25%, IGF avoids incurring interest expense at the rate of 15% on interest payable to the FCIC while continuing to earn 15% interest on the receivables due from the farmer. The IGF Revolver contains certain covenants which restrict IGF's ability to (i) incur indebtedness, (ii) declare dividends or make any capital distribution upon its stock whether through redemption or otherwise and (iii) make loans to others, including affiliates. The IGF Revolver also contains other customary covenants which, among other things, restricts IGF's ability to participate in mergers, acquire another enterprise or participate in the organization or creation of any other business entity. At December 31, 1996, $7,000,000 remains available under the IGF Revolver. 56 Net cash provided by operating activities in 1997 aggregated $26,510,000 compared to $7,982,000 in 1996. This increase in funds provided was caused by additional cash of $4,690,000 from net earnings adjusted for non-cash expenses and realized gains or losses, continued premium growth and the normal receipt of funds from the FCIC in the first quarter on the crop insurance operations. Net cash used in investing activities decreased from $82,579,000 in 1996 to $18,870,00 in 1997 reflecting the acquisition of Superior in 1996 offset in part by the application of funds received from operating activities. The proceeds from sales of equity securities of $16,531,000 in 1997 reflects a change in investment managers and a restructuring of the portfolio rather than a liquidation for operating cash needs. In 1997, financing activities used cash of $2,406,000 compared to cash provided of $72,286,000 in 1996. The Company paid principal of $3,128,000 on its Term Debt as scheduled. The contribution from the GS Funds of $2,304,000 represents a contribution to GGS Holdings that was ultimately contributed to the insurance subsidiaries for surplus. The Company also contributed cash to maintain its 52% share. The crop insurance segment had no need to borrow funds on its revolver in 1997 due to the proceeds it received from the initial public offering and continued growth and profitable operations. Net cash provided by operating activities in 1996 was $10,003,000 compared to $9,654,000 in 1995 for an increase of $349,000. This increase was due to improved profitability and growth in written premiums. Loss payments in the nonstandard automobile insurance business tend to lag behind receipt of premiums thus providing cash for operations. Net cash provided by operating activities in 1995 was $9,654,000 compared to net cash used by operating activities of $3,302,000 in 1994. Operations in 1995 provided an additional $12,956,000 in cash compared to 1994 due to additional net earnings of $2,704,000 and cash flow provided of $5,109,000 relating to premium receipts and loss payments, including effects of reinsurance, due primarily to growth in operations with the remainder due to timing of tax and other liability payments. Net cash used in investing activities increased from $8,835,000 in 1995 to $92,769,000 in 1996. Included in 1996 was a $66,590,000 use of cash for the Acquisition. The remaining increase in cash used in investing activities in 1996 related to the growth in investments due to increased cash provided by operating activities. Net cash of $8,835,000 was used in investing activities in 1995 compared to net cash provided by investing activities in 1994 of $1,473,000. The increase in the use of cash in 1995 over 1994 primarily relates to investing of excess funds generated by additional operating earnings in fixed income securities. Due to the nature of insurance operations, the Company does not have a significant amount of expenditures on property and equipment. The primary items comprising the $93,550,000 of cash provided by financing activities in 1996 were the $48,000,000 of proceeds from the GGS Senior Credit Facility, $21,200,000 minority interest investment received as part of the formation of GGS Holdings and the funding of the Acquisition and $37,969,000 of proceeds from the Initial Public Offering. Cash provided or used by financing activities in 1995 and 1994 primarily related to activity in the Company's line of credit for its crop segment. At December 31, 1996 the Company was either in compliance with or obtained waivers for violations of debt covenants. See "Consolidated Financial Statements of the Company" for further information. The Company believes cash flows in the nonstandard automobile segment from premiums, investment income and billing fees are sufficient to meet that segment's obligations to policyholders, operating expenses and debt service for the foreseeable future. This is due primarily to the lag time between receipt of premiums and claims payments. Therefore, the Company does not anticipate additional borrowings for this segment other than in the event of an acquisition. The Company also believes cash flows in the crop segment from premiums and expense reimbursements are sufficient to meet the segment's obligations for the foreseeable future. Due to the more seasonal nature of the crop segment's operations, it may be necessary to obtain short term funding at times during a calendar year by drawing on 57 an existing line of credit. Except for this short term funding and normal increases therein resulting from an increase in the business in force, the Company does not anticipate any significant short or long term additional borrowing needs for this segment. Accordingly, while there can be no assurance as to the sufficiency of the Company's cash flow in future periods, the Company believes that its cash flow will be sufficient to meet all of the Company's operating expenses and debt service for the foreseeable future and, therefore, does not anticipate additional borrowings except as may be necessary to finance acquisitions. While GAAP shareholders' equity was $60,900,000 at December 31, 1996, it does not reflect the statutory equity upon which the Company conducts its various insurance operations. Pafco, Superior and IGF individually had statutory surplus at December 31, 1996 of $18,112,000, $57,121,000 and $29,412,000, respectively. Effects of Inflation Due to the short term that claims are outstanding in the two product lines the Company underwrites, inflation does not pose a significant risk to the Company. Primary Differences Between GAAP and SAP The financial statements contained herein have been prepared in conformity with Generally Accepted Accounting Principles ("GAAP") which differ from statutory accounting practices ("SAP") prescribed or permitted for insurance companies by regulatory authorities in the following respects: (i) certain assets are excluded as "Nonadmitted Assets" under statutory accounting; (ii) costs incurred by the Company relating to the acquisition of new business are expensed for statutory purposes, (iii) the investment in wholly owned subsidiaries is consolidated for GAAP rather than valued on the statutory equity method. The net income or loss and changes in unassigned surplus of the subsidiaries is reflected in net income for the period rather than recorded directly to unassigned surplus, (iv) fixed maturity investments are reported at amortized cost or market value based on their National Association of Insurance Commissioners ("NAIC") rating; (v) the liability for losses and loss adjustment expenses and unearned premium reserves are recorded net of their reinsured amounts for statutory accounting purposes, (vi) deferred income taxes are not recognized on a statutory basis and (vii) credits for reinsurance are recorded only to the extent considered realizable. Under SAP, credit for reinsurance ceded is allowed to the extent the reinsurers meet the statutory requirements of the Insurance Departments of the States of Indiana and Florida, principally statutory solvency. New Accounting Standards The Company has adopted the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation." The Company is to adopt SFAS No. 128, "Earnings Per Share" by December 31, 1997. There was no material impact on the consolidated financial statements from adoption of these statements. Refer to Note 1 to the Company's "Consolidated Financial Statements." The National Association of Insurance Commissioners ("NAIC") is considering the adoption of a recommended statutory accounting standard for crop insurers, the impact of which is uncertain since several methodologies are currently being examined. Although the Indiana Department has permitted the Company to continue, for its statutory financial statements through June 30, 1997, its practice of recording its MPCI business as 100% ceded to the FCIC with net underwriting results recognized in ceding commissions, the Indiana Department has indicated that in the future it will require the Company to adopt the MPCI accounting practices recommended by the NAIC or any similar practice adopted by the Indiana Department. Since such a standard would be adopted industrywide for crop insurers, the Company would also be required to conform its future GAAP financial statements to reflect the new MPCI statutory accounting methodology and to restate all historical GAAP financial statements consistent with this methodology for comparability. The Company cannot predict what accounting methodology will eventually be implemented or when the Company will be required to adopt such methodology. The Company anticipates that any such new crop accounting methodology will not affect GAAP net income. 58 The NAIC currently has a project under way to codify SAP, as existing SAP does not address all accounting issues and may differ from state to state. Upon completion, the codification is expected to replace prescribed or permitted SAP in each state as the new comprehensive statutory basis of accounting for insurance companies. The final format of the codification is uncertain at this time, yet implementation could be required as early as January 1, 1999. Due to the project's uncertainty, the Company has not yet quantified the impact any such changes would have on the statutory capital and surplus or results of operations of the Company's insurance subsidiaries. The impact of adopting this new comprehensive statutory basis of accounting may, however, materially impact statutory capital and surplus. 59 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF SUPERIOR INSURANCE COMPANY The following table presents historical data of Superior and its subsidiaries prior to its acquisition by the Company. Six Months Ended (in thousands) Year Ended December 31, June 30, ------------------------------------------------- ------------------------------
1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- Consolidated Statement of Operations Data: Gross Premiums Written $115,660 $112,906 $94,756 $42,915 $69,119 Net Premiums Written 115,294 112,515 94,070 42,515 68,707 Net Premiums Earned 118,136 112,837 97,614 50,053 62,739 Net investment income 8,170 7,024 7,093 4,161 3,476 Other income 5,879 3,344 4,171 1,692 3,092 Net realized capital gains (losses) 3,559 (200) 1,954 711 2,104 ----- ----- ----- --- ----- Total revenues 135,744 123,005 110,832 56,617 71,411 Losses and Loss Adjustment Expenses 85,902 92,378 72,343 38,129 45,963 Policy acquisition and general and administrative expenses 36,292 38,902 32,705 17,212 17,106 ------ ------ ------ ------ ------ Total expenses 122,194 131,280 105,048 55,341 63,067 ------- ------- ------- ------ ------ Income (loss) before income taxes, and a cumulative effect of a change in accounting principle $13,550 $(8,275) $5,784 $1,276 $8,344 Income taxes 3,981 (3,800) 1,649 161 2,313 ----- ------- ----- --- ----- Income (loss) before cumulative effect of a change in accounting principle 9,569 (4,475) 4,135 1,115 6,031 Cumulative effective of a change in accounting principle 1,389 --- --- --- --- ----- --- --- --- --- Net income (loss) $10,958 $(4,475) $4,135 $1,115 $6,031 GAAP Ratios: (1) Loss and LAE Ratio 72.7% 81.9% 74.1% 76.2% 73.3% Expense Ratio 30.7% 34.5% 33.5% 34.4% 27.3% ----- ----- ----- ----- ----- Combined Ratio 103.4% 116.4% 107.6% 110.6% 110.6% ====== ====== ====== ====== ======
- --------------- (1) The Loss and LAE Ratio is calculated by dividing Losses and Loss Adjustment Expenses by Net Premiums Earned. The Expense Ratio is calculated by dividing the sum of policy acquisition and general and administrative expenses and Interest Expense by Net Premiums Earned. The Combined Ratio is the sum of the Loss and LAE and Expense Ratios. 60 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SUPERIOR On April 30, 1996, Superior was acquired by GGS Holdings. As a result of the Acquisition, certain financial information relating to Superior's nonstandard business in respect of periods prior to consummation of the Acquisition will not be comparable to corresponding financial information for subsequent periods. The acquisition of Superior was accounted for under the purchase method of accounting and was recorded as follows (in thousands): Assets Acquired: Invested assets $118,665 Receivables 34,933 Deferred acquisition costs 7,925 Other assets 2,082 ----------------- Total 163,605 ----------------- Liabilities Assumed: Unpaid Losses and LAE 44,423 Unearned premiums 45,280 Other liabilities 10,863 ----------------- Total 100,566 ----------------- Net assets acquired 63,039 Purchase price 66,590 Excess purchase price 3,161 Less amounts allocated to deferred income taxes on unrealized gains on investments 1,334 ----------------- Goodwill $2,217 ================= Goodwill is amortized over a 25-year period on a straight-line basis based upon management's estimate of the expected benefit period. 61 The Company's results from operations for the six months ended June 30, 1996 include the results of Superior subsequent to April 30, 1996 as follows (in thousands): Gross Premiums $25,202 ============ Net Premiums Earned $23,429 Net investment and other income 2,060 ------------ Total Revenue 25,489 ------------ Losses and LAE 18,804 Policy acquisition and general and administrative expenses 6,149 ------------ Total Expenses 24,953 ------------ Income before taxes and minority interest 536 Income taxes 182 ------------ Income before minority interest 354 Minority interest 169 ------------ Net Income $185 ============ Amortization includes goodwill, as previously discussed, and deferred debt and organizational costs of approximately $1,900,000 which are being amortized over 5 to 6 years on the straight-line basis. The impact on Net Income of the aforementioned items was a reduction of $265,000. Six Months Ended June 30, 1996 and 1995 Gross Premiums Written Superior's Gross Premiums Written for the six month period ended June 30, 1996 increased $26,204,000 or 61.1% to $69,119,000 from $42,915,000 for the same period in 1995 due to the modification of the multi-tiered product offered in Florida and the introduction of a multi-tiered product in the states of Virginia and California, the introduction of variable commission levels and improved service to policyholders. The new variable commission structure attracted sales from independent agents who perceived one of Superior's major competitors as pursuing a direct marketing approach. Net Premiums Written Superior's Net Premiums Written for the six month period ended June 30, 1996 increased $26,192,000 or 61.6%, to $68,707,000 from $42,515,000 for the same period in 1995 due to an increase in Gross Premiums Written. Net Premiums Earned Superior's Net Premiums Earned for the six month period ended June 30, 1996 increased $12,686,000 or 25.3%, to $62,739,000 from $50,053,000 for the same period in 1995 reflecting an increased in Net Premiums Written. This increase in Net Premiums Earned does not fully reflect the 61.6% increase in Net Premiums Written since Net Premiums Earned lagged behind Net Premiums Written. 62 Net Investment Income Superior's net investment income for the six month period ended June 30, 1996 decreased $685,000, or 16.5%, to $3,476,000 from $4,161,000 for the same period in 1995 due to the net effects of a decline in the average yield on invested assets which was partially offset by an increase in average invested assets. Other Income Superior's other income for the six month period ended June 30, 1996 increased $1,400,000, or 82.7%, to $3,092,000 from $1,692,000 for the same period in 1995 due to a growth in premiums and an increase in billing fees relating to payment programs associated with an increased number of policies written. Net Realized Capital Gain (Loss) Superior recorded a net realized capital gain from the same of investments of $2,104,000 for the six month period ended June 30, 1996 compared to a net realized capital gain from the sale of investment of $711,000 for the same period in 1995. Losses and LAE Superior's Losses and LAE for the six month period ended June 30, 1996 increased $7,834,000, or 20.5%, to $45,963,000 from $38,129,000 for the same period in 1995 due to an increase in Net Premiums Earned. However, the 20.5% increase in Losses and LAE was less than the 25.3% increase in Net Premiums Earned due to improved results in claims administration which resulted in a change of estimate that resulted in a decrease in reserves of $1,300,000 in the first quarter of 1996. As a result, the Loss and LAE Ratio for the six month period ended June 30, 1996 was 73.3% as compared to 76.2% for same period in 1995. The improved results also reflect an improved work flow, productivity, and a reduction in middle management positions as a result of the claims department restructuring. Superior has negotiated flat rate fee agreements with all counsel representing it and has obtained discounts for vendor service for independent appraisals, total loss evaluations, medical bill review and the sale of salvage. Policy Acquisition and General and Administrative Expenses Superior's policy acquisition and general and administrative expenses for the six month period ended June 30, 1996 decreased $108,000 or 0.6%, to $17,104,000 from $17,212,000 for the same period in 1995. Policy acquisition and general and administrative expenses decreased 0.6% although Net Premiums Earned increased 25.3% due to reduced agents' commissions in Florida and a general reduction in the cost of overhead. As a result, the Expense Ratio for the six month period ended June 30, 1996 and was 27.3% as compared to 34.4% for the same period in 1995. Income Tax Expense Superior's income tax expense for the six month period ended June 30, 1996 increased $2,152,000 to $2,313,000 from $161,000 for the same period in 1995. The effective tax rate in 1996 was 27.7% compared to 12.6% in 1995. The increase in income tax expense and the effective tax rate was due to the utilization of net operating loss carry-forwards in 1995. Years Ended December 31, 1995 Compared with 1994 Gross Premiums Written Superior's Gross Premiums Written in 1995 decreased $18,150,000, or 16.1%, to $94,756,000 from $112,906,000 in 1994 due to the Company's curtailment of marketing efforts and writings in Illinois, Mississippi, 63 Tennessee, Texas and Washington resulting from more restrictive underwriting criteria, inadequately priced business in those states and other unfavorable market conditions. Net Premiums Written Superior's Net Premiums Written in 1995 decreased $18,445,000, or 16.4%, to $94,070,000 from $112,515,000 in 1994 due to a decrease in Gross Premiums Written. Net Premiums Earned Superior's Net Premiums Earned in 1995 decreased $15,223,000, or 13.5%, to $97,614,000 from $112,837,000 in 1994 reflecting a decrease in Net Premiums Written. Net Investment Income Superior's net investment income in 1995 increased $69,000, or 1.0%, to $7,093,000 from $7,024,000 in 1994 due to a slight increase in the average yield earned on invested assets resulting from improved market conditions and an increase in invested assets due to improved operating cash flows. Other Income Superior's other income in 1995 increased $827,000, or 24.7%, to $4,171,000 from $3,344,000 in 1994 due to higher billing fees in Florida resulting from the ability to collect billing fees during the entire year in 1995 compared to only part of the year in 1994. Net Realized Capital Gain (Loss) Superior recorded a net realized capital gain from the sale of investments of $1,954,000 in 1995 compared to a net realized capital loss from the sale of investments of $200,000 in 1994. The net realized capital gain in 1995 was the result of disposing of invested assets with increased market values. Losses and LAE Superior's Losses and LAE in 1995 decreased $20,035,000, or 21.7%, to $72,343,000 from $92,378,000 in 1994 due to a decrease in Net Premiums Earned. However, the 21.7% decrease in Losses and LAE was greater than the 13.5% decrease in Net Premiums Earned due to Superior assuming a more aggressive stance with regard to the evaluation and settlement of bodily injury claims, the specialization of the handling of physical damage claims with a resulting reduction in average paid severities and an improvement in productivity and a reduction in cost as a result of the consolidation of nine claims offices to three. As a result, the Loss and LAE Ratio for 1995 was 74.1% as compared to 81.9% in 1994. Policy Acquisition and General and Administrative Expenses Superior's policy acquisition and general and administrative expenses in 1995 decreased $6,197,000, or 15.9%, to $32,705,000 from $38,902,000 in 1994 due to reengineering of internal operations aimed at reducing cost and the introduction of reduced agent commission programs. Income Tax Expense Supeerior's income tax expense and effective tax rate for 1995 were $1,649,000 and 28.5%, respectively. This compares to an income tax benefit of $3,800,000 in 1994, which resulted in an effective tax rate of (45.9)%. The 64 increase in income tax expense is primarily a function of the improvement in net income before taxes in 1995 as compared to 1994 and a decreased portion of net investment income being derived from tax-free sources. Years Ended December 31, 1994 and 1993 Gross Premiums Written Superior's Gross Premiums Written in 1994 decreased $2,754,000, or 2.4%, to $112,906,000 from $115,660,000 in 1993 due to the implementation of certain underwriting restrictions in Texas and the termination of certain agency relationships in Texas. Net Premiums Written Superior's Net Premiums Written in 1994 decreased $2,779,000, or 2.4%, to $112,515,000 from $115,294,000 in 1993 due to a decrease in Gross Premiums Written. Net Premiums Earned Superior's Net Premiums Earned in 1994 decreased $5,299,000, or 4.5%, to $112,837,000 from $118,136,000 in 1993 reflecting a decrease in Net Premiums Written. Net Investment Income Superior's net investment income in 1994 decreased $1,146,000, or 14.0%, to $7,024,000 from $8,170,000 in 1993 due primarily to a decline in average invested assets which resulted from a decrease in operating cash flow and dividends paid in early 1994. Other Income Superior's other income in 1994 decreased $2,535,000, or 43.1%, to $3,344,000 from $5,879,000 in income in 1993 due to an interruption in the state of Florida in the charging of billing fees caused by a regulatory change which increased the minimum down payments. Net Realized Capital Gain (Loss) Superior recorded a net realized capital loss from the sale of investments of $200,000 in 1994 compared to a net realized capital gain from the sale of investments of $3,559,000 in 1993 due to market conditions which drove market interest rates higher in 1994 causing Superior's fixed maturity portfolio to decline in market value. Losses and LAE Superior's Losses and LAE in 1994 increased $6,476,000, or 7.5%, to $92,378,000 from $85,902,000 in 1993 due to claims management inefficiencies arising from inadequate managerial supervision and a conversion to a new claims management system. These claims management inefficiencies were substantially corrected in 1995 as a result of the completion of the implementation of the new claims management system. The Loss and LAE Ratio for 1994 was 81.9% as compared to 72.7% for 1993. Policy Acquisition and General and Administrative Expenses Superior's policy acquisition and general and administrative expenses in 1994 increased $2,610,000, or 7.2%, to $38,902,000 from $36,292,000 in 1993 due to a significant increase in employee compensation caused by the hiring of new officers and managers. 65 Income Tax Expense Superior recorded an income tax benefit of $3,800,000 and an effective tax rate of (45.9)% in 1994 as compared to an income tax expense of $3,981,000 and an effective tax rate of 29.4% in 1993. The income tax benefit in 1994 was a function of the Company's generation of a net loss before income taxes. The low effective tax rate in 1993 was due to a greater portion of net investment income being derived from tax-free sources. 66 BUSINESS Overview Symons International Group, Inc., a specialty property and casualty insurer, underwrites and markets nonstandard private passenger automobile insurance and crop insurance. Through its Subsidiaries, the Company writes business in the United States exclusively through independent agencies and seeks to distinguish itself by offering high quality, technology based services for its agents and policyholders. The Company had consolidated Gross Premiums Written of approximately $305 million and $279 million for the twelve months ended December 31, 1996 and the six months ended June 30, 1997, respectively. Based on the Company's Gross Premiums Written in 1996, the Company believes that it is the twelfth largest underwriter of nonstandard automobile insurance in the United States. Based on premium information compiled in 1996 by the NCIS, the Company believes that IGF is the fifth largest underwriter of MPCI in the United States. The following table sets forth the premiums written by line of business for the periods indicated: Six Months (in thousands) Years Ended December 31, Ended June 30, ------------------------------------------------- -------------------------------
1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- Nonstandard Automobile: (1) Gross Premiums Written $45,593 $49,005 $187,176 $62,290 $165,547 Net Premiums Written 28,114 37,302 186,579 62,089 133,843 Crop Hail: (2) Gross Premiums Written $10,130 $16,966 $27,957 $17,620 $29,339 Net Premiums Written 4,565 11,608 23,013 14,953 16,681 MPCI: (3) Gross Premiums Written $44,325 $53,408 $82,102 $62,951 $79,017 Net Premiums Written --- --- --- --- --- Commercial: (4) Gross Premiums Written $3,086 $5,255 $8,264 $4,089 $5,162 Net Premiums Written 2,460 4,537 --- --- --- Total: (5) Gross Premiums Written $103,134 $124,634 $305,499 $146,950 $279,065 ======= ======= ======= ======= ======= Net Premiums Written $35,139 $53,447 $209,592 $77,042 $150,524 ====== ====== ======= ====== =======
67 - --------------- (1) Does not reflect Net Premiums Written for Superior for the years ended December 31, 1994 and 1995 and for the four months ended April 30, 1996. For the years ended December 31, 1994 and 1995, Superior and its subsidiaries had Gross Premiums Written of $112.9 million and $94.8 million, respectively, and Net Premiums Written of $112.5 million and $94.1 million, respectively. For the four months ended April 30, 1996, Superior and its subsidiaries had Gross Premiums Written of $44.0 million and Net Premiums Written of $43.6 million. (2) Most crop hail insurance policies are sold in the second and third quarters of the calendar year. (3) For a discussion of the accounting treatment of MPCI Premiums, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company." (4) All commercial premiums written were written by Pafco and 100% ceded to Granite Re. (5) For additional financial segment information concerning the Company's nonstandard automobile and crop insurance operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company." Nonstandard Automobile Insurance Industry Background The Company, through its Subsidiaries, Pafco and Superior, is engaged in the writing of insurance coverage on automobile physical damage and liability policies for "nonstandard risks." The Company believes that the voluntary nonstandard market has accounted for approximately 15% of total private passenger automobile insurance premiums written in recent years. According to statistical information derived from insurer annual statements compiled by A.M. Best, the nonstandard automobile market accounted for $17.4 billion in annual premium volume for 1995 up from $9 billion in 1995. Strategy The Company has multiple strategies with respect to its nonstandard automobile insurance operations, including: o The Company seeks to achieve profitability through a combination of internal growth and the acquisition of other insurers and blocks of business. The Company regularly evaluates acquisition opportunities. o The Company will seek to expand the multi-tiered marketing approach currently employed in certain states in order to offer to its independent agency network a broader range of products with different premium and commission structures. o The Company is committed to the use of integrated technologies which permit it to rate, issue, bill and service policies in an efficient and cost effective manner. o The Company competes primarily on the basis of underwriting criteria and service to agents and insureds and generally does not match price decreases implemented by competitors which are directed towards obtaining market share. 68 o The Company encourages agencies to place a large share of their profitable business with its subsidiaries by offering, in addition to fixed commissions, a contingent commission based on a combination of volume and profitability. o The Company responds to claims in a manner designed to reduce the costs of claims settlements by reducing the number of pending claims and uses computer databases to verify repair and vehicle replacement costs and to increase subrogation and salvage recoveries. Products The Company offers both liability and physical damage coverage in the insurance marketplace, with policies having terms of three to twelve months, with the majority of policies having a term of six months. Most nonstandard automobile insurance policyholders choose the basic limits of liability coverage which, though varying from state to state, generally are $25,000 per person and $50,000 per accident for bodily injury and in the range of $10,000 to $20,000 for property damage. Of the approximately 228,000 combined policies of Pafco and Superior in force on December 31, 1996, fewer than 9% had policy limits in excess of these basic limits of coverage. Of the 63,000 policies of Pafco in force on December 31, 1996, approximately 88% had policy periods of six months or less. Of the approximately 165,000 policies of Superior in force as of December 31, 1996, approximately 74% had policy periods of six months and approximately 26% had policy periods of twelve months. The Company offers several different policies which are directed toward different classes of risk within the nonstandard market. The Superior Choice policy covers insureds whose prior driving record, insurability and other relevant characteristics indicate a lower risk profile than other risks in the nonstandard marketplace. The Superior Standard policy is intended for risks which do not qualify for Superior Choice but which nevertheless present a more favorable risk profile than many other nonstandard risks. The Superior Specialty policies cover risks which do not qualify for either the Superior Choice or the Superior Standard. Pafco offers only a single nonstandard policy which includes multiple discounts and surcharges designed to recognize proof of prior insurance, driving violations, accident history and other factors relevant to the level of risk insured. Superior offers a product similar to the Pafco product in states in which it is not offering a multi-tiered product. Marketing The Company's nonstandard automobile insurance business is concentrated in the states of Florida, California, Indiana, Missouri, Texas and Virginia and the Company writes nonstandard automobile insurance in thirteen additional states. Management plans to continue to expand selectively into additional states. The Company will select states for expansion based on a number of criteria, including the size of the nonstandard automobile insurance market, state-wide loss results, competition and the regulatory climate. The following table sets forth the geographic distribution of Gross Premiums Written for the Company and Superior on a combined basis for the periods indicated. The following amounts include Gross Premiums Written for Superior prior to its acquisition by the Company on April 30, 1996. 69 Symons International Group, Inc. and Superior Insurance Company (Combined) Year Ended December 31, (in thousands) Six Months Ended State 1994 1995 1996 June 30, 1997 - ----- ---- ---- ---- ------------- Arkansas $1,619 $1,796 $2,004 $850 California 13,422 15,350 25,131 31,890 Colorado 5,629 9,257 10,262 4,818 Florida 55,282 54,535 97,659 74,320 Georgia 7,342 5,927 7,398 4,101 Illinois 3,894 2,483 2,994 1,931 Indiana 14,062 13,842 16,599 9,171 Iowa 3,769 3,832 5,818 3,723 Kentucky 9,573 7,840 11,065 5,068 Mississippi 4,411 2,721 2,250 1,410 Missouri 8,163 8,513 13,423 5,214 Nebraska 3,192 3,660 5,390 3,313 Nevada 0 0 0 1,021 Ohio 4,325 3,164 3,643 2,298 Oklahoma 0 317 2,559 1,753 Oregon 0 0 0 554 Tennessee 1,829 332 (2) 0 Texas 10,660 3,464 10,122 3,864 Virginia 7,500 5,035 14,733 10,225 Washington 3,827 1,693 106 23 ----- ----- --- --- Total $158,499 $143,761 $231,154 $165,547 ======== ======== ======== ======== The Company markets its nonstandard products exclusively through approximately 6,000 independent agencies and focuses its marketing efforts in rural areas and the peripheral areas of metropolitan centers. As part of its strategy, management is continuing its efforts to establish the Company as a low cost provider of nonstandard automobile insurance while maintaining a commitment to provide quality service to both agents and insureds. This element of the Company's strategy is being accomplished primarily through the automation of certain marketing, underwriting and administrative functions. In order to maintain and enhance its relationship with its agency base, the Company has 26 territorial managers, each of whom resides in a specific marketing region and has access to the technology and software necessary to provide marketing, rating and administrative support to the agencies in his or her region. The Company attempts to foster strong service relationships with its agencies and customers. The Company is currently completing its development of computer software that will provide on-line communication with its agency force. In addition, to deliver prompt service while ensuring consistent underwriting, the Company offers rating software to its agents in some states which permits them to evaluate risks in their offices. The agent has the authority to sell and bind insurance coverages in accordance with procedures established by the Company, which is a common practice in the nonstandard automobile insurance business. The Company reviews all coverages bound by the agents promptly and 70 generally accepts all coverages which fall within its stated underwriting criteria. In most jurisdictions, the Company has the right within a specified time period to cancel any policy even if the risk falls within its underwriting criteria. See "Business -- Nonstandard Automobile Insurance -- Underwriting." The Company compensates its agents by paying a commission based on a percentage of premiums produced. The Company also offers its agents a contingent commission based on volume and profitability, thereby encouraging the agents to enhance the placement of profitable business with the Company. The Company believes that the combination of Pafco with Superior and its two Florida-domiciled insurance subsidiaries allows the Company the flexibility to engage in multi-tiered marketing efforts in which specialized automobile insurance products are directed toward specific segments of the market. Since certain state insurance laws prohibit a single insurer from offering similar products with different commission structures or, in some cases, premium rates, it is necessary to have multiple licenses in certain states in order to obtain the benefits of market segmentation. The Company is currently offering multi-tiered products in Florida, Texas, Virginia, California and Missouri. The Company intends to expand the marketing of its multi-tiered products into other states and to obtain multiple licenses for its subsidiaries in these states to permit maximum flexibility in designing commission structures. Underwriting The Company underwrites its nonstandard automobile business with the goal of achieving adequate pricing. The Company seeks to classify risks into narrowly defined segments through the utilization of all available underwriting criteria. The Company maintains an extensive, proprietary database which contains statistical records with respect to its insureds on driving and repair experience by location, class of driver and type of automobile. Management believes this database gives the Company the ability to be more precise in the underwriting and pricing of its products. Further, the Company uses motor vehicle accident reporting agencies to verify accident history information included in applications. The Company utilizes many factors in determining its rates. Some of the characteristics used are type, age and location of the vehicle, number of vehicles per policyholder, number and type of convictions or accidents, limits of liability, deductibles, and, where allowed by law, age, sex and marital status of the insured. The rate approval process varies from state to state; some states, such as Indiana, Colorado, Kentucky and Missouri, allow filing and use of rates, while others, such as Florida, Arkansas and California, require approval of the insurance department prior to the use of the rates. The Company has begun to integrate its automated underwriting process with the functions performed by its agency force. For example, the Company has recently introduced a rating software package for use by agents in some states. In many instances, this software package, combined with agent access to the automated retrieval of motor vehicle reports, ensures accurate underwriting and pricing at the point of sale. The Company believes the automated rating and underwriting system provides a significant competitive advantage because it (i) improves efficiencies for the agent and the Company, thereby reenforcing the agents' commitment to the Company, (ii) makes more accurate and consistent underwriting decisions possible and (iii) can be changed easily to reflect new rates and underwriting guidelines. Underwriting results of insurance companies are frequently measured by their Combined Ratios. However, investment income, federal income taxes and other non-underwriting income or expense are not reflected in the Combined Ratio. The profitability of property and casualty insurance companies depends on income from underwriting, investment and service operations. Underwriting results are generally considered profitable when the Combined Ratio is under 100% and unprofitable when the Combined Ratio is over 100%. The following table sets forth Loss and LAE Ratios, Expense Ratios and Combined Ratios for the periods indicated for the nonstandard automobile insurance business of the Company. The ratios exclude the effects of Superior prior to the acquisition by the Company on April 30, 1996. The Ratios shown in the table below are computed based upon GAAP. See "Recent Developments" for a discussion of adjustments to operating results subsequent to June 30, 1997. 71 Six Months Ended Years Ended December 31, June 30, ------------------------ ------------------ 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- Loss and LAE Ratio 72.1% 73.8% 73.7% 73.5% 77.2% Underwriting Expense Ratio, net of billing fees 28.2% 32.3% 25.1% 25.4% 22.9% ----- ----- ----- ----- ------ Combined Ratio 100.3% 106.1% 98.8% 98.9% 99.3% ====== ====== ===== ===== ===== In an effort to maintain and improve underwriting profits, the territorial managers regularly monitor loss ratios of the agencies in their regions and meet periodically with the agencies in order to address any adverse trends in Loss Ratios. Claims The Company's nonstandard automobile claims department handles claims on a regional basis from its Indianapolis, Indiana; Atlanta, Georgia; Tampa, Florida and Anaheim, California locations. Management believes that the employment of salaried claims personnel, as opposed to independent adjusters, results in reduced ultimate loss payments, lower LAE and improved customer service. The Company generally retains independent appraisers and adjusters on an as needed basis for estimation of physical damage claims and limited elements of investigation. The Company uses the Audapoint, Audatex and Certified Collateral Corporation computer programs to verify, through a central database, the cost to repair a vehicle and to eliminate duplicate or "overlap" costs from body shops. Autotrak, which is a national database of vehicles, allows the Company to locate vehicles nearly identical in model, color and mileage to the vehicle damaged in an accident, thereby reducing the frequency of disagreements with claimants as to the replacement value of damaged vehicles. In 1995, the Company implemented new claims handling procedures designed to reduce the number of pending claims. Claims settlement authority levels are established for each adjuster or manager based on the employee's ability and level of experience. Upon receipt, each claim is reviewed and assigned to an adjuster based on the type and severity of the claim. All claim-related litigation is monitored by a home office supervisor or litigation manager. The claims policy of the Company emphasizes prompt and fair settlement of meritorious claims, appropriate reserving for claims and controlling claims adjustment expenses. Reinsurance The Company follows the customary industry practice of reinsuring a portion of its risks and paying for that protection based upon premiums received on all policies subject to such Reinsurance. Insurance is ceded principally to reduce the Company's exposure on large individual risks and to provide protection against large losses, including catastrophic losses. Although Reinsurance does not legally discharge the ceding insurer from its primary obligation to pay the full amount of losses incurred under policies reinsured, it does render the reinsurer liable to the insurer to the extent provided by the terms of the Reinsurance treaty. As part of its internal procedures, the Company evaluates the financial condition of each prospective reinsurer before it cedes business to that carrier. Based on the Company's review of its reinsurers' financial health and reputation in the insurance marketplace, the Company believes its reinsurers are financially sound and that they therefore can meet their obligations to the Company under the terms of the Reinsurance treaties. Reserves for uncollectible Reinsurance are provided as deemed necessary. Effective January 1, 1997, Pafco and Superior entered into a 20% quota share Reinsurance treaty on its written and assumed nonstandard automobile business by placing 90% of such Reinsurance with Vesta Fire Insurance Company (rated "A" by A.M. Best) and 10% with an affiliate, Granite Re. In 1997, Pafco and Superior continues to maintain excess of loss treaties on their nonstandard automobile insurance business covering 100% of losses on an individual 72 occurrence basis in excess of $200,000 up to a maximum of $5,000,000. As of June 30, 1997 neither Pafco nor Superior had any material Reinsurance recoverables. On April 29, 1996, Pafco retroactively ceded all of its commercial business relating to 1995 and previous years to Granite Reinsurance Company Ltd. ("Granite Re"), an affiliate, with an effective date of January 1, 1996. No gain or loss was recognized from this portfolio transfer. On this date, Pafco also entered into a 100% quota share Reinsurance agreement with Granite Re, whereby all of Pafco's commercial business from 1996 and forward was ceded to Granite Re effective January 1, 1996. Pafco has a Reinsurance recoverable at December 31, 1996 from Granite Re of $9,230,000, of which $770,000 was uncollateralized. Granite Re subsequently provided appropriate and sufficient collateral in 1997 and maintained sufficient collateral at June 30, 1997. Neither Pafco nor Superior has any facultative Reinsurance with respect to its nonstandard automobile insurance business. Competition The Company competes with both large national and smaller regional companies in each state in which it operates. The Company's competitors include other companies which, like the Company, serve the agency market, as well as companies which sell insurance directly to customers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, increased loyalty of their customer base and, potentially, reduced acquisition costs. The Company's primary competitors are Progressive Casualty Insurance Company, Guaranty National Insurance Company, Integon Corporation Group, Deerbrook Insurance Company (a member of the Allstate Insurance Group) and the companies of the American Financial Group. Generally, these competitors are larger and have greater financial resources than the Company. The nonstandard automobile insurance business is price sensitive and certain competitors of the Company have, from time to time, decreased their prices in an apparent attempt to gain market share. Although the Company's pricing is inevitably influenced to some degree by that of its competitors, management of the Company believes that it is generally not in the Company's best interest to match such price decreases, choosing instead to compete on the basis of underwriting criteria and superior service to its agents and insureds. Crop Insurance Industry Background The two principal components of the Company's crop insurance business are MPCI and private named peril, primarily crop hail insurance. Crop insurance is purchased by farmers to reduce the risk of crop loss from adverse weather and other uncontrollable events. Farms are subject to drought, floods and other natural disasters that can cause widespread crop losses and, in severe cases, force farmers out of business. Because many farmers rely on credit to finance their purchases of such agricultural inputs as seed, fertilizer, machinery and fuel, the loss of a crop to a natural disaster can reduce their ability to repay these loans and to find sources of funding for the following year's operating expenses. MPCI was initiated by the federal government in the 1930s to help protect farmers against loss of their crops as a result of drought, floods and other natural disasters. In addition to MPCI, farmers whose crops are lost as a result of natural disasters have, in the past, occasionally been supported by the federal government in the form of ad hoc relief bills providing low interest agricultural loans and direct payments. Prior to 1980, MPCI was available only on major crops in major producing areas. In 1980, Congress expanded the scope and coverage of the MPCI program. In addition, the delivery system for MPCI was expanded to permit private insurance companies and licensed agents and brokers to sell MPCI policies and the FCIC was authorized to reimburse participating companies for their administrative expenses and to provide federal Reinsurance for the majority of the risk assumed by such private companies. Although expansion of the federal crop insurance program in 1980 was expected to make crop insurance the farmer's primary risk management tool, participation in the MPCI program was only 32% of eligible acreage in the 1993 73 crop year. Due in part to low participation in the MPCI program, Congress provided an average of $1.5 billion per year in ad hoc disaster payments over the six years prior to 1994. In view of the combination of low participation rates in the MPCI program and large federal payments on both crop insurance (with an average loss ratio of 147%) and ad hoc disaster payments since 1980, Congress has, since 1990, considered major reform of its crop insurance and disaster assistance policies. The 1994 Reform Act was enacted in order to increase participation in the MPCI program and eliminate the need for ad hoc federal disaster relief payments to farmers. The 1994 Reform Act required farmers for the first time to purchase at least CAT Coverage (i.e., the minimum available level of MPCI providing coverage for 50% of farmers' historic yield at 60% of the price per unit for such crop set by the FCIC) in order to be eligible for other federally sponsored farm benefits, including, but not limited to, low interest loans and crop price supports. The 1994 Reform Act also authorized the marketing and selling of CAT Coverage by the local USDA offices which has been eliminated for the 1998 crop year. The Federal Agriculture Improvement and Reform Act of 1996 ("the 1996 Reform Act"), signed into law by President Clinton in April 1996, limits the role of the USDA offices in the delivery of MPCI coverage beginning in July 1996, which is the commencement of the 1997 crop year, and also eliminates the linkage between CAT Coverage and qualification for certain federal farm program benefits. This limitation should provide the Company with the opportunity to realize increased revenues from the distribution and servicing of its MPCI product. In accordance with the 1996 Reform Act, the USDA announced in July 1996, the following 14 states in which CAT Coverage will no longer be available through USDA offices but rather will be solely available through private companies: Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Minnesota, Montana, Nebraska, North Carolina, North Dakota, South Dakota, Washington and Wyoming. Through June 1996, the FCIC transferred to the Company approximately 8,900 insureds for CAT Coverage who previously purchased such coverage from USDA field offices. The Company believes that any future potential negative impact of the delinkage mandated by the 1996 Reform Act will be mitigated by, among other factors, the likelihood that farmers will continue to purchase MPCI to provide basic protection against natural disasters since ad hoc federal disaster relief programs have been reduced or eliminated. In addition, the Company believes that (i) lending institutions will likely continue to require this coverage as a condition to crop lending and (ii) many of the farmers who entered the MPCI program as a result of the 1994 Reform Act have come to appreciate the reasonable price of the protection afforded by CAT Coverage and will remain with the program regardless of delinkage. There can, however, be no assurance as to the ultimate effect which the 1996 Reform Act may have on the business or operations of the Company. On June 9, 1997, the Secretary of Agriculture announced that the USDA would no longer provide CAT Coverage through USDA offices in any state effective for the 1998 crop year. This is to be implemented by a transferring of CAT policies to the various members of the crop insurance industry. At this time, the Company has been preliminarily informed that it will receive approximately 17,000 policies that were formerly written by USDA offices, although there can be no assurance that the Company will receive this number of policies. Based on historical, per- policy averages, the Company has preliminarily estimated that it will receive an additional approximate $6 to $7 million in premium from such transferred policies, however, there can be no assurance that this number will be realized. This estimate assumes that IGF will retain 100% of such premiums. There can be no assurance as to the ultimate effect which the 1996 Reform Act may have on the business or operations of the Company. Strategy The Company has multiple strategies for its crop insurance operations, including the following: o The Company seeks to enhance underwriting profits and reduce the volatility of its crop insurance business through geographic diversification and the appropriate allocation of risks among the federal reinsurance pools and the effective use of federal and third-party catastrophic Reinsurance arrangements. 74 o The Company also limits the risks associated with crop insurance through selective underwriting of crop risks based on its historical loss experience data base. o The Company continues to develop and maintain a proprietary knowledge-based underwriting system which utilizes a database of Company-specific underwriting rules. o The Company has further strengthened its independent agency network by using technology to provide fast, efficient service to its agencies and providing application documentation designed for simplicity and convenience. o Unlike many of its competitors, the Company employs approximately 85 full-time claims adjusters, most of whom are agronomy-trained, to reduce the cost of losses experienced by IGF. o The Company stops selling its crop hail policies after certain selected dates to prevent farmers from adversely selecting against IGF when a storm is forecast or hail damage has already occurred. o The Company continues to explore growth opportunities and product diversification through new specialty coverages, including Crop Revenue Coverage (CRC) and specific named peril crop insurance. Further, IGF is in the initial stages of opening new markets and attracting new customers by developing timber, crop completion and agricultural production interruption coverages. o The Company continues to explore new opportunities in administrative efficiencies and product underwriting made possible by advances in Precision Farming software, Global Positioning System (GPS) software and Geographical Information System (GIS) technology, all of which continue to be adopted by insureds in their farming practices. Products MPCI is a federally subsidized program which is designed to provide participating farmers who suffer insured crop damage with funds needed to continue operating and plant crops for the next growing season. All of the material terms of the MPCI program and of the participation of private insurers, such as the Company, in the program are set by the FCIC under applicable law. MPCI provides coverage for insured crops against substantially all natural perils. Purchasing an MPCI policy permits a farmer to insure against the risk that his crop yield for any growing season will be less than 50% to 75% (as selected by the farmer at the time of policy application or renewal) of his historic crop yield. If a farmer's crop yield for the year is greater than the yield coverage he selected, no payment is made to the farmer under the MPCI program. However, if a farmer's crop yield for the year is less than the yield coverage selected, MPCI entitles the farmer to a payment equal to the yield shortfall multiplied by 60% to 100% of the price for such crop (as selected by the farmer at the time of policy application or renewal) for that season as set by the FCIC. In order to encourage farmers to participate in the MPCI program and thereby reduce dependence on traditional disaster relief measures, the 1994 Reform Act established CAT Coverage as a new minimum level of MPCI coverage, which farmers may purchase upon payment of a fixed administrative fee of $50 per policy instead of any premium. CAT Coverage insures 50% of historic crop yield at 60% of the FCIC-set crop price for the applicable commodities standard unit of measure, i.e., bushel, pound, etc. CAT Coverage can be obtained from private insurers such as the Company. In addition to CAT Coverage, MPCI policies that provide a greater level of protection than the CAT Coverage level are also offered ("Buy-up Coverage"). Most farmers purchasing MPCI have historically purchased at Buy-up Coverage levels, with the most frequently sold policy providing coverage for 65% of historic crop yield at 100% of the FCIC-set crop price per bushel. Buy-up Coverages require payment of a premium in an amount determined by a formula set by the FCIC. Buy-up Coverage can only be purchased from private insurers. The Company focuses its marketing 75 efforts on Buy-up Coverages, which have higher premiums and which the Company believes will continue to appeal to farmers who desire, or whose lenders encourage or require, revenue protection. The number of MPCI Buy-up policies written has historically tended to increase after a year in which a major natural disaster adversely affecting crops occurs and to decrease following a year in which favorable weather conditions prevail. The Company, like other private insurers participating in the MPCI program, generates revenues from the MPCI program in two ways. First, it markets, issues and administers policies, for which it receives administrative fees; and second, it participates in a profit-sharing arrangement in which it receives from the government a portion of the aggregate profit, or pays a portion of the aggregate loss, in respect of the business it writes. The Company's share of profit or loss on the MPCI business it writes is determined under a complex profit sharing formula established by the FCIC. Under this formula, the primary factors that determine the Company's MPCI profit or loss share are (i) the gross premiums the Company is credited with having written, (ii) the amount of such credited premiums retained by the Company after ceding premiums to certain federal reinsurance pools and (iii) the loss experience of the Company's insureds. The following discussion provides more detail about the implementation of this profit sharing formula. Gross Premiums For each year, the FCIC sets the formulas for determining premiums for different levels of Buy-up Coverage. Premiums are based on the type of crop, acreage planted, farm location, price per bushel for the insured crop as set by the FCIC for that year and other factors. The federal government will generally subsidize a portion of the total premium set by the FCIC and require farmers to pay the remainder. Cash premiums are received by the Company from farmers only after the end of a growing season and are then promptly remitted to the federal government. Although applicable federal subsidies change from year to year, such subsidies will range up to approximately 40% of the Buy-up Coverage premium depending on the crop insured and the level of Buy-up Coverage purchased, if any. Federal premium subsidies are recorded on the Company's behalf by the government. For purposes of the profit sharing formula, the Company is credited with having written the full amount of premiums paid by farmers for Buy-up Coverages, plus the amount of any related federal premium subsidies (such total amount, its "MPCI Premium"). As previously noted, farmers pay an administrative fee of $50 per policy but are not required to pay any premium for CAT Coverage. However, for purposes of the profit sharing formula, the Company is credited with an imputed premium (its "MPCI Imputed Premium") for all CAT Coverages it sells. The amount of such MPCI Imputed Premium credited is determined by formula. In general, such MPCI Imputed Premium will be less than 50% of the premium that would be payable for a Buy-up Coverage policy that insured 65% of historic crop yield at 100% of the FCIC-set crop price per standard unit of measure for the commodity, historically the most frequently sold Buy-up Coverage. For income statement purposes under GAAP, the Company's Gross Premiums Written for MPCI consist only of its MPCI Premiums and do not include MPCI Imputed Premiums. Reinsurance Pools Under the MPCI program, the Company must allocate its MPCI Premium or MPCI Imputed Premium in respect of a farm to one of three federal reinsurance pools, at its discretion. These pools provide private insurers with different levels of Reinsurance protection from the FCIC on the business they have written. For insured farms allocated to the "Commercial Pool," the Company, at its election, generally retains 50% to 100% of the risk and the FCIC assumes 0% - - 50% of the risk; for those allocated to the "Developmental Pool," the Company generally retains 35% of the risk and the FCIC assumes 65%; and for those allocated to the "Assigned Risk Pool," the Company retains 20% of the risk and the FCIC assumes 80%. The MPCI Retention is protected by private third-party stop-loss treaties. Although the Company in general must agree to insure any eligible farm, it is not restricted in its decision to allocate a risk to any of the three pools, subject to a minimum aggregate retention of 35% of its MPCI Premiums and MPCI Imputed Premiums written. The Company uses a sophisticated methodology derived from a comprehensive 76 historical data base to allocate MPCI risks to the federal reinsurance pools in an effort to enhance the underwriting profits realized from this business. The Company has crop yield history information with respect to over 100,000 farms in the United States. Generally, farms or crops which, based on historical experience, location and other factors, appear to have a favorable net loss ratio and to be less likely to suffer an insured loss, are placed in the Commercial Pool. Farms or crops which appear to be more likely to suffer a loss are placed in the Developmental Pool or Assigned Risk Pool. The Company has historically allocated the bulk of its insured risks to the Commercial Pool. The Company's share of profit or loss depends on the aggregate amount of MPCI Premium and MPCI Imputed Premium on which the Company retains risk after allocating farms to the foregoing pools (its "MPCI Retention"). As previously described, the Company purchases Reinsurance from third parties other than the FCIC to further reduce its MPCI loss exposure. Loss Experience of Insureds Under the MPCI program the Company pays losses to farmers through a federally funded escrow account as they are incurred during the growing season. The Company requests funding of the escrow account when a claim is settled and the escrow account is funded by the federal government within three business days. After a growing season ends, the aggregate loss experience of the Company's insureds in each state for risks allocated to each of the three Reinsurance pools is determined. If, for all risks allocated to a particular pool in a particular state, the Company's share of losses incurred is less than its aggregate MPCI Retention, the Company shares in the gross amount of such profit according to a schedule set by the FCIC for each year. The profit and loss sharing percentages are different for risks allocated to each of the three Reinsurance pools and private insurers will receive or pay the greatest percentage of profit or loss for risks allocated to the Commercial Pool. The percentage split between private insurers and the federal government of any profit or loss that emerges from an MPCI Retention is set by the FCIC and generally is adjusted from year to year. For 1995, 1996 and 1997 crop years, the FCIC increased the maximum potential profit share of private insurers for risks allocated to the Commercial Pool above the maximum potential profit share set for 1994, without increasing the maximum potential share of loss for risks allocated to that pool for 1995. This change increased the potential profitability of risks allocated to the Commercial Pool by private insurers. 77 The following table presents MPCI Premiums, MPCI Imputed Premiums and underwriting gains or losses of IGF for the periods indicated: Six Months Ended (in thousands) Year Ended December 31, June 30, --------------------------- --------------------- 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- MPCI premiums $44,325 $53,408 $82,102 $62,951 $79,017 MPCI imputed premiums $2,171 $19,552 $38,944 $14,104 $26,063 Gross underwriting gain $4,344 $10,870 $15,801 $3,105 $6,930 Net private third party reinsurance expense and other (1,087) (1,217) (3,524) (1,495) (1,690) ------- ------- ------- ------- ------- Net underwriting gain $3,257 $9,653 $12,277 $1,610 $5,240 ===== ===== ====== ===== ===== MPCI Fees and Reimbursement Payments The Company receives Buy-up Expense Reimbursement Payments from the FCIC for writing and administering Buy-up Coverage policies. These payments provide funds to compensate the Company for its expenses, including agents' commissions and the costs of administering policies and adjusting claims. For 1994, 1995 and 1996, the maximum Buy-up Expense Reimbursement Payment had been set at 31% of the MPCI Premium, was 28% for the 1997 Crop Year and is currently under review and subject to change for the 1998 Crop Year. Historically, the FCIC has paid the maximum MPCI Buy-up Expense Reimbursement Payment rate allowable under law, although no assurance can be given that this practice will continue. Although the 1994 Reform Act directs the FCIC to alter program procedures and administrative requirements so that the administrative and operating costs of private insurance companies participating in the MPCI program will be reduced in an amount that corresponds to the reduction in the expense reimbursement rate, there can be no assurance that the Company's actual costs will not exceed the expense reimbursement rate. The crop insurance industry has recently completed negotiation of the 1998 Standard Reinsurance Agreement ("1998 SRA") with the FCIC, with the 1998 SRA providing for a 27% MPCI Expense Reimbursement and no change to the CAT Coverage program from prior years. Farmers are required to pay a fixed administrative fee of $50 per policy (maximum of $100 per county) in order to obtain CAT Coverage. This fee is retained by the Company to defray the cost of administration and policy acquisition. The Company also receives from the FCIC a separate CAT LAE Reimbursement Payment equal to approximately 13.0% of MPCI Imputed Premiums in respect of each CAT Coverage policy it writes and a small MPCI Excess LAE Reimbursement Payment. In general, fees and payments received by the Company in respect of CAT Coverage are significantly lower than those received for Buy-up Coverage. In addition to premium revenues, the Company received the following fees and commissions from its crop insurance segment for the periods indicated: 78 Six Months Ended (in thousands) Years Ended December 31, June 30, ---------------------------- ---------------- 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- CAT Coverage Fees (1) $74 $1,298 $1,181 $941 $1,074 Buy-up Expense Reimbursement Payments 13,845 16,366 24,971 19,402 23,206 CAT LAE Reimbursement Payments and MPCI Excess LAE Reimbursement Payments 107 3,427 5,753 1,646 3,553 --- ----- ----- ----- ----- Total $14,026 $21,091 $31,905 $21,989 $27,833 ====== ====== ====== ====== ====== - --------------- (1) See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" for a discussion of the accounting treatment accorded to the crop insurance business. Crop Revenue Coverage The Company recently began offering a new product in its crop insurance business called Crop Revenue Coverage ("CRC"). In contrast to standard MPCI coverage, which features a yield guarantee or coverage for the loss of production, CRC provides the insured with a guaranteed revenue stream by combining both yield and price variability protection. CRC protects against a grower's loss of revenue resulting from fluctuating crop prices and/or low yields by providing coverage when any combination of crop yield and price results in revenue that is less than the revenue guarantee provided by the policy. CRC was approved by the FCIC as a pilot program for revenue insurance coverage plans for the 1996 Crop Year and has been available for corn and soybeans in all counties in Iowa and Nebraska since 1996. CRC policies represented approximately 30% of the combined corn policies written by IGF in Iowa and Nebraska since 1996. Since July 1996, CRC was made available for winter wheat in the entire states of Kansas, Michigan, Nebraska, South Dakota, Texas and Washington and in parts of Montana. In May 1997, the FCIC announced that CRC will be expanded to include wheat in twenty-five additional states. Currently, CRC represents approximately 10% of all of the Company's wheat policies. Revenue insurance coverage plans such as CRC are the result of the 1994 Reform Act, which directed the FCIC to develop a pilot crop insurance program providing coverage against loss of gross income as a result of reduced yield and/or price. CRC was developed by a private insurance company other than the Company under the auspices of this pilot program, which authorizes private companies to design alternative revenue coverage plans and to submit them for review, approval and endorsement by the FCIC. As a result, although CRC is administered and reinsured by the FCIC and risks are allocated to the federal reinsurance pools, CRC remains partially influenced by the private sector, particularly with respect to changes in its rating structure. CRC plans to use the policy terms and conditions of the Actual Production History ("APH") plan of MPCI as the basic provisions for coverage. The APH provides the yield component by utilizing the insured's historic yield records. The CRC revenue guarantee is the producer's approved APH times the coverage level, times the higher of the spring futures price or harvest futures price (in each case, for post-harvest delivery) of the insured crop for each unit of farmland. The coverage levels and exclusions in a CRC policy are similar to those in a standard MPCI policy. For the 1997 Crop Year, the Company received from the FCIC an expense reimbursement payment equal to 25% of Gross Premiums Written in respect of each CRC policy it writes. The MPCI Buy-up Expense Reimbursement Payment is currently administratively established by FCIC in the absence of a applicable legislation. This expense reimbursement payment was reduced from 27% in 1996. CRC protects revenues by extending crop insurance protection based on APH to include price as well as yield variability. Unlike MPCI, in which the crop price component of the coverage is set by the FCIC prior to the growing 79 season and generally does not reflect actual crop prices, CRC uses the commodity futures market as the basis for its pricing component. Pricing occurs twice in the CRC plan. The spring futures price is used to establish the initial policy revenue guarantee and premium, and the harvest futures price is used to establish the crop value to count against the revenue guarantee and to recompute the revenue guarantee (and resulting indemnity payments) when the harvest price is higher than the spring price. Crop Hail In addition to MPCI, the Company offers stand alone crop hail insurance, which insures growing crops against damage resulting from hail storms and which involves no federal participation, as well as its proprietary HAILPLUS(R) product which combines the application and underwriting process for MPCI and hail coverages. The HAILPLUS(R) product tends to produce less volatile loss ratios than the stand alone product since the combined product generally insures a greater number of acres, thereby spreading the risk of damage over a larger insured area. Approximately 50% of IGF's hail policies are written in combination with MPCI. Although both crop hail and MPCI provide insurance against hail damage, under crop hail coverages farmers can receive payments for hail damage which would not be severe enough to require a payment under an MPCI policy. The Company believes that offering crop hail insurance enables it to sell more MPCI policies than it otherwise would. Named Peril In addition to crop hail insurance, the Company also sells a small volume of insurance against crop damage from other specific named perils. These products cover specific crops, including hybrid seed corn, cranberries, cotton, sugar cane, sugar beets, citrus, tomatoes and onions and are generally written on terms that are specific to the kind of crops and farming practices involved and the amount of actuarial data available. The Company plans to seek potential growth opportunities in this niche market by developing basic policies on a diverse number of named crops grown in a variety of geographic areas and to offer these polices primarily to large producers through certain select agents. The Company's experienced product development team will develop the underwriting criteria and actuarial rates for the named peril coverages. As with the Company's other crop insurance products, loss adjustment procedures for named peril policies are handled by full-time professional claims adjusters who have specific agronomy training with respect to the crop and farming practice involved in the coverage. IGF is currently in the initial stages of opening new markets and attracting new customers by developing timber, crop completion and agricultural production interruption coverages. Third-Party Reinsurance In Effect for 1997 In order to reduce the Company's potential loss exposure under the MPCI program, the Company purchases stop loss Reinsurance from other private reinsurers in addition to Reinsurance obtained from the FCIC. In addition, since the FCIC and state regulatory authorities require IGF to limit its aggregate writings of MPCI Premiums and MPCI Imputed Premiums to no more than 900% of capital, and retain a net loss exposure of not in excess of 50% of capital, IGF may also obtain Reinsurance from private reinsurers in order to permit it to increase its premium writings. Such private Reinsurance would not eliminate the Company's potential liability in the event a reinsurer was unable to pay or losses exceeded the limits of the stop loss coverage. For crop hail insurance, the Company has in effect quota share Reinsurance of 40% of business, although the reinsurer is only liable to participate in losses of the Company up to a 150% pure loss ratio. The Company also has stop loss treaties for its crop hail business which reinsure net losses in excess of an 80% pure Loss Ratio to 130% at 95% coverage with IGF retaining the remaining 5%. With respect to its MPCI business, the Company has stop loss treaties which reinsure 93.75% of the underwriting losses experienced by the Company to the extent that aggregate losses of its insureds nationwide are in excess of 100% of the Company's MPCI Retention up to 125% of MPCI Retention. The Company also has an additional layer of MPCI stop loss Reinsurance which covers 95% of the underwriting losses experienced by the Company to the extent that aggregate losses of its insureds nationwide are in excess of 125% of MPCI Retention up to 160% of MPCI Retention. Based on a review of the reinsurers' financial health and reputation in the insurance marketplace, the Company believes that the reinsurers for its crop insurance business are financially sound and that they therefor can meet their 80 obligations to the Company under the terms of the Reinsurance treaties. Reserves for uncollectible Reinsurance are provided as deemed necessary. The following table provides information with respect to ceded premiums in excess of $250,000 on crop hail and named perils and for any affiliates. Six Months Ended June 30, 1997 (1) (in thousands, except footnotes) A.M. Best Ceded Reinsurers Rating Premiums - ---------- ------ -------- Folksam International Insurance Co. Ltd. (2) A- $578 Frankona Ruckversicherungs AG (3) A $298 Granite Re (4) Not Rated $758 Liberty Mutual Insurance Co. (UK) Ltd. A $308 Monde Re (5) Not Rated $3,226 Munich Re (6) A+ $2,309 National Grange A- $574 Partner Reinsurance Company Ltd. A $430 R & V Versicherung AG (5) Not Rated $958 Reinsurance Australia Corporation, Ltd. (REAC) (5) Not Rated $3,740 Scandinavian Reinsurance Company Ltd. A+ $719 - --------------- (1) For the six months ended June 30, 1997, total ceded premiums were $91,676,000. (2) An A.M. Best rating of "A-" is the fourth highest of 15 ratings. (3) An A.M. Best rating of "A" is the third highest of 15 ratings. (4) Granite Re is an affiliate of the Company. (5) Monde Re is owned by REAC. (6) An A.M. Best rating of "A+" is the second highest of 15 ratings. As of June 30, 1997, IGF's Reinsurance recoverables aggregated approximately $63,000 excluding recoverables from the FCIC. Marketing; Distribution Network IGF markets its products to the owners and operators of farms in 39 states through approximately 2,500 agents associated with approximately 1,500 independent insurance agencies, with its primary geographic concentration in the states of Iowa, Texas, Illinois, Kansas and Minnesota. The Company has, however, begun to diversify outside of the Midwest and Texas in order to reduce the risk associated with geographic concentration. IGF is licensed in twenty states and markets its products in additional states through a fronting agreement with a third-party insurance company. IGF has a stable agency base and it experienced negligible turnover in its agencies in 1997. Through its agencies, IGF targets farmers with an acreage base of at least 1,000 acres. Such larger farms typically have a lower risk exposure since they 81 tend to utilize better farming practices and to have noncontiguous acreage, thereby making it less likely that the entire farm will be affected by a particular occurrence. Many farmers with large farms tend to buy or rent acreage which is increasingly distant from the central farm location. Accordingly, the likelihood of a major storm (wind, rain or hail) or a freeze affecting all of a particular farmer's acreage decreases. 82 The following table presents MPCI and crop hail premiums written by IGF by state for the periods indicated. (in thousands) ------------------------------------------------------------------------------------------------------------------- Year Ended Six Months Ended Six Months Ended December 31, 1996 June 30, 1996 June 30, 1997 ------------------------------------- ------------------------------------ -------------------------------
State Crop MPCI Total Crop MPCI Total Crop MPCI Total - ----- ---- ---- ----- ---- ---- ----- ---- ---- ----- Hail Hail Hail ---- ---- ---- Alabama $97 $2,951 $3,048 $38 $2,332 $2,370 $64 $1,298 $1,362 Arkansas 314 1,784 2,098 298 2,025 2,323 526 2,191 2,717 California 1,164 1,992 3,156 45 --- 45 671 4,284 4,955 Colorado 1,651 3,334 4,985 760 2,524 3,284 837 1,655 2,492 Florida --- 1,738 1,738 --- 186 186 --- 1,711 1,711 Illinois 526 11,228 11,754 207 8,491 8,698 328 8,965 9,293 Indiana 115 3,870 3,985 9 2,161 2,170 7 2,258 2,265 Iowa 6,590 15,205 21,795 3,481 10,922 14,403 4,465 11,716 16,181 Kansas 662 5,249 5,911 477 2,905 3,382 807 2,242 3,049 Louisiana 28 1,674 1,702 35 2,166 2,201 20 1,775 1,795 Minnesota 2,300 2,244 4,544 1,993 2,527 4,520 3,399 3,698 7,097 Mississippi 482 2,222 2,704 480 1,758 2,238 515 1,689 2,204 Missouri 556 2,427 2,983 313 1,878 2,191 222 2,322 2,544 Montana 5,632 1,554 7,186 3,655 711 4,366 2,451 1,609 4,060 Nebraska 1,567 3,206 4,773 1,086 2,282 3,368 1,225 3,365 4,590 North Dakota 2,294 2,796 5,090 1,231 2,457 3,688 605 2,800 3,405 Oklahoma 403 1,436 1,839 360 1,214 1,574 350 748 1,098 South Dakota 1,457 1,106 2,563 1,291 969 2,260 859 2,594 3,453 Texas 1,262 12,361 13,623 1,084 12,206 13,290 2,348 17,015 19,363 Wisconsin 370 2,187 2,557 351 1,972 2,323 308 1,573 1,881 All Other 487 1,538 2,025 426 1,265 1,691 9,332 3,509 12,841 --- ----- ----- --- ----- ----- ----- ----- ------ Total $27,957 $82,102 $110,059 $17,620 $62,951 $80,571 $29,339 $79,017 $108,356 ====== ====== ======= ====== ====== ====== ====== ====== =======
83 The Company seeks to maintain and develop its agency relationships by providing agencies with faster, more efficient service as well as marketing support. IGF owns an IBM AS400 along with all peripheral and networking equipment and has developed its own proprietary software package, APlus, which allows agencies to quote and examine various levels of coverage on their own personal computers. The Company's regional managers are responsible for the Company's field operations within an assigned geographic territory, including maintaining and enhancing relationships with agencies in those territories. IGF also uses application documentation which is designed for simplicity and convenience. The Company believes that IGF is the only crop insurer which has created a single application for MPCI, crop hail and named peril coverage. IGF generally compensates its agents based on a percentage of premiums produced and, in the case of CAT Coverage and crop hail insurance, a percentage of underwriting gain realized with respect to business produced. This compensation structure is designed to encourage agents to place profitable business with IGF (which tends to be insurance coverages for larger farms with respect to which the risk of loss is spread over larger, frequently noncontiguous insured areas). Underwriting Management Because of the highly regulated nature of the MPCI program and the fact that rates are established by the FCIC, the primary underwriting functions performed by the Company's personnel with respect to MPCI coverage are (i) selecting of marketing territories for MPCI based on the type of crops being grown in the area, typical weather patterns and loss experience of both agencies and farmers within a particular area, (ii) recruiting agencies within those marketing territories which service larger farms and other more desirable risks and (iii) ensuring that policies are underwritten in accordance with the FCIC rules. With respect to its hail coverage, IGF seeks to minimize its underwriting losses by maintaining an adequate geographic spread of risk by rate group. In addition, IGF establishes sales closing dates after which hail policies will not be sold. These dates are dependent on planting schedules, vary by geographic location and range from May 15 in Texas to July 15 in North Dakota. Prior to these dates, crops are either seeds in the ground or young growth newly emerged from the ground and hail damage to crops in either of these stages of growth is minimal. The cut-off dates prevent farmers from adversely selecting against IGF by waiting to purchase hail coverage until a storm is forecast or damage has occurred. For its hail coverage, IGF also sets limits by policy ($400,000 each) and by township ($2.0 million per township). The Company also uses a daily report entitled "Severe Weather Digest" which shows the time and geographic location of all extraordinary weather events to check incoming policy applications against possible previous damage. Claims/Loss Adjustments In contrast to most of its competitors who retain independent adjusters on a part-time basis for loss adjusting services, IGF employs full-time professional claims adjusters, most of whom are agronomy trained, as well as part-time adjusters. Management believes that the professionalism of the IGF full-time claims staff coupled with their exclusive commitment to IGF helps to ensure that claims are handled in a manner designed to reduce overpayment of losses experienced by IGF. The adjusters are located throughout IGF's marketing territories. In order to promote a rapid claims response, the Company has available several small four wheel drive vehicles for use by its adjusters. The adjusters report to a field service representative in their territory who manages adjusters' assignments, assures that all preliminary estimates for loss reserves are accurately reported and assists in loss adjustment. Within 72 hours of reported damage, a loss notice is reviewed by an IGF service office claims manager and a preliminary loss reserve is determined which is based on the representative's and/or adjuster's knowledge of the area or the particular storm which caused the loss. Generally, within approximately two weeks, hail and MPCI claims are examined and reviewed on site by an adjuster and the insured signs a proof of loss form containing a final release. As part of the adjustment process, IGF's adjusters use Global Positioning System Units, which are hand held devices using navigation satellites to determine the precise location where a claimed loss has occurred. IGF has a team of catastrophic claims specialists who 84 are available on 48 hours notice to travel to any of IGF's six regional service offices to assist in heavy claim work load situations. Competition The crop insurance industry is highly competitive. The Company competes against other private companies for MPCI, crop hail and named peril coverage. Many of the Company's competitors have substantially greater financial and other resources than the Company and there can be no assurance that the Company will be able to compete effectively against such competitors in the future. The Company competes on the basis of the commissions paid to agents, the speed with which claims are paid, the quality and extent of services offered, the reputation and experience of its agency network and, in the case of private insurance, policy rates. Because the FCIC establishes the rates that may be offered for MPCI policies, the Company believes that quality of service and level of commissions offered to agents are the principal factors on which it competes in the area of MPCI. The Company believes that the crop hail and other named peril crop insurance industry is extremely rate-sensitive and the ability to offer competitive rate structures to agents is a critical factor in the agent's ability to write crop hail and other named peril premiums. Because of the varying state laws regarding the ability of agents to write crop hail and other named peril premiums prior to completion of rate and form filings (and, in some cases, state approval of such filings), a company may not be able to write its expected premium volume if its rates are not competitive. The crop insurance industry has become increasingly consolidated. From the 1985 crop year to the 1996 crop year, the number of insurance companies having agreements with the FCIC to sell and service MPCI policies has declined from fifty to seventeen. The Company believes that IGF is the fifth largest MPCI crop insurer in the United States based on premium information compiled in 1995 by the FCIC and NCIS. The Company's primary competitors are Rain & Hail Insurance Service, Inc. (affiliated with Cigna Insurance Company), Rural Community Insurance Services, Inc. (which is owned by Norwest Corporation), American Growers Insurance Company (Redland), Crop Growers Insurance, Inc., Great American Insurance Company, Blakely Crop Hail (an affiliate of Farmers Alliance Mutual Insurance Company) and North Central Crop Insurance, Inc. The Company believes that in order to compete successfully in the crop insurance business it will have to market and service a volume of premiums sufficiently large to enable the Company to continue to realize operating efficiencies in conducting its business. No assurance can be given that the Company will be able to compete successfully if this market further consolidates. Reserves for Losses and Loss Adjustment Expenses Loss Reserves are estimates, established at a given point in time based on facts then known, of what an insurer predicts its exposure to be in connection with incurred losses. LAE Reserves are estimates of the ultimate liability associated with the expense of settling all claims, including investigation and litigation costs resulting from such claims. The actual liability of an insurer for its Losses and LAE Reserves at any point in time will be greater or less than these estimates. The Company maintains reserves for the eventual payment of Losses and LAE with respect to both reported and unreported claims. Nonstandard automobile reserves for reported claims are established on a case-by-case basis. The reserving process takes into account the type of claim, policy provisions relating to the type of loss and historical paid Loss and LAE for similar claims. Reported crop insurance claims are reserved based upon preliminary notice to the Company and investigation of the loss in the field. The ultimate settlement of a crop loss is based upon either the value or the yield of the crop. Loss and LAE Reserves for claims that have been incurred but not reported are estimated based on many variables including historical and statistical information, inflation, legal developments, economic conditions, trends in claim severity and frequency and other factors that could affect the adequacy of loss reserves. The Company's reserves are reviewed by independent actuaries on a semi-annual basis. The Company's carried claims reserves are certified by the independent actuaries for each calendar year. 87 The following loss reserve development tables illustrate the change over time of reserves established for claims and claims expense at the end of various calendar years for the nonstandard automobile segment of the Company (not including Superior) and for Superior separately. The first three line items show the reserves as originally reported at the end of the stated year. The table also includes the cumulative amounts paid as of the end of successive years with respect to that reserve liability. The "liabilities reestimated" section indicates reestimates of the original recorded reserve as of the end of each successive year based on additional information pertaining to such liabilities. The last portion of the table compares the latest reestimated reserve to the reserve amount as originally established and indicates whether the original recorded amount was adequate or inadequate to cover the estimated costs of unsettled claims. During the first half of 1997, and most noticeably in the second quarter of 1997, the Company, as part of its efforts to reduce costs and combine the operations of the two nonstandard automobile insurance companies, has combined the claims settlement practices as well as the reserving philosophies of Superior and Pafco. Superior had historically provided higher case reserves and lower IBNR levels than Pafco while paying claims in a manner where such payments were generally less than applicable reserves. Pafco had historically carried adequate reserves while paying claims in a manner where such payments were generally greater than applicable reserves. In connection with this change in claims management philosophy, the Company recorded additional Loss and LAE Reserves, relating primarily to operations at Pafco, resulting in an after tax charge to earnings of approximately $1.8 million or $0.17 per share in the second quarter of 1997. While the Company believes these actions are necessary, the establishment and monitoring of reserve levels is a highly subjective process involving numerous assumptions and estimates. Therefore, actual results may ultimately differ from current estimates. The reserve for claims and claims expense is an accumulation of the estimated amounts necessary to settle all outstanding claims as of the date for which the reserve is stated. The reserve and payment data shown below have been reduced for estimated subrogation and salvage recoveries. The reserve estimates are based upon the factors in each case and experience with similar cases. No attempt is made to isolate explicitly the impact of inflation from the multitude of factors influencing the reserve estimates though inflation is implicitly included in the estimates. The Company and Superior regularly update their reserve forecasts by type of claim as new facts become known and events occur which affect unsettled claims. The Company and Superior do not discount their reserves for unpaid claims and claims expense. The following loss reserve development tables are cumulative and, therefor, ending balances should not be added since the amount at the end of each calendar year includes activity for both the current and prior years. Conditions and trends that have affected the development of liability in the past may not necessarily reoccur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies from the table. 86 Symons International Group, Inc. Nonstandard Automobile Insurance Only (Not Including Superior) For The Years Ended December 31, (in thousands)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Gross Reserves for Unpaid Losses and LAE 26,819 30,844 27,145 Deduct: Reinsurance recoverable 10,297 9,921 8,124 Reserve for unpaid losses and LAE, net of reinsurance 4,748 10,775 14,346 17,083 17,499 18,706 16,544 16,522 20,923 19,021 Paid cumulative as of: One Year Later 2,517 6,159 7,606 7,475 8,781 10,312 9,204 9,059 8,082 Two Years Later 4,318 7,510 10,388 10,930 12,723 14,934 12,966 8,806 Three Years Later 4,433 7,875 12,107 12,497 14,461 16,845 13,142 Four Years Later 4,146 8,225 12,863 13,271 15,071 16,641 Five Years Later 4,154 8,513 13,147 13,503 14,903 Six Years Later 4,297 8,546 13,237 13,500 Seven Years Later 4,297 8,561 13,238 Eight Years Later 4,295 8,561 Nine Years Later 4,295 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Liabilities reestimated as of: One Year Later 3,434 11,208 15,060 15,103 16,797 18,872 16,747 17,000 21,748 Two Years Later 4,588 11,413 14,178 14,745 16,943 19,599 17,023 17,443 Three Years Later 4,702 10,923 14,236 14,993 16,914 19,662 17,009 Four Years Later 4,311 10,791 14,479 14,809 16,750 19,651 Five Years Later 4,234 10,877 14,436 14,659 16,746 Six Years Later 4,320 10,825 14,368 14,659 Seven Years Later 4,278 10,922 14,368 Eight Years Later 4,309 10,921 Nine Years Later 4,309 Net cumulative (deficiency) or redundancy 439 (146) (22) 2,424 753 (945) (465) (921) (825) Expressed as a percentage of unpaid losses and LAE 9.2% (1.4%) (0.2%) 14.2% 4.3% (5.1%) (2.8%) (5.6%) (3.9%)
Net reserves for the nonstandard automobile business of the Company increased substantially in 1988, 1989, 1990 and 1995. Such changes were due entirely to changes in the premium volume of the nonstandard automobile business for those years. In general, the Company's nonstandard automobile segment has not developed significant redundancies or deficiencies as compared to original reserves. A deficiency of $921,000, or 5.6%, of original reserves developed with respect to loss reserves at December 31, 1994 due to an unexpected increase in loss severity and average claim cost. 87 Superior Insurance Company For The Years Ended December 31, (in thousands)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Gross Reserves for Unpaid Losses and LAE 52,610 54,577 47,112 52,413 Deduct: Reinsurance 68 1,090 987 0 Recoverabel Reserve for unpaid losses and LAE, net of reinsurance 26,245 37,851 56,424 60,118 60,224 56,803 52,542 53,487 46,125 52,413 Paid cumulative as of: One Year Later 18,202 23,265 31,544 33,275 31,484 30,689 32,313 28,227 25,454 Two Years Later 25,526 34,122 43,547 44,128 40,513 41,231 38,908 35,141 Three Years Later 29,670 39,524 48,037 47,442 44,183 43,198 41,107 Four Years Later 32,545 41,257 49,064 49,256 44,708 44,010 Five Years Later 33,242 41,492 49,522 49,365 45,196 Six Years Later 33,395 41,716 49,327 49,476 Seven Years Later 33,535 41,576 49,425 Eight Years Later 33,469 41,621 Nine Years Later 33,408 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Liabilities reestimated as of: One Year Later 31,911 48,376 54,858 58,158 53,515 50,086 53,856 48,564 37,933 Two Years Later 37,118 49,327 53,715 56,626 50,520 50,474 50,006 42,989 Three Years Later 37,932 49,051 53,022 55,147 51,854 46,624 46,710 Four Years Later 38,424 49,436 52,644 57,720 49,739 44,823 Five Years Later 38,580 49,297 54,030 56,824 48,592 Six Years Later 38,584 50,701 53,697 55,770 Seven Years Later 39,965 50,515 53,683 Eight Years Later 39,861 50,521 Nine Years Later 39,998 Net cumulative (deficiency) or redundancy (13,753) (12,670) 2,741 4,348 11,632 11,980 5,832 10,498 8,192 Expressed as a percentage of unpaid losses and LAE (52.4%) (33.5%) 4.9% 7.2% 19.3% 21.1% 11.1% 19.6% 17.8%
Net reserves for Superior increased substantially through 1990 before decreasing in 1992. Such changes were due to changes in premium volume and reduction of reserve redundancies. The decrease in 1995 reflects the Company's curtailment of marketing efforts and writings in Illinois, Mississippi, Tennessee, Texas and Washington resulting from more restrictive underwriting criteria, inadequately priced business in these states and other unfavorable marketing conditions. Significant deficiencies developed in reserves established as of December 31 of each of 1986 through 1988 which were substantially offset by reserve additions in 1989 due to changes in reserve methodology. With respect to reserves established as of December 31, 1991 and 1992, Superior developed significant redundancies due to conservative levels of case basis and IBNR Reserves. Beginning in 1993, Superior began to adjust its reserving methodology to reduce its redundancies and to take steps to close older claim files which still carried redundant reserves. The Company employs an independent actuary to annually evaluate and certify the adequacy of its Loss and LAE reserves. 88 Investments Insurance company investments must comply with applicable laws and regulations which prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common securities, real estate mortgages and real estate. The Company's investment policies are determined by the Company's Board of Directors and are reviewed on a regular basis. The Company's investment strategy is to maximize the after-tax yield of the portfolio while emphasizing the stability and preservation of the Company's capital base. Further, the portfolio is invested in types of securities and in an aggregate duration which reflect the nature of the Company's liabilities and expected liquidity needs, and the Company's fixed maturity and common equity investments are substantially all in public companies. The Company's investments in real estate and mortgage loans represent 1.4% of the Company's aggregate investments. The investment portfolios of the Company are managed by third-party professional administrators, in accordance with pre-established investment policy guidelines established by the Company. The investment portfolios of the Company at June 30, 1997 consisted of the following: (in thousands) Estimated Type of Investment Amortized Cost Market Value - ------------------ -------------- ------------ Fixed maturities: United States Treasury securities and obligations of United States government corporations and agencies $51,447 $51,382 Obligations of states and political subdivisions 6,308 6,343 Corporate securities 85,773 86,180 ------ ------ Total Fixed Maturities 143,528 143,905 Equity Securities: Preferred stocks --- --- Common stocks 25,792 32,031 Short-term investments (1) 11,742 11,742 Real estate 457 457 Mortgage loans (2) 2,290 2,290 Other loans 75 75 -- -- Total Investments $183,884 $190,500 ======= ======= - --------------- (1) Due to the nature of crop insurance, the Company must maintain short-term investments to fund amounts due under the MPCI program. (2) Mortgage loans represent one commercial real estate loan for $3 million due in 2001 with monthly principal and interest (8.0%) payments. All payments on the loan were current as of June 30, 1997. 89 The following table sets forth, as of December 31, 1995 and 1996 and June 30, 1997 the composition of the fixed maturity securities portfolio of the Company by time to maturity. (in thousands) 1995 1996 June 30, 1997 ----------------- ------------------ ------------------- Percent Percent Percent Total Total Total Market Market Market Market Market Market Time To Maturity Value Value Value Value Value Value - ---------------- ----- ----- ----- ----- ----- ----- 1 year or less $4,610 35.6% $ 6,423 5.0% $15,250 10.6% More than 1 year through 5 years 5,051 39.1% 71,086 55.7% 77,867 54.1% More than 5 years through 10 years 3,270 25.3% 43,404 34.0% 43,013 29.9% More than 10 years --- --- 6,768 5.3% 7,775 5.4% ------ ----- ----- ---- ----- ---- Total $12,931 100.0% $127,681 100.0% $143,905 100.0% ====== ====== ======= ====== ======= ===== The following table sets forth, as of December 31, 1995 and 1996 and June 30, 1997 the ratings assigned to the fixed maturity securities of the Company. (in thousands) 1995 1996 June 30, 1997 ------------------- -------------------- --------------- Percent Percent Percent Total Total Total Market Market Market Market Market Market Rating (1) Value Value Value Value Value Value - ---------- ----- ----- ----- ----- ----- ----- Aaa or AAA $7,753 60.0% $50,444 39.5% $53,491 37.2% Aa or AA 680 5.2% 2,976 2.3% 3,918 2.7% A 257 2.0% 50,365 39.4% 68,216 47.4% Baa or BBB 100 0.8% 11,671 9.1% 14,829 10.3% Ba or BB --- --- 2,840 2.3% 2,947 2.0% Other below investment grade --- --- 2,091 1.6% --- --- Not rated (2) 4,141 32.0% 7,294 5.8% 504 0.4% ----- ----- ----- ---- --- ---- Total $12,931 100.0% $127,681 100.0% $143,905 100.0% ====== ====== ======= ====== ======= ====== - --------------- (1) Ratings are assigned by Moody's Investors Service, Inc., and when not available, are based on ratings assigned by Standard & Poor's Corporation. (2) These securities were not rated by the rating agencies. However, these securities are designated as Category 1 securities by the NAIC, which is the equivalent rating of "A" or better. 90 The investment results of the Company for the periods indicated are set forth below: Six Months Ended (in thousands) Years Ended December 31, June 30, ----------------------------------------------- -----------------------------
1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- Net investment income (1) $1,241 $1,173 $6,733 $1,533 $5,276 Average investment portfolio (2) $20,628 $22,653 $153,565 $146,757 $174,596 Pre-tax return on average investment portfolio 6.0% 5.2% 5.9% 4.4% 6.0% Net realized gains (losses) $(159) $(344) $(1,015) $228 $1,684
- --------------- (1) Includes dividend income received in respect of holdings of common stock. (2) Average investment portfolio represents the average (based on amortized cost) of the beginning and ending investment portfolio. For 1996, the average investment portfolio was adjusted for the effect of the Acquisition. Ratings A.M. Best has currently assigned a "B+" rating to Superior and a "B-" rating to Pafco. Pafco's rating has been confirmed by A.M. Best at a "B-" rating subsequent to the Acquisition. Superior's rating was reduced from "A-" to "B+" as a result of the leverage of GGS Holdings resulting from indebtedness assumed in connection with the Acquisition. IGF recently received an "NR-2" rating (a "rating not assigned" category for companies that do not meet A.M. Best's minimum size requirement) from A.M. Best. A.M. Best's ratings are based upon a comprehensive review of a company's financial performance, which is supplemented by certain data, including responses to A.M. Best's questionnaires, phone calls and other correspondence between A.M. Best analysts and company management, quarterly NAIC filings, state insurance department examination reports, loss reserve reports, annual reports, company business plans and other reports filed with state insurance departments. A.M. Best undertakes a quantitative evaluation, based upon profitability, leverage and liquidity, and a qualitative evaluation, based upon the composition of a company's book of business or spread of risk, the amount, appropriateness and soundness of reinsurance, the quality, diversification and estimated market value of its assets, the adequacy of its loss reserves and policyholders' surplus, the soundness of a company's capital structure, the extent of a company's market presence and the experience and competence of its management. A.M. Best's ratings represent an independent opinion of a company's financial strength and ability to meet its obligations to policyholders. A.M. Best's ratings are not a measure of protection afforded investors. "B+" and "B-" ratings are A.M. Best's sixth and eighth highest rating classifications, respectively, out of 15 ratings. A "B+" rating is awarded to insurers which, in A.M. Best's opinion, "have demonstrated very good overall performance when compared to the standards established by the A.M. Best Company" and "have a good ability to meet their obligations to policyholders over a long period of time." A "B-" rating is awarded to insurers which, in A.M. Best's opinion, "have demonstrated adequate overall performance when compared to the standards established by the A.M. Best Company" and "have an adequate ability to meet their obligations to policyholders, but their financial strength is vulnerable to unfavorable changes in underwriting or economic conditions." There can be no assurance that such ratings or changes therein will not in the future adversely affect the Company's competitive position. 91 Recent Acquisitions On January 31, 1996, Goran, the Company, Fortis, Inc. and its wholly-owned subsidiary, Interfinancial, Inc., a holding company for Superior, entered into a Stock Purchase Agreement (the "Superior Purchase Agreement") pursuant to which the Company agreed to purchase Superior from Interfinancial, Inc. for a purchase price of approximately $66.6 million. Simultaneously with the execution of the Superior Purchase Agreement, Goran, the Company, GGS Holdings and the GS Funds, a Delaware limited partnership, entered into an agreement (the "GGS Agreement") to capitalize GGS Holdings and to cause GGS Holdings to issue its capital stock to the Company and to the GS Funds, so as to give the Company a 52% ownership interest and the GS Funds a 48% ownership interest (the "Formation Transaction"). Pursuant to the GGS Agreement (a) the Company contributed to GGS Holdings (i) all the outstanding common stock of Pafco, with a book value of $16.9 million, (ii) its right to acquire Superior pursuant to the Superior Purchase Agreement and (iii) certain fixed assets, including office furniture and equipment, having a value of approximately $350,000 and (b) the GS Funds contributed to GGS Holdings $21.2 million in cash. The Formation Transaction and the Acquisition were completed on April 30, 1996. On August 12, 1997, the Company acquired the remaining 48% interest in GGS Holdings that had been owned by the GS funds for $61 million with a portion of the proceeds from the sale of the Preferred Securities. Regulation General The Company's insurance businesses are subject to comprehensive, detailed regulation throughout the United States, under statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. The primary purpose of such regulations and supervision is the protection of policyholders and claimants rather than stockholders or other investors. Depending on whether the insurance company is domiciled in the state and whether it is an admitted or non-admitted insurer, such authority may extend to such things as (i) periodic reporting of the insurer's financial condition, (ii) periodic financial examination, (iii) approval of rates and policy forms,(iv) loss reserve adequacy, (v) insurer solvency, (vi) the licensing of insurers and their agents, (vii) restrictions on the payment of dividends and other distributions, (viii) approval of changes in control and (ix) the type and amount of permitted investments. Pafco, IGF and Superior are subject to triennial examinations by state insurance regulators. Such examinations were last conducted for Pafco as of December 31, 1996, (covering the period to that date from June 30, 1992), for IGF as of December 31, 1996, (covering the period to that date from June 30, 1992)and for Superior as of December 31, 1993 (covering the period to that date from January 1, 1991). The two subsidiaries of Superior, Superior American Insurance Company and Superior Guaranty Insurance Company, had examinations conducted as of October 31, 1996 (covering the period to that date from the subsidiaries' inception on December 9, 1994). Superior has not been notified of the date of its next examination. The Company does not expect any material findings from the examinations of Pafco, IGF or Superior and the Superior subsidiaries. Insurance Holding Company Regulation The Company also is subject to laws governing insurance holding companies in Florida and Indiana, where the insurers are domiciled. These laws, among other things, (i) require the Company to file periodic information with state regulatory authorities including information concerning its capital structure, ownership, financial condition and general business operations, (ii) regulate certain transactions between the Company, its affiliates and IGF, Pafco and Superior (the "Insurers"), including the amount of dividends and other distributions and the terms of surplus note and (iii) restrict the ability of any one person to acquire certain levels of the Company's voting securities without prior regulatory approval. Any purchaser of 10% or more of the outstanding shares of Common Stock of the Company would be presumed to have acquired control of Pafco and IGF unless the Indiana Commissioner, upon application, has determined 92 otherwise. In addition, any purchaser of 5% or more of the outstanding shares of Common Stock of the Company will be presumed to have acquired control of Superior unless the Florida Commissioner, upon application, has determined otherwise. Indiana law defines as "extraordinary" any dividend or distribution which, together with all other dividends and distributions to shareholders within the preceding twelve months, exceeds the greater of: (i) 10% of statutory surplus as regards policyholders as of the end of the preceding year or (ii) the prior year's net income. Dividends which are not "extraordinary" may be paid ten days after the Indiana Department receives notice of their declaration. "Extraordinary" dividends and distributions may not be paid without prior approval of the Indiana Commissioner or until the Indiana Commissioner has been given thirty days prior notice and has not disapproved within that period. The Indiana Department must receive notice of all dividends, whether "extraordinary" or not, within five business days after they are declared. Notwithstanding the foregoing limit, a domestic insurer may not declare or pay a dividend of funds other than earned surplus without the prior approval of the Indiana Department. "Earned surplus" is defined as the amount of unassigned funds set forth in the insurer's most recent annual statement, less surplus attributable to unrealized capital gains or reevaluation of assets. As of December 31 1996, IGF and Pafco had earned surplus of $29,412,000 and $18,112,000, respectively. Further, no Indiana domiciled insurer may make payments in the form of dividends or otherwise to shareholders as such unless it possesses assets in the amount of such payment in excess of the sum of its liabilities and the aggregate amount of the par value of all shares of its capital stock; provided, that in no instance shall such dividend reduce the total of (i) gross paid-in and contributed surplus, plus (ii) special surplus funds, plus (iii) unassigned funds, minus (iv) treasury stock at cost, below an amount equal to 50% of the aggregate amount of the par value of all shares of the insurer's capital stock. Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholders except out of that part of its available and accumulated surplus funds which is derived from realized net operating profits on its business and net realized capital gains. A Florida domestic insurer may not make dividend payments or distributions to stockholders without prior approval of the Florida Department if the dividend or distribution would exceed the larger of (i) the lesser of (a) 10% of surplus or (b) net income, not including realized capital gains, plus a two-year carryforward, (ii) 10% of surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (iii) the lesser of (a) 10% of surplus or (b) net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains. Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida Department if the dividend is equal to or less than the greater of (i) 10% of the insurer's surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (ii) the insurer's entire net operating profits and realized net capital gains derived during the immediately preceding calendar year; (2) the insurer will have policyholder surplus equal to or exceeding 115% of the minimum required statutory surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the department at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (i) subject to prior approval by the Florida Department or (ii) thirty days after the Florida Department has received notice of such dividend or distribution and has not disapproved it within such time. In the consent order approving the Acquisition, the Florida Department has prohibited Superior from paying any dividends (whether extraordinary or not) for four years without the prior written approval of the Florida Department. Under these laws, the maximum aggregate amounts of dividends permitted to be paid to the Company in 1997 by IGF and Pafco without prior regulatory approval are $12,122,000 and $561,000, respectively, none of which have been paid. Although the Company believes that amounts required for it to meet its financial and operating obligations will be available, there can be no assurance in this regard. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Liquidity and Capital Resources." Further, there can be no assurance that, if requested, the Indiana Department will approve any request for extraordinary dividends from Pafco or IGF or that the Florida Department will allow any dividends to be paid by Superior during the four year period described above. 93 The maximum dividends permitted by state law are not necessarily indicative of an insurer's actual ability to pay dividends or other distributions to a parent company, which also may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer's competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, state insurance laws and regulations require that the statutory surplus of an insurance company following any dividend or distribution by such company be reasonable in relation to its outstanding liabilities and adequate for its financial needs. While the non-insurance company subsidiaries are not subject directly to the dividend and other distribution limitations, insurance holding company regulations govern the amount which a subsidiary within the holding company system may charge any of the Insurers for services (e.g., management fees and commissions). These regulations may affect the amount of management fees which may be paid by Pafco and Superior to GGS Management. The management agreement between the Company and Pafco has been assigned to GGS Management, Inc. ("GGS Management") and provides for an annual management fee equal to 15% of gross premiums. A similar management agreement with a management fee of 17% of gross premiums has been entered into between GGS Management and Superior. Employees of the Company relating to the nonstandard automobile insurance business and all Superior employees became employees of GGS Management effective April 30, 1996. In the consent order approving the Acquisition, the Florida Department has reserved, for three years, the right to reevaluate the reasonableness of fees provided for in the Superior management agreement at the end of each calendar year and to require Superior to make adjustments in the management fees based on the Florida Department's consideration of the performance and operating percentages of Superior and other pertinent data. There can be no assurance that either the Indiana Department or the Florida Department will not in the future require a reduction in these management fees. Federal Regulation The Company's MPCI program is federally regulated and supported by the federal government by means of premium subsidies to farmers, expense reimbursement and federal reinsurance pools for private insurers. Consequently, the MPCI program is subject to oversight by the legislative and executive branches of the federal government, including the FCIC. The MPCI program regulations generally require compliance with federal guidelines with respect to underwriting, rating and claims administration. The Company is required to perform continuous internal audit procedures and is subject to audit by several federal government agencies. No material compliance issues were noted during IGF's most recent FCIC compliance review. The MPCI program has historically been subject to change by the federal government at least annually since its establishment in 1980, some of which changes have been significant. The most recent significant changes to the MPCI program came as a result of the passage by Congress of the 1994 Reform Act and the 1996 Reform Act. Certain provisions of the 1994 Reform Act, when implemented by the FCIC, may increase competition among private insurers in the pricing of Buy-up Coverage. The 1994 Reform Act authorizes the FCIC to implement regulations permitting insurance companies to pass on to farmers in the form of reduced premiums certain cost efficiencies related to any excess expense reimbursement over the insurer's actual cost to administer the program, which could result in increased price competition. To date, the FCIC has not enacted regulations implementing these provisions but is currently collecting information from the private sector regarding how to implement these provisions. The 1994 Reform Act required farmers for the first time to purchase at least CAT Coverage in order to be eligible for other federally sponsored farm benefits, including but not limited to low interest loans and crop price supports. The 1994 Reform Act also authorized for the first time the marketing and selling of CAT Coverage by the local USDA offices. Partly as a result of the increase in the size of the MPCI market resulting from the 1994 Reform Act, the Company's MPCI Premium increased to $53.4 million in 1995 from $44.3 million in 1994. However, the 1996 Reform Act, signed into law by President Clinton in April 1996, eliminates the linkage between CAT Coverage and qualification for certain federal farm program benefits and also limits the role of the USDA offices in the delivery of MPCI coverage. In accordance with the 1996 Reform Act, the USDA announced in July 1996 the following 14 states where CAT Coverage will no longer be available through USDA offices but rather would solely be available through 94 private agencies: Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Minnesota, Montana, Nebraska, North Carolina, North Dakota, South Dakota, Washington and Wyoming. The limitation of the USDA's role in the delivery system for MPCI should provide the Company with the opportunity to realize increased revenues from the distribution and servicing of its MPCI product. The Company has not experienced any material negative impact in 1996 from the delinkage mandated by the 1996 Reform Act. In addition, through June 30, 1996, the FCIC transferred to the Company approximately 8,900 insureds for CAT Coverage who previously purchased such coverage from USDA field offices. The Company believes that any future potential negative impact of the delinkage mandated by the 1996 Reform Act will be mitigated by, among other factors, the likelihood that farmers will continue to purchase MPCI to provide basic protection against natural disasters since ad hoc federal disaster relief programs have been reduced or eliminated. In addition, the Company believes that (i) lending institutions will likely continue to require this coverage as a condition to crop lending and (ii) many of the farmers who entered the MPCI program as a result of the 1994 Reform Act have come to appreciate the reasonable price of the protection afforded by CAT Coverage and will remain with the program regardless of delinkage. There can, however, be no assurance as to the ultimate effect which the 1996 Reform Act may have on the business or operations of the Company. The crop insurance industry has recently completed negotiation of the 1998 Standard Reinsurance Agreement ("1998 SRA") with the FCIC, with the 1998 SRA providing for a 27% MPCI Expense Reimbursement and no change to the CAT Coverage program from prior years. Underwriting and Marketing Restrictions During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to deal with the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing. These regulations include (i) the creation of "market assistance plans" under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term, (iii) advance notice requirements or limitations imposed for certain policy non-renewals and (iv) limitations upon or decreases in rates permitted to be charged. Insurance Regulatory Information System The NAIC Insurance Regulatory Information System ("IRIS") was developed primarily to assist state insurance departments in executing their statutory mandate to oversee the financial condition of insurance companies. Insurance companies submit data on an annual basis to the NAIC, which analyzes the data using ratios concerning various categories of financial data. IRIS ratios consist of twelve ratios with defined acceptable ranges. They are used as an initial screening process for identifying companies that may be in need of special attention. Companies that have several ratios that fall outside of the acceptable range are selected for closer review by the NAIC. If the NAIC determines that more attention may be warranted, one of five priority designations is assigned and the insurance department of the state of domicile is then responsible for follow-up action. During 1996 Pafco had a net premiums to surplus ratio of 3.03 to 1 which was slightly in excess of the high end range of 3.0 to 1. The excess was not material and Pafco has the ability to Cede business under its current quota share arrangement to maintain compliance with this ratio test. Pafco's change in net writings was 61% compared to 33% at the high end of the range. This result was expected given growth in gross premiums and elimination of quota share Reinsurance. Pafco also had positive surplus growth of 64% outside the high end of the range at 50%. Pafco planned for higher premium volume given the more profitable results than in prior years. During 1996, Pafco's investment yield as calculated under the IRIS tests was 3.8% which was below the low end of the range at 4.5%. However, this IRIS test is a simple average of beginning and end-of-year investments. Pafco's value fell below the range due to the following: (i) inclusion of investment in IGF prior to the Transfer during the first four months of the year when no investment income was received, (ii) growth in the portfolio in the latter part of the year not taken into account by the IRIS test, (iii) change during the course of the year to reduce ratio of equities to total investments in favor of fixed income securities, (iv) contribution to surplus of $3.7 million at the end of 1996 included in the IRIS test and (v) inclusion of the home office building in the investment base. If a weighted average was calculated using monthly 95 balances and excluding the IGF investment and real estate was excluded from the calculation, Pafco's return would have been 5.7%. Based on current investment levels and mix it is expected that this test will be met in 1997; however, Pafco is currently a Priority 3 company based on its 1996 IRIS tests. During 1996, Pafco's ratio of reserve deficiency to surplus was 62% which exceeds the upper range of 25%. This IRIS test calculates the average of claims liability to premiums for the preceding two years and compares the resultant percentage to the current year's percentage with a corresponding analysis to surplus. During 1994 and 1995, Pafco's claims liability to premiums ratio was approximately 55% and decreased to approximately 35% in 1996, resulting in the unusual IRIS result. This situation was a result of commercial claims liabilities in 1994 and 1995 that have now been Ceded to an affiliate. Thus, net claims liability at December 31, 1996 is entirely for nonstandard automobile insurance. The reserves for the commercial liability business were at a much higher ratio of premiums and are paid at a much slower rate than nonstandard automobile claims. Thus, although premiums grew in 1996, the increase in nonstandard automobile claims liability was offset by ceded commercial claims. As this IRIS test uses a two year average of claims liabilities to premiums, it is likely that Pafco may exceed the normal ratio in 1997. It should be noted that Pafco did not have unusual IRIS values for the one and two year reserve development to surplus tests. Pafco is expected to fail its reserve development IRIS test ratio for 1997 and 1998 due to Pafco's additions to its reserves which is discussed more fully in "Recent Developments." During 1996 IGF had unusual values for three IRIS tests. IGF's surplus increased by 237% which exceeded the high end of the range of 50%. However, this is a very positive development due to growth in profits and the capital infusion from the proceeds of the Initial Public Offering. IGF continued to have unusual values in the liabilities to liquid assets and agents balances to surplus tests. IGF generally has an unusual value in these tests due to the Reinsurance program mandated by the FCIC for the distribution of the MPCI program and the fact that agents' balances at December 31 are usually not settled until late February. During 1996 Superior had a ratio of Net Premiums Written to surplus of 3.07 to 1 compared to the IRIS test upper limit of 3.0 to 1. During 1996, Superior's net premium writings increased by 116% which exceeded the upper limit of the IRIS range of 33%. Superior had a reserve deficiency to surplus ratio of 29% which was in excess of the upper IRIS limit of 25%. All these matters were a function of the strong growth of Superior. Such results may continue in the future if growth continues. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion on impact of premium writings to surplus ratio. Risk-Based Capital Requirements In order to enhance the regulation of insurer solvency, the NAIC has adopted a formula and model law to implement risk-based capital ("RBC") requirements for property and casualty insurance companies designed to assess minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Indiana and Florida have substantially adopted the NAIC model law, and Indiana directly, and Florida indirectly, have adopted the NAIC model formula. The RBC formula for property and casualty insurance companies measures four major areas of risk facing property and casualty insurers: (i) underwriting, which encompasses the risk of adverse loss developments and inadequate pricing, (ii) declines in asset values arising from credit risk, (iii) declines in asset values arising from investment risks and (iv) off-balance sheet risk arising from adverse experience from non-controlled assets, guarantees for affiliates, contingent liabilities and reserve and premium growth. Pursuant to the model law, insurers having less statutory surplus than that required by the RBC calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The RBC model law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of surplus to RBC falls. The first level, the Company Action Level (as defined by the NAIC), requires an insurer to submit a plan of corrective actions to the regulator if surplus falls below 200% of the RBC amount. The Regulatory Action Level (as defined by the NAIC) requires an insurer to submit a plan containing corrective actions and requires the relevant insurance commissioner to perform an examination or other analysis and issue a corrective order if surplus falls below 150% of the RBC amount. The Authorized Control Level (as defined by the NAIC) gives the relevant insurance commissioner the option either to take the aforementioned actions or to rehabilitate or liquidate the insurer if surplus falls below 100% of the RBC amount. The fourth action level is the 96 Mandatory Control Level (as defined by the NAIC) which requires the relevant insurance commissioner to rehabilitate or liquidate the insurer if surplus falls below 70% of the RBC amount. Based on the foregoing formulae, as of December 31, 1996, the RBC ratios of the Insurers were in excess of the Company Action Level, the first trigger level that would require regulatory action. Guaranty Funds; Residual Markets The Insurers also may be required under the solvency or guaranty laws of most states in which they do business to pay assessments (up to certain prescribed limits) to fund policyholder losses or liabilities of insolvent or rehabilitated insurance companies. These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's financial strength and, in certain instances, may be offset against future premium taxes. Some state laws and regulations further require participation by the Insurers in pools or funds to provide some types of insurance coverages which they would not ordinarily accept. The Company recognizes its obligations for guaranty fund assessments when it receives notice that an amount is payable to the fund. The ultimate amount of these assessments may differ from that which has already been assessed. It is not possible to predict the future impact of changing state and federal regulation on the Company's operations and there can be no assurance that laws and regulations enacted in the future will not be more restrictive than existing laws. Properties The headquarters for the Company, GGS Holdings and Pafco are located at 4720 Kingsway Drive, Indianapolis, Indiana. The building is an 80,000 square foot multilevel structure approximately 50% of which is utilized by the Company. The remaining space is leased to third-parties at a price of approximately $10 per square foot. Pafco also owns an investment property located at 2105 North Meridian, Indianapolis, Indiana. The property is a 21,700 square foot, multilevel building leased out entirely to third parties. Superior's operations are conducted at leased facilities located in Atlanta, Georgia; Tampa, Florida; and Orange, California. Under a lease term which extends through February, 1998, Superior leases office space at 280 Interstate North Circle, N.W., Suite 500, Atlanta, Georgia. Superior occupies 43,448 square feet at this location and subleases an additional 3,303 square feet to third-party tenants. Superior also has an office located at 3030 W. Rocky Pointe Drive, Suite 770, Tampa, Florida consisting of 18,477 square feet of space leased for a term extending through February, 2000. In addition, Superior occupies an office at 1745 West Orangewood, Orange, California consisting of 3,264 square feet under a lease extending through May 1997. IGF owns a 17,500 square foot office building located at 2882 106th Street, Des Moines, Iowa which serves as its corporate headquarters. The building is fully occupied by IGF but is currently for sale. IGF also owns certain improved commercial property which is adjacent to its corporate headquarters. IGF has entered into a purchase agreement to acquire an office building in Des Moines, Iowa to be used as its crop insurance division home office. The purchase price was $2.6 million of which $2.4 million was escrowed on February 1, 1997. The terms include a floating closing date whereby the transaction will close on the earlier of February 1, 1998 or 30 days after the closing of the sale of the Company's currently occupied home office building, also located in Des Moines. The purchase of the new building is not contingent on the sale of the current building. Employees At December 31, 1996 the Company and its subsidiaries employed approximately 1,000 full and part-time employees. The Company believes that relations with its employees are excellent. 97 Legal Proceedings IGF is the administrator of a run-off book of business. The FCIC has requested that IGF take responsibility for the claims liabilities of these policies under its administration. IGF has requested reimbursement of certain expenses from the FCIC with respect to this run-off activity. IGF instituted litigation against the FCIC on March 23, 1995 in the United States District Court for the Southern District of Iowa seeking $4.3 million as reimbursement for these expenses. The FCIC has counterclaimed for approximately $1.2 million in claims payments for which FCIC contends IGF is responsible as successor to the run-off book of business. While the outcome of this lawsuit cannot be predicted with certainty, the Company believes that the final resolution of this lawsuit will not have a material adverse effect on the financial condition of the Company. 98 THE EXCHANGE OFFER Purpose of the Exchange Offer In connection with the sale of the Preferred Securities, the Company and the Trust entered into the Registration Rights Agreement with the Initial Purchasers, pursuant to which the Company and the Trust agreed to file and to use their reasonable efforts to cause to become effective with the Commission a registration statement with respect to the exchange of the Preferred Securities for capital securities with terms identical in all material respects to the terms of the Preferred Securities. A copy of the Registration Rights Agreement has been filed as an Exhibit to the Registration Statement of which this Prospectus is a part. The Exchange Offer is being made to satisfy the contractual obligations of the Company and the Trust under the Registration Rights Agreement. The form and terms of the Exchange Preferred Securities are the same as the form and terms of the Preferred Securities except that the Exchange Preferred Securities have been registered under the Securities Act and will not be subject to the $100,000 minimum Liquidation Amount transfer restriction and certain other restrictions on transfer applicable to the Preferred Securities and will not provide for any increase in the Distribution rate thereon. In that regard, the Preferred Securities provide, among other things, that, if a registration statement relating to the Exchange Offer has not been filed by September 30, 1997 and declared effective by February 9, 1998, the Distribution rate borne by the Preferred Securities commencing on September 16, 1997 will increase by 0.25% per annum until the Exchange Offer is consummated. Upon consummation of the Exchange Offer, holders of Preferred Securities will not be entitled to any increase in the Distribution rate thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Risk Factors -- Consequences of a Failure to Exchange Preferred Securities." The Exchange Offer is not being made to, nor will the Trust accept tenders for exchange from, holders of Preferred Securities in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Unless the context requires otherwise, the term "holder" with respect to the Exchange Offer means any person in whose name the Preferred Securities are registered on the books of the Trust or any other person who has obtained a properly completed bond power from the registered holder, or any person whose Preferred Securities are held of record by The Depository Trust Company ("DTC") who desires to deliver such Preferred Securities by book-entry transfer at DTC. Pursuant to the Exchange Offer, the Company will exchange as soon as practicable after the date hereof, the Company Guarantee for the Exchange Guarantee and the Old Senior Subordinated Notes, in an amount corresponding to the Preferred Securities accepted for exchange, for a like aggregate principal amount of the Exchange Notes. The Exchange Guarantee, Exchange Notes and the Exchange Preferred Securities have been registered under the Securities Act. Terms of the Exchange Offer The Trust hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, to exchange up to $135,000,000 aggregate Liquidation Amount of Exchange Preferred Securities for a like aggregate Liquidation Amount of Preferred Securities properly tendered on or prior to the Expiration Date and not properly withdrawn in accordance with the procedures described below. The Trust will issue promptly after the Expiration Date, an aggregate Liquidation Amount of up to $135,000,000 of Exchange Preferred Securities in exchange for a like principal amount of outstanding Preferred Securities tendered and accepted in connection with the Exchange Offer. Holders may tender their Preferred Securities in whole or in part in a Liquidation Amount of not less than $100,000 (100 Preferred Securities) or any integral multiple of $1,000 Liquidation amount (one Preferred Security) in excess thereof. 99 The Exchange Offer is not conditioned upon any minimum Liquidation Amount of Preferred Securities being tendered. As of the date of this Prospectus, $135,000,000 aggregate Liquidation Amount of the Preferred Securities is outstanding. Holders of Preferred Securities do not have any appraisal or dissenters' rights in connection with the Exchange Offer. Preferred Securities which are not tendered for or are tendered but not accepted in connection with the Exchange Offer will remain outstanding and be entitled to the benefits of the Declaration, but will not be entitled to any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Risk Factors -- Consequences of a Failure to Exchange Preferred Securities." If any tendered Preferred Securities are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Preferred Securities will be returned, without expense, to the tendering holders thereof promptly after the Expiration Date. Holders who tender Preferred Securities in connection with the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Preferred Securities in connection with the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See " -- Fees and Expenses." NEITHER THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF PREFERRED SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF PREFERRED SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF PREFERRED SECURITIES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL POSITION AND REQUIREMENTS. The term "Expiration Date" means 5:00 p.m., New York City time, on _____________, 1997 unless the Exchange Offer is extended by the Company or the Trust (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). The Company and the Trust expressly reserve the right in their reasonable discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Preferred Securities for exchange, (ii) to terminate the Exchange Offer (whether or not any Preferred Securities have theretofore been accepted for exchange) if the Trust determines, in its reasonable discretion, that any of the events or conditions referred to under " - -- Conditions to the Exchange Offer" have occurred or exist or have not been satisfied and (iii) to extend the Expiration Date of the Exchange Offer and retain all Preferred Securities tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Preferred Securities to withdraw their tendered Preferred Securities as described under " -- Withdrawal Rights." If the Exchange Offer is amended in a manner determined by the Company and the Trust to constitute a material change, or if the Company and the Trust waive a material condition of the Exchange Offer, the Company and the Trust will promptly disclose such amendment or waiver by means of a prospectus supplement that will be distributed to the holders of the Preferred Securities. If any facts or events arise which constitute a fundamental change in the information set forth herein or if any material changes or material additions are made to the Plan of Distribution described herein, the Company and the Trust will file a post-effective amendment to the Registration Statement setting forth the applicable information and will distribute an amended prospectus to the holders of the Preferred Securities. At the time that such prospectus supplement or amended prospectus is first given to holders of Preferred Securities, the Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that such prospectus supplement or amended prospectus is first so given, then the Exchange Offer will be extended until the expiration of such period of ten business days. 100 Any such delay in acceptance, extension, termination or amendment will be followed promptly by oral or written notice thereof to the Exchange Agent and by making a public announcement thereof, and such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company and the Trust may choose to make any public announcement and subject to applicable law, the Company and the Trust shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to an appropriate news agency. Acceptance for Exchange and Issuance of Exchange Preferred Securities Upon the terms and subject to the conditions of the Exchange Offer, the Trust will exchange, and will issue to the Exchange Agent, Exchange Preferred Securities for Preferred Securities validly tendered and not withdrawn promptly after the Expiration Date. In all cases, delivery of Exchange Preferred Securities in exchange for Preferred Securities tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) Preferred Securities or a book-entry confirmation of a book-entry transfer of Preferred Securities into the Exchange Agent's account at DTC, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a participant in the book-entry transfer facility system, an Agent's Message and (iii) any other documents required by the Letter of Transmittal. The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of Preferred Securities into the Exchange Agent's account at DTC. Subject to the terms and conditions of the Exchange Offer, the Trust will be deemed to have accepted for exchange, and thereby exchanged, Preferred Securities validly tendered and not withdrawn as, if and when the Trust gives oral or written notice to the Exchange Agent of the Trust's acceptance of such Preferred Securities for exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent for the Trust for the purpose of receiving tenders of Preferred Securities, Letters of Transmittal and related documents, and as agent for tendering holders for the purpose of receiving Preferred Securities, Letters of Transmittal and related documents and transmitting Exchange Preferred Securities to validly tendering holders. Such exchange will be made promptly after the Expiration Date. If, for any reason whatsoever, acceptance for exchange or the exchange of any Preferred Securities tendered pursuant to the Exchange Offer is delayed (whether before or after the Trust's acceptance for exchange of Preferred Securities) or the Trust extends the Exchange Offer or is unable to accept for exchange or exchange Preferred Securities tendered pursuant to the Exchange Offer, then, without prejudice to the Trust's rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Preferred Securities and such Preferred Securities may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under " -- Withdrawal Rights." Pursuant to the Letter of Transmittal, a holder of Preferred Securities will warrant and agree in the Letter of Transmittal that it has full power and authority to tender, exchange, sell, assign and transfer Preferred Securities, that the Trust will acquire good, marketable and unencumbered title to the tendered Preferred Securities, free and clear of all liens, restrictions, charges and encumbrances, and the Preferred Securities tendered for exchange are not subject to any adverse claims or proxies. The holder also will warrant and agree that it will, upon request, execute and deliver any additional documents deemed by the Trust or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment and transfer of the Preferred Securities tendered pursuant to the Exchange Offer. 101 Procedures for Tendering Preferred Securities Valid Tender Except as set forth below, in order for Preferred Securities to be validly tendered pursuant to the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, or an Agent's Message in case of book-entry delivery as described below, must be received by the Exchange Agent at one of its addresses set forth under " -- Exchange Agent," and either (i) tendered Preferred Securities must be received by the Exchange Agent, or (ii) such Preferred Securities must be tendered pursuant to the procedures for book-entry transfer set forth below and a book-entry confirmation must be received by the Exchange Agent, in each case on or prior to the Expiration Date or (iii) the guaranteed delivery procedures set forth below must be complied with. If less than all of the Preferred Securities are tendered, a tendering holder should fill in the amount of Preferred Securities being tendered in the appropriate box on the Letter of Transmittal. The entire amount of Preferred Securities delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Book-Entry Transfer The Exchange Agent will establish an account with respect to the Preferred Securities at DTC for purposes of the Exchange Offer within two Business Days after the date of this Prospectus. Any financial institution that is a participant in DTC's book-entry transfer facility system may make a book-entry delivery of the Preferred Securities by causing DTC to transfer such Preferred Securities into the Exchange Agent's account at DTC in accordance with DTC's procedures for transfers. Except in the case of a participant in the book-entry transfer facility system who transfers the Preferred Securities by an Agent's Message, delivery of Preferred Securities effected through book-entry transfer into the Exchange Agent's account at DTC requires that the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other required documents, must in any case be delivered to and received by the Exchange Agent at its address set forth under " -- Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure set forth below must be complied with. A Holder who is a participant in the book-entry transfer facility system and transfers the Preferred Securities by an Agent's Message need not transmit the Letter of Transmittal to the Exchange Agent to consummate the exchange. The term "Agent's Message" means a message transmitted through electronic means by a book-entry transfer facility to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the participant tendering the Preferred Securities that such participant has received and agrees to be bound by the Letter of Transmittal and/or the Notice of Guaranteed Delivery (as discussed below), where applicable. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. Signature Guarantees Certificates for the Preferred Securities need not be endorsed and signature guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate for the Preferred Securities is registered in a name other than that 102 of the person surrendering the certificate or (b) such holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b) above, such certificates for Preferred Securities must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the Letter of Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank, (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer, (iii) a credit union, (iv) a national securities exchange, registered securities association or clearing agency, or (v) a savings association that is a participant in a Securities Transfer Association (an "Eligible Institution"), unless surrendered on behalf of such Eligible Institution. See Instruction 1 to the Letter of Transmittal. Guaranteed Delivery If a holder desires to tender Preferred Securities pursuant to the Exchange Offer and the certificates for such Preferred Securities are not immediately available or time will not permit all required documents to reach the Exchange Agent on or prior to the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such Preferred Securities may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with: (a) such tenders are made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form accompanying the Letter of Transmittal, or, in the case of a participant in the book-entry transfer facility system, an Agent's Message, is received by the Exchange Agent, as provided below, on or prior to the Expiration Date; and (c) the certificates (or a book-entry confirmation) representing all tendered Preferred Securities, in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, or, in the case of a participant in the book-entry transfer facility system, an Agent's Message, are received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by facsimile or mailed to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such notice. Notwithstanding any other provision hereof, the delivery of Exchange Preferred Securities in exchange for Preferred Securities tendered and accepted for exchange pursuant to the Exchange Offer will in all cases be made only after timely receipt by the Exchange Agent of Preferred Securities, or of a book-entry confirmation with respect to such Preferred Securities, and a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other documents required by the Letter of Transmittal, or, in the case of a participant in the book-entry transfer facility system, an Agent's Message. Accordingly, the delivery of Exchange Preferred Securities might not be made to all tendering holders at the same time and will depend upon when Preferred Securities, book-entry confirmation with respect to Preferred Securities and other required documents are received by the Exchange Agent. The Trust's acceptance for exchange of Preferred Securities tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering holder and the Trust upon the terms and subject to the conditions of the Exchange Offer. 103 Determination of Validity All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tendered Preferred Securities will be determined by the Company and the Trust, in their sole discretion, whose determination shall be final and binding on all parties. The Company and the Trust reserve the absolute right, in their sole and absolute discretion, to reject any and all tenders determined by them not to be in proper form or the acceptance of which, or exchange for, may, in the opinion of counsel to the Company and the Trust, be unlawful. The Company and the Trust also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer as set forth under " -- Conditions to the Exchange Offer" or any condition or irregularity in any tender of Preferred Securities of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The interpretation by the Company and the Trust of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. No tender of Preferred Securities will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Company, the Trust, any affiliates or assigns of the Company or the Trust, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in tenders or incur any liability for failure to give any such notification. If any Letter of Transmittal, endorsement, bond power, power of attorney, or any other document required by the Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company and the Trust, proper evidence satisfactory to the Company and the Trust, in their sole discretion, of such person's authority to so act must be submitted. A beneficial owner of Preferred Securities that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian is urged to contact such entity promptly if such beneficial holder wishes to participate in the Exchange Offer. Resales of Exchange Preferred Securities The Trust is making the Exchange Offer for the Exchange Preferred Securities in reliance on the position of the Staff set forth in certain interpretive letters addressed to third parties in other transactions. However, neither the Company nor the Trust sought its own interpretive letter and there can be no assurance that the Staff would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the Staff and subject to the two immediately following sentences, the Company and the Trust believe that Exchange Preferred Securities issued pursuant to the Exchange Offer in exchange for Preferred Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Preferred Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Preferred Securities. However, any holder of Preferred Securities who is an "affiliate" of the Company or the Trust or who intends to participate in the Exchange Offer for the purpose of distributing Exchange Preferred Securities, or any broker-dealer who purchased Preferred Securities from the Trust to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the Staff set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Preferred Securities in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Preferred Securities unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Preferred Securities acquired for its own account as a result of market-making or other trading activities and exchanges such Preferred Securities for Exchange Preferred Securities, then such broker-dealer must 104 deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Preferred Securities. Each holder of Preferred Securities who wishes to exchange Preferred Securities for Exchange Preferred Securities in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company or the Trust, (ii) any Exchange Preferred Securities to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Preferred Securities and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Preferred Securities. In addition, the Company and the Trust may require such holder, as a condition to such holder's eligibility to participate in the Exchange Offer, to furnish to the Company and the Trust (or an agent thereof) in writing information as to the number of "beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the Preferred Securities to be exchanged in the Exchange Offer. Each broker-dealer that receives Exchange Preferred Securities for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Exchange Preferred Securities for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Preferred Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the Staff in the interpretive letters referred to above, the Company and the Trust believe that Participating Broker-Dealers who acquired Preferred Securities for their own accounts as a result of market-making activities or other trading activities may fulfill their prospectus delivery requirements with respect to the Exchange Preferred Securities received upon exchange of such Preferred Securities (other than Preferred Securities which represent an unsold allotment from the original sale of the Preferred Securities) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such Exchange Preferred Securities. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the period referred to below in connection with resales of Exchange Preferred Securities received in exchange for Preferred Securities where such Preferred Securities were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Preferred Securities for a period ending 90-days after the Expiration Date (subject to extension under certain limited circumstances described below) or, if earlier, when all such Exchange Preferred Securities have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." However, a Participating Broker-Dealer who intends to use this Prospectus in connection with the resale of Exchange Preferred Securities received in exchange for Preferred Securities pursuant to the Exchange Offer must notify the Company or the Trust, or cause the Company or the Trust to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under " -- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of the Company or the Trust may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In that regard, each Participating Broker-Dealer who surrenders Preferred Securities pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal, that, upon receipt of notice from the Company or the Trust of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Preferred Exchange Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) pursuant to this Prospectus until the Company or the Trust has amended or supplemented this Prospectus to correct such misstatement or omission and has 105 furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Company or the Trust has given notice that the sale of the Exchange Preferred Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) may be resumed, as the case may be. If the Company or the Trust give such notice to suspend the sale of the Exchange Preferred Securities (or the Exchange Guarantee or the Senior Subordinated Notes, as applicable), it shall extend the 90-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of Exchange Preferred Securities by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker- Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the Exchange Preferred Securities or to and including the date on which the Company or the Trust has given notice that the sale of Exchange Preferred Securities (or the Exchange Guarantee or the Exchange Notes, as applicable) may be resumed, as the case may be. Withdrawal Rights Except as otherwise provided herein, tenders of Preferred Securities may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective, a written or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth under " -- Exchange Agent" on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Preferred Securities to be withdrawn, the aggregate principal amount of Preferred Securities to be withdrawn, and (if certificates for such Preferred Securities have been tendered) the name of the registered holder of the Preferred Securities as set forth on the Preferred Securities, if different from that of the person who tendered such Preferred Securities. If Preferred Securities have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Preferred Securities, the tendering holder must submit the serial number shown on the particular Preferred Securities to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Preferred Securities tendered for the account of an Eligible Institution. If Preferred Securities have been tendered pursuant to the procedures for book-entry transfer set forth in " -- Procedures for Tendering Preferred Securities," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Preferred Securities, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written or facsimile transmission. Withdrawals of tenders of Preferred Securities may not be rescinded. Preferred Securities properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described above under " -- Procedures for Tendering Preferred Securities." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Trust, in its sole discretion, whose determination shall be final and binding on all parties. Neither the Company, the Trust, any affiliates or assigns of the Company or the Trust, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Preferred Securities which have been tendered but which are withdrawn will be returned to the holder thereof promptly after withdrawal. Distributions on Exchange Preferred Securities Holders of Preferred Securities whose Preferred Securities are accepted for exchange will not receive Distributions on such Preferred Securities and will be deemed to have waived the right to receive any Distributions on such Preferred Securities accumulated from and after August 12, 1997. Accordingly, holders of Exchange Preferred Securities as of the record date for the payment of Distributions on February 15, 1998 will be entitled to receive Distributions accumulated from and after August 12, 1997. 106 Conditions to the Exchange Offer Notwithstanding any other provision of the Exchange Offer, or any extension of the Exchange Offer, the Company and the Trust will not be required to accept for exchange, or to exchange, any Preferred Securities for any Exchange Preferred Securities, and, as described below, may terminate the Exchange Offer (whether or not any Preferred Securities have theretofore been accepted for exchange) if any of the following conditions have occurred or exist or have not been satisfied: (a) there shall occur a change in the current interpretation by the Staff which permits the Exchange Preferred Securities issued pursuant to the Exchange Offer in exchange for Preferred Securities to be offered for resale, resold and otherwise transferred by holders thereof (other than broker-dealers and any such holder which is an "affiliate" of the Company or the Trust within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Preferred Securities are acquired in the ordinary course of such holder's business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Preferred Securities; or (b) any law, statute, rule or regulation shall have been adopted or enacted which, in the judgment of the Company or the Trust, would reasonably be expected to impair its ability to proceed with the Exchange Offer; or (c) a stop order shall have been issued by the Commission or any state securities authority suspending the effectiveness of the Registration Statement or proceedings shall have been initiated or, to the knowledge of the Company or the Trust, threatened for that purpose or any governmental approval has not been obtained, which approval the Company or the Trust shall, in its reasonable discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company or the Trust determines in its reasonable discretion that any of the foregoing events or conditions has occurred or exist or has not been satisfied, it may, subject to applicable law, terminate the Exchange Offer (whether or not any Preferred Securities have theretofore been accepted for exchange) or may waive any such condition or otherwise amend the terms of the Exchange Offer in any respect. If such waiver or amendment constitutes a material change to the Exchange Offer, the Company or the Trust will promptly disclose such waiver or amendment by means of a prospectus supplement that will be distributed to the registered holders of the Preferred Securities. If such waiver or amendment constitutes a fundamental change to the Exchange Offer, the Company and the Trust will file a post-effective amendment to the Registration Statement setting forth the applicable information and will distribute an amended prospectus to the holders of the Preferred Securities. At the time that such prospectus supplement or amended prospectus is first given to holders of Preferred Securities, the Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that such prospectus supplement or amended prospectus is first so given, then the Exchange Offer will be extended until the expiration of such period of ten business days. Exchange Agent Wilmington Trust Company has been appointed as Exchange Agent for the Exchange Offer. Delivery of the Letters of Transmittal and any other required documents, questions, requests for assistance, and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent, by registered or certified mail or by hand or overnight delivery, as follows: 107 Wilmington Trust Company One Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Services CONFIRM BY TELEPHONE: (302) 651-8869 FACSIMILE TRANSMISSIONS: (ELIGIBLE INSTITUTIONS ONLY) (302) 651-1079 Delivery to other than the above addresses or facsimile number will not constitute a valid delivery. Fees and Expenses The Company has agreed to pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and related documents to the beneficial owners of Preferred Securities, and in handling or tendering for their customers. Holders who tender their Preferred Securities for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, Exchange Preferred Securities are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Preferred Securities tendered, or if a transfer tax is imposed for any reason other than the exchange of Preferred Securities in connection with the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Neither the Company nor the Trust will make any payment to brokers, dealers or other nominees soliciting acceptance of the Exchange Offer. 108 DESCRIPTION OF EXCHANGE PREFERRED SECURITIES The following summary of certain material terms of the Exchange Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Declaration. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Declaration. For the purposes of this section, as well as the sections entitled, "Description of the Exchange Guarantee," "Description of the Exchange Notes" and "Relationship Among the Exchange Preferred Securities, the Declaration, the Exchange Notes and the Exchange Guarantee," the "Company" refers to Symons International Group, Inc. exclusive of its Subsidiaries or affiliates. General Pursuant to the terms of the Declaration, the Trust has issued the Preferred Securities and the Common Securities and will issue the Exchange Preferred Securities. The Exchange Preferred Securities will represent preferred beneficial interests in the Trust and the holders of the Exchange Preferred Securities and the Preferred Securities will be entitled to a preference over the Common Securities in certain circumstances with respect to Distributions and amounts payable on redemption of the Trust Securities or liquidation of the Trust. See " -- Subordination of Common Securities." The Declaration has been qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). This summary of the material provisions of the Securities and the Declaration does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Declaration, including the definitions therein of certain terms. The Securities (including the Preferred Securities and the Exchange Preferred Securities) are limited to $135,000,000 aggregate Liquidation Amount at any one time outstanding. The Exchange Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities and the Common Securities except as described under " -- Subordination of Common Securities." Legal title to the Exchange Notes will be held by the Preferred Trustee in trust for the benefit of the holders of the Securities and the Common Securities. The Exchange Guarantee will be a guarantee on a subordinated basis but will not guarantee payment of Distributions or amounts payable on redemption of the Exchange Preferred Securities or on liquidation of the Trust when the Trust does not have cash on hand legally available for such payments. See " -- Description of Exchange Guarantee." Distributions Distributions on the Exchange Preferred Securities will be fixed at a rate per annum of 9 1/2% of the stated Liquidation Amount of $1,000 per Exchange Preferred Security. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve thirty-day months. Distributions on the Exchange Preferred Securities will be cumulative, will accrue from the date of initial issuance and will be payable semi-annually in arrears on each February 15 and August 15, commencing February 15, 1998, when, as and if the Trust has funds available for payment. Distributions on the Exchange Preferred Securities must be paid semi-annually on the dates payable to the extent that the Trust has funds available for the payment of such Distributions. The Trust's funds available for distribution to the holders of the Exchange Preferred Securities will be limited to payments received from the Company on the Exchange Notes in which the Trust has invested the proceeds from the issuance and sale of the Trust Securities. See "Description of the Exchange Notes." The payment of Distributions, to the extent of funds of the Trust available therefor, is guaranteed by the Company on a limited basis, as set forth under "Description of the Exchange Guarantee." Distributions on the Exchange Preferred Securities will be payable to the holders thereof as they appear on the books and records of the Trust on the relevant record dates, which will be one day prior to the relevant payment dates (fifteen days if the Exchange Preferred Securities do not remain in book-entry-only form). Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment will be made as described under "Form, 109 Denomination, Book-Entry Procedures and Transfer" below. In the event that any date on which Distributions are payable on the Exchange Preferred Securities is not a Business Day (as defined below), payment of the Distribution payable on such date will be made on the next succeeding day which is a Business Day (without any distribution or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "Business Day" shall mean any day other than a day on which banking institutions in the City of New York are authorized or required by law to close. So long as no Event of Default under the Indenture shall have occurred and be continuing, the Company has the right under the Indenture to defer payment of interest on the Exchange Notes at any time or from time to time for a period not exceeding ten consecutive semi-annual periods (collectively, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity Date. As a consequence of any such deferral of interest payments by the Company, semi-annual Distributions on the Exchange Preferred Securities will also be deferred by the Trust during any such Extension Period. Distributions to which holders of the Exchange Preferred Securities are entitled will accumulate additional Distributions thereon at the rate per annum of 9 1/2% thereof, compounded semi-annually from the relevant payment date for such Distributions. The term "Distributions" as used herein shall include any such additional Distributions. During any such Extension Period, the Company may extend such Extension Period, provided that such extension does not cause such Extension Period to exceed ten consecutive semi-annual periods or to extend beyond the Stated Maturity Date. Upon the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, the Company may elect to begin a new Extension Period. The Company must give the Preferred Trustee and the Indenture Trustee notice of its election of any Extension Period or any extension thereof at least five Business Days prior to the earlier of (i) the date the Distributions on the Exchange Preferred Securities would have been payable except for the election to begin or extend such Extension Period and (ii) the date the Trustees are required to give notice to any securities exchange or to holders of the Exchange Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than five Business Days prior to such record date. There is no limitation on the number of times that the Company may elect to begin an Extension Period. Such deferral shall not be deemed a default under the Indenture. Such extension shall not be deemed a default under the Indenture. See "Description of the Exchange Notes" and "Certain United States Federal Income Tax Considerations." During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's Capital Stock, (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Senior Subordinated Notes subject to certain exceptions described herein or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in right of payment to the Senior Subordinated Notes (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Exchange Guarantee, (d) as a result of a reclassification of the Company's Capital Stock or the exchange or conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, (e) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Company Capital Stock or the security being converted or exchanged and (f) purchases or issuances of Common Stock in connection with any of the Company's stock option, stock purchase, stock loan or other benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans, in each case as now existing or hereafter established or amended). See "Description of Exchange Notes." The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Exchange Notes. 110 Optional Redemption The Company is permitted to redeem the Exchange Notes in whole or in part, from time to time, after August 15, 2007, upon not less than thirty nor more than sixty days' notice. See "Description of the Exchange Notes -- Optional Redemption." Upon any redemption in whole or in part of the Exchange Notes at the option of the Company, the proceeds from such redemption shall simultaneously be applied by the Trust to redeem Exchange Preferred Securities and Common Securities at the prices set forth herein, plus accrued and unpaid Distributions thereon to the date fixed for redemption ("Redemption Price") together with the related amount of the premium, if any, paid by the Company upon the concurrent redemption of such Exchange Notes. See "Description of Exchange Notes -- Optional Redemption." In the event that fewer than all the outstanding Exchange Notes are to be so redeemed, then the proceeds from such redemption shall be allocated to the redemption pro rata of the Exchange Preferred Securities and the Common Securities. In the event of any redemption in part, the Trust shall not be required to (i) issue, register the transfer of or exchange any of the Exchange Preferred Securities during a period beginning at the opening of business fifteen days before any selection for redemption of Exchange Preferred Securities and ending at the close of business on the earliest date in which the relevant notice of redemption is deemed to have been given to all holders of Exchange Preferred Securities to be so redeemed and (ii) register the transfer of or exchange any Exchange Preferred Securities so selected for redemption, in whole or in part, except for the unredeemed portion of any Exchange Preferred Securities being redeemed in part. Tax Event or Investment Company Event Redemption or Distribution If a Tax Event or Investment Company Event (as defined herein) shall occur and be continuing, the Company shall cause the Trustees to dissolve and liquidate the Trust and, after satisfaction of the liabilities of the Trust, cause the Exchange Notes to be distributed to the holders of the Trust Securities in liquidation of the Trust within ninety days following the occurrence of such Tax Event; provided, however, that such liquidation and distribution shall be conditioned on (i) the Trustees' receipt of an opinion of independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Exchange Preferred Securities will not recognize any income, gain or loss for United States federal income tax purposes as a result of such liquidation and distribution of Exchange Notes and (ii) the Company being unable to avoid such Tax Event within such 90-day period by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on the Trust, the Company or the holders of the Exchange Preferred Securities and will involve no material cost. Furthermore, if (i) the Company has received an opinion (a "Redemption Tax Opinion") of independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Company would be precluded from deducting the interest on the Exchange Notes for United States federal income tax purposes, even after the Exchange Notes were distributed to the holders of the Exchange Preferred Securities upon liquidation of the Trust as described above or (ii) the Trustees shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion, the Company shall have the right, upon not less than thirty nor more than sixty days' notice and within ninety days following the occurrence of the Tax Event, to redeem the Exchange Notes, in whole (but not in part) for cash, at 100% of the principal amount thereof plus accrued and unpaid interest and, following such redemption, all the Exchange Preferred Securities and Common Securities will be redeemed by the Trust at the Liquidation Amount of $1,000 per Trust Security plus accrued and unpaid Distributions; provided, however, that, if at the time there is available to the Company or the Trust the opportunity to eliminate, within such ninety-day period, the Tax Event by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on the Trust, the Company or the holders of the Exchange Preferred Securities and will involve no material cost, the Trust or the Company will pursue such measure in lieu of redemption. See " -- Mandatory Redemption." 111 If the Company does not elect any of the options described above, the Exchange Preferred Securities will remain outstanding until repayment of the Exchange Notes, whether at maturity or redemption, and in the event a Tax Event has occurred and is continuing pursuant to the Indenture, the Company will be obligated to pay any additional taxes, duties, assessments and other governmental charges (other than withholding taxes) to which the Trust has become subject as a result of the Tax Event as additional interest on the Exchange Notes. "Tax Event" means that the Company shall have obtained an opinion of an independent tax counsel experienced in such matters to the effect that, as a result of (i) any amendment to or change (including any announced proposed change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (ii) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after the date of issuance of the Exchange Preferred Securities), which amendment or change is effective or which proposed change, interpretation or pronouncement is announced on or after the date of this Prospectus, there is more than an insubstantial risk that (i) the Trust is or, within ninety days of the delivery of opinion of counsel, will be subject to United States federal income tax with respect to interest received or accrued on the Senior Subordinated Notes, (ii) interest payable to the Trust on the Senior Subordinated Notes is not or, within ninety days of the delivery of opinion of counsel, will not be deductible for United States federal income tax purposes by the Company or (iii) the Trust is or, within ninety days of the delivery of opinion of counsel, will be subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges of whatever nature imposed by the United States or any other taxing authority. "Investment Company Event" means the receipt by the Company of an Opinion of Counsel, rendered by an independent law firm having experience in tax and securities matters, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or will be considered an "investment company" that is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities of the Trust. Mandatory Redemption The Exchange Notes will mature on August 15, 2027 and may be redeemed, in whole or in part, at any time after August 15, 2007 or at any time in certain circumstances upon the occurrence of a Tax Event or an Investment Company Event. Upon the repayment of the Exchange Notes, whether at maturity, upon redemption, by declaration or otherwise, after satisfaction of the liabilities of the Trust, the proceeds from such repayment or redemption shall simultaneously be applied to redeem Trust Securities having an aggregate Liquidation Amount equal to the Exchange Notes so repaid or redeemed at the Redemption Price together with the related amount of premium, if any, paid by the Company upon the concurrent redemption of such Exchange Notes, provided that holders of the Trust Securities shall be given not less than thirty nor more than sixty days' notice of such redemption. See " -- Tax Event or Investment Company Event Redemption or Distribution," "Description of the Exchange Notes -- General" and "Optional Redemption." If less than all of the Exchange Notes are to be repaid or redeemed, then the proceeds from such prepayment or redemption shall be allocated to the redemption pro rata of the Exchange Preferred Securities and the Common Securities. The amount of premium, if any, paid by the Company upon the redemption of all or any part of the Exchange Notes to be repaid or redeemed shall be allocated to the redemption pro rata of the Exchange Preferred Securities and the Common Securities. Change of Control Redemption Upon the occurrence of a Change of Control Triggering Event (as defined herein), a holder of Trust Securities has the right to require the Trust to exchange all or any part of the holder's Trust Securities for Notes having an aggregate principal amount equal to the aggregate Liquidation Amount of the Trust Securities so offered. Upon the occurrence of such an event, the Company will be required to immediately redeem any Exchange Notes so exchanged 112 at a redemption price equal to 101% of the principal amount thereof plus any accrued and unpaid interest. See "Description of the Exchange Notes -- Change of Control." Liquidation Distribution Upon Dissolution In the event of any voluntary or involuntary liquidation, dissolution, winding up or termination of the Trust, the holders of Trust Securities at the time will be entitled to receive out of the assets of the Trust available for Distribution to holders of Trust Securities after satisfaction of liability to creditors of the Trust an amount equal to the aggregate of the stated Liquidation Amount of $1,000 per each of the Exchange Preferred Securities and accrued and unpaid distributions thereon to the date of payment (the "Liquidation Distribution"), unless, in connection with such liquidation, dissolution, winding up or termination, Senior Subordinated Notes in an aggregate principal amount equal to the Liquidation Distribution have been distributed on a pro rata basis to the holders of the Exchange Preferred Securities. If such Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Exchange Preferred Securities shall be paid on a pro rata basis. The holder(s) of the Trust's Common Securities will be entitled to receive distributions upon any such liquidation pro rata with the holders of the Exchange Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the Exchange Preferred Securities shall have a priority over the Common Securities. Pursuant to the Declaration, the Trust shall be dissolved and its affairs shall be wound up upon the earliest to occur of the following: (i) August 15, 2047, the expiration of the term of the Trust, (ii) the bankruptcy, liquidation or dissolution of the Company, (iii) the revocation of the Company's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof, (iv) the entry of a decree of judicial dissolution of the Company or the Trust by a court of competent jurisdiction, (v) all of the Trust Securities have been called for redemption and the Redemption Price has been paid to the holders in accordance with the terms of the Trust Securities, (vi) the distribution of all of the Trust Property (as defined in the Declaration), (viii) the written direction to the Preferred Trustee from the Company at any time (which direction is optional and wholly within the discretion of the Company) to dissolve the Trust and distribute the Senior Subordinated Notes to the holders thereof in exchange for the Exchange Preferred Securities, (ix) the redemption of all of the Exchange Preferred Securities in connection with the redemption of all of the Senior Subordinated Notes, (x) subject to certain conditions, the occurrence of a Tax Event, (xi) the occurrence of an Investment Company Event or (xii) the occurrence of a Change of Control Triggering Event. Redemption Procedures The Exchange Preferred Securities will not be redeemed unless all accrued and unpaid Distributions have been paid on all Exchange Preferred Securities for all semi-annual distribution periods terminating on or prior to the date of redemption. If the Trust gives a notice of redemption in respect of Exchange Preferred Securities (which notice will be irrevocable), then, by 12:00 noon, New York City time, on the redemption date, the Trust will irrevocably deposit with DTC funds sufficient to pay the amount payable on redemption and will give DTC irrevocable instructions and authority to pay such amount in respect of Exchange Preferred Securities represented by the Global Exchange Preferred Securities and will irrevocably deposit with the paying agent for the Exchange Preferred Securities funds sufficient to pay such amount in respect of any Exchange Preferred Securities and will give such paying agent irrevocable instructions and authority to pay such amount to the holders of Exchange Preferred Securities upon surrender of their certificates. Notwithstanding the foregoing, Distributions payable on or prior to the redemption date for any Exchange Preferred Securities called for redemption shall be payable to the holders of such Exchange Preferred Securities on the relevant record dates for the related Distribution dates. If notice of redemption shall have been given and funds are deposited as required, then upon the date of such deposit, all rights of holders of such Exchange Preferred Securities so called for redemption will cease; except for the right of the holders of such Exchange Preferred Securities to receive the redemption price and any Distributions payable on or prior to the date of redemption, but without interest on such redemption price. In the event that any date fixed for redemption of Exchange Preferred Securities is not a Business 113 Day, then payment of the amount payable on such date will be made on the next succeeding day which is a Business Day (without any interest on other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the redemption price in respect of Exchange Preferred Securities is improperly withheld or refused and not paid by the Trust or the sponsor pursuant to the Exchange Guarantee, Distributions on such Exchange Preferred Securities will continue to accrue at the then applicable rate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for the purpose of calculating the amount payable upon redemption (other than for the purpose of calculating any premium). Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Company or its Subsidiaries may at any time and from time to time purchase outstanding Exchange Preferred Securities by tender, in the open market or by private agreement. If less than all of the Exchange Preferred Securities and Common Securities are to be redeemed, then the aggregate Liquidation Amount of such Exchange Preferred Securities and Common Securities to be redeemed shall be allocated pro rata to the Preferred Securities and the Common Securities based upon the relative liquidation amounts of such classes. The Preferred Trustee shall promptly notify the trust registrar in writing of the portion of the Preferred Securities to be redeemed. For all purposes of the Declaration, unless the context otherwise requires, all provisions relating to the redemption of Exchange Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the aggregate Liquidation Amount of Preferred Securities which has been or is to be redeemed. Notice of any redemption will be mailed at least thirty days but nor more than sixty days before the date of the redemption to each holder of Trust Securities to be redeemed at its registered address. Unless the Company defaults in payment of the redemption price on the Exchange Notes, on and after the date of the redemption interest ceases to accrue on such Exchange Notes or portions thereof (and Distributions cease to accrue on the Exchange Preferred Securities or portions thereof) called for redemption. Subordination of Common Securities Payment of Distributions on, and the amount payable upon redemption or liquidation of, the Trust Securities, as applicable, shall be made pro rata based on the Liquidation Amount of such Trust Securities; provided, however, that, if on any distribution date or redemption date a Declaration Event of Default (as defined below) under the Declaration shall have occurred and be continuing, no payment of any distribution on, or amount payable upon redemption of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of accumulated and unpaid Distributions on all outstanding Exchange Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the amount payable upon redemption of the Exchange Preferred Securities, the full amount thereof in respect of all outstanding Exchange Preferred Securities, shall have been made or provided for, and all funds available to the Preferred Trustee shall first be applied to the payment in full in cash of all Distributions on, or the amounts payable upon redemption of, Preferred Securities then due and payable. In the case of any Declaration Event of Default, the holder of Common Securities will be deemed to have waived the right to act with respect to any such Declaration Event of Default until all such Declaration Events of Default with respect to the Exchange Preferred Securities have been cured, waived or otherwise eliminated. Until any such Declaration Events of Default with respect to the Exchange Preferred Securities have been cured, waived or otherwise eliminated, the Trustees shall act solely on behalf of the holders of the Exchange Preferred Securities and not the holder of the Common Securities, and only the holders of the Exchange Preferred Securities will have the right to direct the Trustees to act on their behalf. Declaration Events of Default An event of default under the Indenture (an "Event of Default") or a default by the Company under the Exchange Guarantee constitutes an event of default under the Declaration with respect to the Trust Securities (a 114 "Declaration Event of Default"); provided that pursuant to the Declaration, the holder(s) of the Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Common Securities until all Declaration Events of Default with respect to the Exchange Preferred Securities have been cured, waived or otherwise eliminated. Until such Declaration Events of Default with respect to the Exchange Preferred Securities have been so cured, waived or otherwise eliminated, the Preferred Trustee will be deemed to be acting solely on behalf of the holders of the Exchange Preferred Securities and only the holders of the Exchange Preferred Securities will have the right to direct the Preferred Trustee with respect to certain matters under the Declaration and, therefore, the Indenture. If a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest on or principal of the Senior Subordinated Notes on the date such interest or principal is otherwise payable (or in the case of redemption, the redemption date), unless such payment is otherwise excused for the reasons herein stated, then holders of not less than 25% in Liquidation Amount of outstanding Exchange Preferred Securities have the right to appoint a trustee (the "Special Trustee") to act on behalf of all holders of Exchange Preferred Securities. The Special Trustee appointed in accordance with the preceding sentence will represent the holders of all outstanding Exchange Preferred Securities unless the holders of at least a majority in Liquidation Amount of the outstanding Exchange Preferred Securities appoint an alternative Special Trustee in which case the Special Trustee appointed in accordance with the preceding sentence will be required to resign as Special Trustee. At no time can there be more than one Special Trustee acting on behalf of the holders of Exchange Preferred Securities. The Special Trustee will have the right to directly institute a proceeding against the Company (a "Trustee Action") for enforcement of payment to the Holders of Exchange Preferred Securities of the principal of or interest on the Exchange Notes having a principal amount equal to the aggregate Liquidation Amount of the Exchange Preferred Securities of such Holders. In connection with such action, the rights of the Company as holder of Common Securities will be subrogated to the rights of the Holders of Exchange Preferred Securities under the Declaration to the extent of any payment made by the Company to such Holders in such Trustee action. If the Preferred Trustee or the Special Trustee do not enforce such payment obligations, a holder of Exchange Preferred Securities will have the right to bring an action on behalf of the Trust to enforce the Trust's rights under the Exchange Notes and the Indenture. The holders of Exchange Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Exchange Notes. Upon the occurrence of a Declaration Event of Default, the Preferred Trustee as the sole holder of the Exchange Notes will have the right under the Indenture to declare the principal of and interest on the Exchange Notes to be immediately due and payable. The Company and the Trust are each required to file annually with the Preferred Trustee an officer's certificate as to its compliance with all conditions and covenants under the Declaration. Merger, Consolidation or Amalgamation of the Trust The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other person, except as described below, or as described in "Liquidation Distribution Upon Dissolution." The Trust may, without the consent of the holders of the Exchange Preferred Securities, consolidate, amalgamate, merge with or into, 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 of the United States of America; provided that (i) if the Trust is not the survivor, such successor entity either (x) expressly assumes all of the obligations of the Trust under the Trust Securities or (y) substitutes for the Trust Securities other securities having substantially the same terms as the Trust Securities (the "Successor Securities") as long as the Successor Securities rank the same as the Trust Securities with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Company expressly appoints a trustee of the successor entity that possesses the same powers and duties as the Preferred Trustee as the holder of the Senior Subordinated Notes, (iii) the Exchange Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Exchange Preferred Securities are then listed, if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Exchange Preferred Securities (including any Successor Securities) to be downgraded by any statistical rating organization, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor 115 Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) the Company has provided a guarantee to the holders of the Successor Securities with respect to such successor entity having substantially the same terms as the Exchange Guarantee and (viii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company has received an opinion of independent counsel to the Trust experienced in such matters to the effect that (x) such successor entity will be treated as a grantor trust for United States federal income tax purposes or otherwise as an entity that is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity, (y) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Company nor such successor entity will be required to register as an investment company under the 1940 Act and (z) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease will not adversely affect the rights, preferences, privileges and limited liability of the Exchange Preferred Securities in any material respect. Notwithstanding the foregoing, the Trust shall not, except with the consent of the holders of 100% in Liquidation Amount of the Trust Securities, consolidate, amalgamate, merge with or into, be replaced by, 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 or replace it, if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. Voting Rights Except as described herein and under "Description of the Exchange Guarantee -- Amendments and Assignment" and as provided in the Delaware Business Trust Act and the Trust Indenture Act and as otherwise required by law and the Declaration, the holders of the Preferred Securities will have no voting rights. Subject to the requirement of the Preferred Trustee obtaining a tax opinion in certain circumstances set forth in the last sentence of this paragraph, the holders of a majority in aggregate Liquidation Amount of the Exchange Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Preferred Trustee or Special Trustee, if approved, or direct the exercise of any trust or power conferred upon the Preferred Trustee under the Declaration including the right to direct the Preferred Trustee, as holder of the Senior Subordinated Notes, to (i) exercise the remedies available under the Indenture with respect to the Senior Subordinated Notes, (ii) waive any past Event of Default that may be waived under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Exchange Notes shall be due and payable or (iv) consent to any amendment, modification, or termination of the Indenture or the Exchange Notes where such consent shall be required; provided, however, that where a consent or action under the Indenture would require the consent or act of the holders of more than a majority of the aggregate principal amount of Exchange Notes affected thereby, only the holders of the percentage of the aggregate stated Liquidation Amount of the Exchange Preferred Securities which is at least equal to the percentage required under the Indenture may direct the Preferred Trustee to give such consent or take such action. The Trustees shall not revoke any action previously authorized or approved by a vote of holders of Preferred Securities except by subsequent vote of the holders of Preferred Securities. If the Preferred Trustee or the Special Trustee fails to enforce its rights under the Exchange Notes to receive interest or principal on the Exchange Notes on the date such interest or principal is otherwise payable (or in the case of redemption, the redemption date), a holder of record of Exchange Preferred Securities may institute a legal proceeding on behalf of the Trust against the Company to enforce the Trust's rights under the Exchange Notes without first instituting any legal proceeding against the Preferred Trustee or any other person or entity. The holders of the Exchange Preferred Securities would not be able to exercise directly any other remedies available to the holder of the Exchange Notes unless the Preferred Trustee or the Indenture Trustee, acting for the benefit of the Preferred Trustee, fails to do so. In such event, the holders of at least 25% in aggregate Liquidation Amount of outstanding Exchange Preferred Securities would have a right to institute such proceedings. The Preferred Trustee shall notify all holders of the Exchange Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Exchange Notes. Such notice shall state that such Event of Default also constitutes a Declaration Event of Default. Except with respect to directing the time, method and place 116 of conducting a proceeding for a remedy, the Preferred Trustee shall not take any of the actions described in clause (i), (ii) or (iii) above unless the Preferred Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not fail to be classified as a grantor trust for United States federal income tax purposes or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. In the event the consent of the Preferred Trustee, as the holder of the Exchange Notes, is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Preferred Trustee shall request the direction of the holders of the Exchange Preferred Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a majority in Liquidation Amount of the Exchange Preferred Securities; provided, however that where a consent under the Indenture would require the consent of the holders of more than a majority of the aggregate principal amount of the Exchange Notes, the Preferred Trustee may only give such consent at the direction of the holders of at least the same proportion in accordance with the directions of the holders of the Exchange Preferred Securities unless the Preferred Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. A waiver of an Event of Default under the Indenture will constitute a waiver of the corresponding Declaration Event of Default. Any required approval of direction of holders of Exchange Preferred Securities may be given at a separate meeting of holders of Exchange Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities or pursuant to written consent. The Trustees will cause a notice of any meeting at which holders of Exchange Preferred Securities are entitled to vote, or of any matter which action by written consent of such holders is to be taken, to be mailed to each holder of record of Exchange Preferred Securities. Each such notice will include a statement setting forth the following information: (i) the date, place and purpose of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such consent of the holders of Exchange Preferred Securities which will be required for the Trust to redeem and cancel Exchange Preferred Securities or distribute Exchange Notes in accordance with the Declaration. Notwithstanding that holders of Exchange Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Exchange Preferred Securities that are owned at such time by the Company or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Company, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Exchange Preferred Securities were not outstanding. The procedures by which holders of Exchange Preferred Securities may exercise their voting rights are described below. Holders of the Exchange Preferred Securities will have no rights to appoint or remove, or increase or decrease the number of, the Trustees, who may be appointed, removed or replaced, increased or decreased solely by the Company as the indirect or direct holder of all of the Common Securities. 117 Modification of the Declaration The Declaration may be modified and amended by the Trustees and the Company, provided, that if any proposed amendment provides for, or the Trustees or the Company otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or termination of the Trust other than pursuant to the terms of the Declaration, then the holders of the Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority in Liquidation Amount of the Trust Securities affected thereby; provided that if any amendment or proposal referred to in clause (i) above would adversely affect only the Exchange Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority in Liquidation Amount of such class of Trust Securities. Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity, (ii) reduce or otherwise adversely affect the powers of the Trustees or (iii) cause the Trust to be deemed an "investment company" which is required to be registered under the 1940 Act. Form, Denomination, Book-Entry Procedures and Transfer The Exchange Preferred Securities initially will be represented by one or more Exchange Preferred Securities certificates in registered, global form (collectively, the "Global Exchange Preferred Securities"). The Global Exchange Preferred Securities will be deposited upon issuance with the Preferred Trustee as custodian for DTC, in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Exchange Preferred Securities may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Exchange Preferred Securities may not be exchanged for Exchange Preferred Securities in certificated form except in the limited circumstances described below. See " -- Exchange of Book-Entry Preferred Securities for Certificated Exchange Preferred Securities." Depository Procedures DTC has advised the Trust and the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Trust and the Company that, pursuant to procedure established by it, (i) upon deposit of the Global Exchange Preferred Securities, DTC will credit the accounts of Participants with portions of the Liquidation Amount of the Global Exchange Preferred Securities and (ii) ownership of such interests in the Global Exchange Preferred Securities will be shown on, and the transfer of ownership thereof will be effected only through, 118 records maintained by DTC (with respect to the Participants ) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Exchange Preferred Securities). Except as described below, owners of interests in the Global Exchange Preferred Securities will not have Exchange Preferred Securities registered in their name, will not receive physical delivery of Exchange Preferred Securities in certificated form and will not be considered the registered owners or holders thereof under the Declaration for any purpose. Payments in respect of the Global Exchange Preferred Security registered in the name of DTC or its nominee will be payable by the Preferred Trustee to DTC in its capacity as the registered holder under the Trust Agreement. Under the terms of the Declaration, the Preferred Trustee will treat the persons in whose names the Exchange Preferred Securities, including the Global Exchange Preferred Securities, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Preferred Trustee nor any agent thereof has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Exchange Preferred Securities, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Exchange Preferred Securities or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Trust and the Company that its current practice, upon receipt of any payment in respect of securities such as the Exchange Preferred Securities, is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in Liquidation Amount of beneficial interests in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to be beneficial owners of Exchange Preferred Securities will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Preferred Trustee, the Trust or the Company. None of the Trust, the Company or the Preferred Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Preferred Securities, and the Trust or the Company and the preferred Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Beneficial interests in the Global Exchange Preferred Securities will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interest will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its participants. DTC has advised the Trust and the Company that it will take any action permitted to be taken by a holder of Exchange Preferred Securities only at the direction of one or more Participants on whose account with DTC interests in the Global Exchange Preferred Securities are credited and only in respect of such portion of the Liquidation Amount of the Exchange Preferred Securities as to which such Participant or Participants has or have given such direction However, if there is a Indenture Event of Default, DTC reserves the right to exchange the Global Exchange Preferred Securities for legended Exchange Preferred Securities in certificated form and to distribute such Exchange Preferred Securities to its Participants. The information in this section concerning DTC and its book-entry system has been obtained from sources that the Trust and the Company believe to be reliable, but neither the Trust nor the Company takes responsibility for the accuracy thereof. Exchange of Book-Entry Exchange Preferred Securities for Certificated Exchange Preferred Securities A Global Exchange Preferred Security is exchangeable for Exchange Preferred Securities in registered certificated form if (i) DTC (x) notifies the Trust that it is unwilling or unable to continue as Depository for the Global Exchange Preferred Security and the Trust thereupon fails to appoint a successor Depository within ninety days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company in its sole discretion elects to 119 cause the issuance of the Exchange Preferred Securities in certificated form or (iii) there shall have occurred and be continuing an Indenture Event of Default or any event which after notice or lapse of time or both would be an Indenture Event of Default. In addition, beneficial interests in a Global Exchange Preferred Security may be exchanged for certificated Exchange Preferred Securities upon request but only upon at least twenty days prior written notice given to the Preferred Trustee by or on behalf of DTC in accordance with customary procedures. In all cases, certificated Exchange Preferred Securities delivered in exchange for any Global Exchange Preferred Security or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depository (in accordance with its customary procedures) and will bear the legend referred to in "Notice to Investors," unless the Preferred Trustee determines otherwise in compliance with applicable law. Payment and Paying Agency Payments in respect of the Exchange Preferred Securities shall be made to DTC, which shall credit the relevant accounts at DTC on the applicable distribution dates or, in the case of certificated Exchange Preferred Securities, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the Register. The Paying Agent shall initially be Wilmington Trust Company. The Paying Agent shall be permitted to resign as Paying Agent upon thirty days' written notice to the Trustees. In the event that Wilmington Trust Company shall no longer be the Paying Agent, the Trustees shall appoint a successor to act as Paying Agent (which shall be a bank or trust company.) Registrar and Transfer Agent Wilmington Trust Company will act as registrar and transfer agent for the Exchange Preferred Securities. Registration of transfers of Exchange Preferred Securities will be effected without charge by or on behalf of the Trust, but upon payment (with the giving of such indemnity as the Trust or the Company may require) in respect of any tax or other government charges which may be imposed in relation to it. The Trust will not be required to register or cause to be registered the transfer of Exchange Preferred Securities after such Exchange Preferred Securities have been called for redemption. Information Concerning the Preferred Trustee The Preferred Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Declaration and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Preferred Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Exchange Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Preferred Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Preferred Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. Miscellaneous The Company Trustees are authorized and directed to conduct the affairs of and to operate the Trust in such a way that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act or characterized as other than a grantor trust for United States federal income tax purposes or otherwise as an entity that is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity, and so that the Exchange Notes will be treated as Indebtedness of the Company for United States federal income tax purposes. In this connection, the Company Trustees and the Company are authorized to take any action, not inconsistent with the applicable law, the certificate of trust or the Indenture that the Trustees determine in their discretion to be necessary or desirable for such purposes as long as such action does not adversely affect in any material respect the interests of the holders of the Preferred Securities. 120 Expenses and Taxes The Trust was created solely to facilitate an investment in the Senior Subordinated Notes; consequently, the Company, as borrower, has agreed in the Indenture, to pay all debts and obligations (other than with respect to the Securities and Common Securities) and all costs and expenses of the Trust (including, but not limited to, all costs and expenses relating to the organization of the Trust, and fees and expenses of the Trustees and all costs and expenses relating to the operation of the Trust) and to pay any and all taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed on the Trust by the United States, or any other taxing authority, so that the net amounts received and retained by the Trust and the Preferred Trustee after paying such expenses will be equal to the amounts the Trust and the Preferred Trustee would have received had no such costs or expenses been incurred by or imposed on the Trust. The foregoing obligations of the Company are for the benefit of, and shall be enforceable by, any person or entity to which any such debts, obligations, costs, expenses and taxes are owed (each a "Creditor") whether or not such Creditor has received notice thereof. Any such Creditor may enforce such obligations of the Company directly against the Company, and the Company has irrevocably waived any right or remedy to require that any such Creditor take any action against the Trust or any other person before proceeding against the Company. The Company shall execute such additional agreement as may be necessary or desirable to effect the foregoing. Governing Law The Declaration and the Exchange Preferred Securities will be governed by and construed in accordance with the laws of the State of Delaware. Information Concerning the Delaware Trustee The Delaware Trustee is Wilmington Trust Company. The Delaware Trustee shall be one of the trustees of the Trust for the sole and limited purpose of fulfilling the requirements of the Delaware Business Trust Act for a trustee that is either a natural person who is a resident of Delaware or a legal entity with its principal place of business in that State. 121 DESCRIPTION OF THE EXCHANGE NOTES The Old Senior Subordinated Notes were issued and the Exchange Notes will be issued as separate series under the Indenture. The Indenture has been qualified under the Trust Indenture Act. The following summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Indenture. Capitalized terms not otherwise defined herein have the meaning assigned to the in the Indenture. Under certain circumstances involving the dissolution of the Trust following the occurrence of a Tax Event, Change of Control Triggering Event or Investment Company Event, Exchange Notes may be distributed to the holders of the Exchange Preferred Securities in liquidation of the Trust. See "Description of the Exchange Notes -- Tax Event or Investment Company Event Redemption or Distribution" and "Description of the Exchange Notes -- Change of Control." General The Exchange Notes will be issued under the Indenture and will be limited in aggregate principal amount to the sum of the aggregate stated Liquidation Amount of the Trust Securities. The Exchange Notes are not entitled to the benefit of any sinking fund. The entire principal amount of the Exchange Notes will become due and payable, together with any accrued and unpaid interest thereon, on August 15, 2027. The Exchange Notes will initially be issued in fully registered certificated form and held by the Preferred Trustee. If distributed to holders of Exchange Preferred Securities in a dissolution of the Trust or following a Change of Control Triggering Event, the Exchange Notes will then be issued as a global security to the extent of any Global Exchange Preferred Securities at the time representing any Exchange Preferred Securities and otherwise in fully registered, certificated form. In the event that Exchange Notes are issued in certificated form, such Exchange Notes will be in denominations of $1,000 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Exchange Notes issued as a global security will be made in immediately available funds to DTC, as the depository for the Exchange Notes. In the event Exchange Preferred Securities are issued in certificated form, principal and interest will be payable, the transfer of the Exchange Notes will be registrable and Old Senior Subordinated Notes will be exchangeable for Exchange Notes of other denominations of a like aggregate principal amount at the corporate trust office of the Indenture Trustee; provided that, unless the Exchange Notes are held by the Trust or any successor permissible as described under "Description of the Exchange Preferred Securities -- Merger, Consolidation or Amalgamation of the Trust," payment of interest may be made at the option of the Company by check mailed to the addresses of the persons entitled thereto. Interest The Exchange Notes will bear interest at the rate of 9 1/2% per annum from the original date of issuance, payable semi-annually in arrears on February 15 and August 15 (each, an "Interest Payment Date"), commencing February 15, 1998, to the person in whose name such Exchange Note is registered at the close of business on the fifteenth day immediately preceding such Interest Payment Date. Interest on the Exchange Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the Issue Date. Interest in arrears for more than one semi-annual period (and interest thereon) will accrue interest (compounded semi-annually) at the same rate, to the extent permitted by applicable law. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve, thirty-day months. In the event that any date on which interest is payable on the Exchange Notes is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (without 122 any interest or other payment in respect of any such delay), except that, if such Business Delay is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Option to Extend Interest Payment Date Unless an Event of Default has occurred and is continuing, the Company will have the right under the Indenture at any time during the term of the Exchange Notes to defer the payment of interest at any time or from time to time for a period not exceeding ten consecutive semi-annual periods with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity Date. As a consequence of any such deferral, semi-annual Distributions on the Exchange Preferred Securities by the Trust will be deferred during any such Extension Period. At the end of an Extension Period, the Company must pay all interest then accrued and unpaid (together with interest then accrued at the annual rate of 9 1/2%, compounded semi-annually, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Exchange Notes (and holders of the Trust Securities while Trust Securities are outstanding) will be required to accrue interest income (in the form of OID) for United States federal income tax purposes prior to the receipt of cash attributable to such income. See "Certain United States Federal Income Tax Considerations -- Interest Income and Original Issue Discount." During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's Capital Stock (which includes common and preferred stock), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respect with or junior to the Exchange Notes, subject to certain exceptions described herein or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu with or junior in right of payment to the Exchange Notes (other than (a) dividends or distributions in shares of or options, warrants or rights to subscribe for or purchase shares of, Common Stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Exchange Guarantee, (d) as a result of a reclassification of the Company's Capital Stock or the exchange or conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, (e) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the security being converted or exchanged and (f) purchases or issuances of Common Stock under any of the Company's stock option, stock purchase, stock loan or other benefit plans for its directors, officers or employees or any of the company's dividend reinvestment plans, in each case as now existing or hereafter established or amended). Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed ten consecutive semi-annual periods or to extend beyond the Stated Maturity Date. Upon the termination of any such Extension Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must give the Preferred Trustee and Indenture Trustee notice of its election of any Extension Period (or an extension thereof) at least five Business Days prior to the earlier of (i) the date the Distributions on the Exchange Preferred Securities would have been payable except for the election to begin or extend such Extension Period or (ii) the date the Trustees are required to give notice to any securities exchange or to holders of Trust Securities of the record date or the date such Distributions are payable, but in any event not less than five Business Days prior to such record Date. The Indenture Trustee shall give notice of the Company's election to begin or extend a new Extension Period to the holders of the Exchange Preferred Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period. No such extension shall be deemed an Event of Default under the Indenture. 123 Optional Redemption The Company shall have the right to redeem the Exchange Notes, in whole or in part, at any time or from time to time after August 15, 2007, upon not less than thirty or more than sixty day's notice, at the Redemption Prices (as defined in the Indenture) (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest to the Redemption Date (as defined in the Indenture) (subject to the right of holders of record on the relevant Regular Record Date (as defined in the Indenture) to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) if redeemed during the twelve-month period beginning on August 15 of the years indicated below: Percentage of Year Principal Amount - ---- ---------------- 2007...............................................................104.750% 2008...............................................................103.167% 2009...............................................................101.583% 2010 and thereafter................................................100.000% In the event of any redemption in part, the Company shall not be required to (i) issue, register the transfer of or exchange any Exchange Note during a period beginning at the opening of business fifteen days before any selection for redemption of Exchange Notes and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all holders of Exchange Notes to be so redeemed or (ii) register the transfer of or exchange any Exchange Notes so selected for redemption, in whole or in part, except the unredeemed portion of any Exchange Note being redeemed in part. Subordination The indebtedness evidenced by the Exchange Notes will be senior subordinated obligations of the Company. The payment of the principal of (including any payments on redemption or repurchase), premium (if any) and interest on the Exchange Notes is subordinate in right of payment, as set forth in the Indenture, to all Senior Indebtedness of the Company, whether outstanding on the date the Exchange Notes are originally issued or thereafter incurred. Although the Indenture contains limitations on the amount of Additional Indebtedness that the Company may Incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "Certain Covenants." The Exchange Notes will be issued in denominations of $1,000 and integral multiples thereof. The Exchange Notes will mature on August 15, 2027 (the "Stated Maturity Date"). The Exchange Notes will be unsecured and subordinate and rank junior in right of payment to the extent and in the manner set forth in the Indenture to all Senior Indebtedness. Almost all of the Company's assets consist of stock in the Subsidiaries. Consequently, the Company relies primarily on dividends, interest and fees from such Subsidiaries to meet its obligations. The Company is a legal entity separate and distinct from its Subsidiaries. The principal sources of the Company's income are dividends, interest and fees from its Subsidiaries. The Company's ability to meet debt service obligations and pay operating expenses depends on receipt of sufficient funds from its direct and indirect Subsidiaries. The inability of the Company's direct and indirect Subsidiaries to pay dividends, interest and fees to the Company in an amount sufficient to meet debt service obligations and pay operating expenses would have a material adverse effect on the Company and the Trust. The payment of dividends by the Company's Subsidiaries without prior regulatory approval is subject to restrictions set forth in the insurance laws and regulations of Indiana and Florida, the states of domicile of the Company's Insurance Subsidiaries. The Company currently does not expect such regulatory requirements to impair its ability to meet interest payment obligations and to pay operating expenses in the future. However, the Company can give no assurance that dividends will be declared or paid by its Subsidiaries. As of June 30, 1997, IGF and Pafco would be permitted to pay an aggregate of $12.7 million in dividends without prior regulatory approval. In addition, payment of dividends to the 124 Company by the insurance Subsidiaries is subject to ongoing review by insurance regulators and is subject to various statutory limitations and in certain circumstances requires approval by insurance regulatory authorities. The right of the Company to participate in any distribution of assets of any Subsidiary upon such Subsidiary's liquidation or reorganization or otherwise is subject to the prior claims of creditors of the Subsidiary, except to the extent the Company may itself be recognized as a creditor of that Subsidiary. Accordingly, the Exchange Notes will be effectively subordinated to all existing and future liabilities of the Company's Subsidiaries, and holders of Exchange Notes should look only to the assets of the Company for payments on the Exchange Notes. In addition, because many of the Company's Subsidiaries are insurance companies subject to regulatory control by various state insurance departments, the ability of such Insurance Subsidiaries to pay dividends to the Company without prior regulatory approval is limited by applicable laws and regulations. The Indenture does not place a limitation on the amount of additional Senior Indebtedness that may be incurred by the Company. However, the ability of the Company and its Subsidiaries to incur indebtedness is restricted under the Exchange Notes. The Company expects from time to time to incur additional indebtedness constituting Senior Indebtedness. See "Description of the Exchange Notes -- Certain Covenants." The Company may not pay principal of, or premium (if any) or interest on, the Exchange Notes and may not repurchase, redeem or otherwise retire any Exchange Notes (collectively, "pay the Notes") if (i) the Specified Senior Indebtedness is not paid when due or (ii) any other default on Specified Senior Indebtedness of the Company occurs and the maturity of such Specified Senior Indebtedness is accelerated in accordance with its terms, unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Specified Senior Indebtedness has been paid in full. However, the Company may pay the Exchange Notes without regard to the foregoing if the Company and the Indenture Trustee receive written notice approving such payment from a representative of the Specified Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Specified Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Exchange Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Indenture Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the representative of the holders of such Specified Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Indenture Trustee and the Company from the representative of the holders of such Specified Senior Indebtedness, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Specified Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Specified Senior Indebtedness or the representative of such holders have accelerated the maturity of such Specified Senior Indebtedness, the Company may resume payments on the Exchange Notes after the end of such Payment Blockage Period. The Exchange Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Specified Senior Indebtedness during such period. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of such Senior Indebtedness before the holders of Senior Subordinated Notes are entitled to receive any payment, and until the Senior Indebtedness of the Company is paid in full, any payment or distribution to which holders of Senior Subordinated Notes would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear. If a distribution is made to holders of Senior Subordinated Notes, that, due to the subordination provisions, should not have been made to them, such holders are required to hold it in trust for the holders of Senior Indebtedness of the Company and pay it over to them as their interests may appear. If payment of the Exchange Notes is accelerated because of an Event of Default, the Company or the Indenture Trustee shall promptly notify the holders of Senior Indebtedness of the Company or the representative of such holders of the acceleration. If any Senior Indebtedness is outstanding, the Company may not pay the Notes until five Business 125 Days after the representatives of all the issues of Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Notes only if the Indenture otherwise permits payment at that time. By reason of the subordination provisions contained in the Indenture, in the event of insolvency, creditors of the Company who are holders of Senior Indebtedness of the Company may recover more, ratably, than the holders of Exchange Notes, and creditors of the Company who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the holders of Exchange Notes. Certain Covenants Limitation on Restricted Payments (a) The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, make any Restricted Payment if at the time the Company or such Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom), (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "-- Limitation of Incurrence of Indebtedness" or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit), (b) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary and Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees) and (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary), subsequent to the Issue Date, of any indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company upon such conversion or exchange). (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any purchase or redemption of stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); provided, however, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above, (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale, of, Indebtedness of the Company which is permitted to be Incurred pursuant to the covenant described under "-- Limitation on Incurrence of Indebtedness;" provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; or (iii) dividends paid within sixty days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenants; provided, however, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments. 126 Limitation on Incurrence of Indebtedness (a) The Company shall not, and shall not permit any Subsidiary to, Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence (and after giving effect thereto), the Consolidated Coverage Ratio exceeds 2.5 to 1. (b) The foregoing limitations contained in paragraph (a) do not apply to the Incurrence of any of the following Indebtedness: (1) Indebtedness under the Credit Agreement, (2) Indebtedness owed to an held by a Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock that results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Company, (3) the Exchange Notes, (4) Capital Lease Obligations and Indebtedness incurred, in each case, to provide all or a portion of the purchase price or cost of construction of an asset or, in the case of a sale/leaseback transaction, to finance the value of such asset owned by the Company or a Subsidiary, in an aggregate principal amount which, together with all other such Capital Lease Obligations and Indebtedness outstanding on the date of such Incurrence (other than Indebtedness permitted by paragraph (a) or clause (2) or (9) of this paragraph (b)), does not exceed $3 million, (5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3) or (4) of this paragraph (b), (6) Hedging Obligations permitted under the Credit Agreement as in effect on the Issue Date, (7) customer deposits and advance payments received from customers for goods purchased in the ordinary course of business and (8) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company and its Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by paragraph (a) or clauses (1) through (7) of this paragraph (b)), does not exceed $5 million. (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Subsidiary to, Incur, directly or indirectly, any Indebtedness (i) that is subordinate or junior in ranking in right of payment to its Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (ii) pursuant to paragraph (b) above if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Exchange Notes to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. Limitation on Restrictions on Distributions from Subsidiaries The Company shall not, and shall not permit any Subsidiary to, voluntarily create or otherwise cause or permit to exit or become effective any consensual encumbrance or restriction on the ability of any subsidiary (a) to pay dividends or make any other distribution on its Capital Stock to the Company or any other Subsidiary or pay any Indebtedness owed to the Company or any other Subsidiary, (b) to pay any management fees or billing fees to the Company or any other Subsidiary, (c) to make any loans or advances to the Company or any other Subsidiary or (d) transfer any of its property or assets to the Company or any other Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered on the Issue Date, (ii) any encumbrance or restriction with respect to a Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Subsidiary on or prior to the date on which such subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to 127 provide all or any portion of the funds or credit support utilized to consummate the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Company) and outstanding on such date, (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or (ii) above or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) above or this clause; provided, however, that the encumbrances and restrictions with respect to such Subsidiary contained in any such refinancing agreement or amendment are not less favorable to the holders of Senior Subordinated Notes than encumbrances and restrictions with respect to such Subsidiary contained in such agreements, (iv) any such encumbrance or restriction consisting of customary non- assignment provisions in leases governing leasehold interest or in licensing agreements to the extent such provisions restrict the transfer of the lease or the property leased thereunder or the licensing agreement or the rights licensed thereunder, (v) in the case of clause (d) above, restrictions contained in security agreements or mortgages securing Indebtedness or a Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages and(vi) any restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition. Limitation on Sales of Assets and Subsidiary Stock (a) The Company shall not, and shall not permit any Subsidiary to, directly or indirectly consummate any Asset Disposition unless (i) the Company or such Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors of the Company or such Subsidiary as the case may be, of the shares and assets subject to such Asset Disposition and at least 75% of the consideration thereof received by the Company or such Subsidiary is in the form of cash, cash equivalents or Marketable Securities and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any Senior Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within eighteen months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company elects, to acquire Additional Assets within eighteen months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash and (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holder of the Senior Subordinated Notes to purchase Senior Subordinated Notes pursuant to and subject to the conditions contained in the Indenture; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or such Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this paragraph, the Company and the Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash from all Asset Disposition which are not applied in accordance with this paragraph exceeds $5 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Subsidiary and the release of the Company or such Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Subsidiary from the transferee that are promptly converted by the Company or such Subsidiary into cash. 128 (b) In the event of an Asset Disposition that requires the purchase of the Senior Subordinated Notes pursuant to clause (a)(ii)(C) above, the Company will be required to purchase Exchange Notes tendered pursuant to an offer by the Company for the Exchange Notes at a purchase price of 101% of their principal amount (without premium) plus accrue but unpaid interest, in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. The Company shall not be required to make such an offer to purchase Senior Subordinated Notes pursuant to this covenant if the Net Available Cash available therefor is less than $5 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Disposition). (c) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Senior Subordinated Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. Limitation on Affiliate Transactions (a) The Company shall not, and shall not permit any Subsidiary to, enter into any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") (other than reinsurance with an Affiliate in the ordinary course of business) unless the terms thereof (1) are no less favorable to the Company or such Subsidiary than those that could be obtained at the time of such transaction in arm's length dealings with a Person who is not such an Affiliate, (2) if such Affiliate Transaction involves an amount in excess of $1 million, (i) are set forth in writing and (ii) have been approved by a majority of the members of the Board of Directors of the Company or such Subsidiary having no personal stake in such Affiliate Transaction and (3) if such Affiliate Transaction involves an amount in excess of $2.5 million, have been determined by a nationally recognized investment banking firm to be fair from a financial standpoint to the Company and its Subsidiaries. (b) The provisions of paragraph (a) above shall not prohibit (i) any Restricted Payment permitted to be paid pursuant to the covenant described under " -- Limitation on Restricted Payments," (ii) transactions or payments pursuant to any employee arrangements or employee or director benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business of the Company or such Subsidiary and (iii) any Affiliate Transaction between the company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. Senior Subordinated Indebtedness; Liens The Company shall not, and shall not permit any Subsidiary to, Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or(ii) any Secured Indebtedness that is not Senior Indebtedness unless (A) contemporaneously therewith effective provision is made to secure the Senior Subordinated Noes equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien or (b) such Secured Indebtedness is permitted by clause (1), (4), (5) or (7) of paragraph (b) of the covenant described under " -- Limitation on Incurrence of Indebtedness." 129 Limitation on Mergers, Acquisitions and Sales of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the Surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties and assets in one or more related transactions, to another Person unless (i) the Surviving Person is a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia, (ii) the Surviving Person (if other than the Company) assumes all the obligations of the Company under the Senior Subordinated Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Indenture Trustee, (iii) at the time of and immediately after such transaction, no Default or Event of Default shall have occurred and be continuing, (iv) the Surviving Person will have Consolidated Net Worth (immediately after the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction, (v) at the time of such transaction and after giving pro forma effect thereto, the Surviving Person would be permitted to incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant described under " -- Limitation on Incurrence of Indebtedness" and (vi) the Company delivers to the Indenture Trustee an Officers' Certificate (as defined in the Indenture) and an Opinion of Counsel (as defined in the Indenture), each stating that such consolidation, merger or transfer and such supplemental indenture, if any, complies with the Indenture. Ownership of the Trust The Company shall continue (i) to directly or indirectly maintain 100% ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under the Indenture may succeed to the Company's ownership of such Common Securities and (ii) to use its reasonable efforts to cause the Trust (x) to remain a statutory business trust, except in connection with the distribution of Exchange Notes to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities, or certain mergers, consolidations or amalgamation, each as permitted by the Declaration and (y) to otherwise continue to be classified for United States federal income tax purposes as a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. Change of Control Upon the occurrence of a Change of Control Triggering event (as defined herein), a holder of Trust Securities has the right to require the Trust to exchange all or any part of the holder's Trust Securities for Senior Subordinated Notes having an aggregate principal amount equal to the aggregate Liquidation Amount of the Trust Securities so offered. Upon the occurrence of such an event, the Company will be required to immediately redeem any Exchange Notes so exchanged at a redemption price equal to 101% of the principal amount thereof plus any accrued and unpaid interest. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Senior Subordinated Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this covenant by virtue thereof. Future indebtedness of the Company may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require such indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of the Exchange Preferred Securities to exchange the Exchange Preferred Securities for Exchange Notes and their right to require the Company to redeem the Exchange Notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the holders of Exchange Notes following the occurrence of a Change of Control may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture 130 relative to the Company's obligation to make an offer to repurchase the Exchange Notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Exchange Notes. Events of Default The Indenture provides that any one or more of the following described events, which has occurred and is continuing, constitutes an "Event of Default" with respect to the Exchange Notes: (i) failure for thirty days to pay interest on the Exchange Notes when due or (ii) failure to pay principal of or premium, if any, on the Exchange Notes when due, whether at maturity, upon redemption, by judicial declaration or otherwise or (iii) failure to observe or perform any other covenant contained in the Indenture for ninety days after notice as provided in the Indenture or (iv) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Indebtedness or Guarantee now exists or is incurred after the Issue Date, if (a) such default results in the acceleration of such Indebtedness prior to its express maturity or shall constitute a default in the payment of such Indebtedness and (b) the principal amount of any such Indebtedness that has been accelerated or not paid at maturity, when added to the aggregate principal amount of all other such Indebtedness, at such time, that has been accelerated or not paid at maturity, exceeds $10 million or (v) the dissolution, winding up or termination of the Trust, except in connection with the distribution of Exchange Notes to the holders of Exchange Preferred Securities in liquidation of the Trust and in connection with certain mergers, consolidations or amalgamation permitted by the Declaration or (vi) certain events in bankruptcy, insolvency or reorganization of the Company. The Indenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Exchange Notes may declare the principal of and interest on the Exchange Notes due and payable immediately on the occurrence of an Event of Default; provided, however, that, after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Exchange Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal, have been cured or waived as provided in the Indenture. For information as to waiver of defaults, see " -- Modification of the Indenture." The Preferred Trustee is the initial holder of the Exchange Notes. However, while the Exchange Preferred Securities are outstanding, the Preferred Trustee has agreed under the Indenture not to waive an Event of Default with respect to the Exchange Notes without the consent of holders of a majority in aggregate Liquidation Amount of the Exchange Preferred Securities then outstanding. A default under any other indebtedness of the Company or any of its Subsidiaries or joint ventures or the Trust would not constitute an Event of Default under the Exchange Notes. Subject to the provisions of the Indenture relating to the duties of the Indenture Trustee in case an Event of Default shall occur and be continuing, the Indenture Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holders of Exchange Notes, unless such holders shall have offered to the Indenture Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Indenture Trustee, the holders of a majority in aggregate principal amount of the Exchange Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee. No Holder of any Exchange Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Indenture Trustee written notice of a continuing Event of Default and, if the Preferred Trustee is not the Holder of Exchange Notes, unless the holders of at least 25% in aggregate principal amount of the Exchange Notes then outstanding shall also have made written request, and offered reasonable indemnity, to the Indenture Trustee to institute such proceeding as Indenture Trustee, and the Indenture Trustee shall not have received from the holders of a majority in aggregate principal amount of the 131 outstanding Exchange Notes a direction inconsistent with such request and shall have failed to institute such proceeding within sixty days. However, such limitations do not apply to a suit instituted by a Holder of an Exchange Note for enforcement of payment of the principal of and premium, if any, or interest on such Exchange Notes on or after the respective due dates expressed in such Exchange Note. The holders of a majority in aggregate outstanding principal amount of the Exchange Notes affected thereby may, on behalf of the holders of all the Exchange Notes, waive any past default, except a default in the payment of principal, premium, if any, or interest. The Company is required to file annually with the Indenture Trustee and the Trustees a certificate as to whether or not the Company is in compliance with all the conditions and covenants under the Indenture. Modification of the Indenture The Indenture contains provisions permitting the Company and the Indenture Trustee, with the consent of the holders of not less than a majority in principal amount of the Exchange Notes, to modify the Indenture or any supplemental indenture, provided that no such modification may, without the consent of the Holder of each outstanding Exchange Note (or a majority in Liquidation Amount of the Exchange Preferred Securities so long as they remain outstanding) affected thereby, (i) extend the Stated Maturity of any Exchange Note, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, except a otherwise stated herein, or reduce any premium payable upon the redemption thereof, (ii) change the place or currency of payment of principal of, or any premium or interest on, any Exchange Note, (iii) impair the right to institute suit for the enforcement of any payment on or with respect to any Exchange Note, (iv) modify the subordination provisions in a manner advise to the holders of the Exchange Notes or (v) reduce the percentage in principal amount of Exchange Notes the holders of which are required to consent to any modification or amendment of the Indenture. In addition, the Company and the Indenture Trustee may execute, without the consent of any holder of Exchange Notes, any supplemental indenture to cure any ambiguities, comply with the Trust Indenture Act and for certain other customary purposes; provided that any such action does not materially adversely affect the interest of the holders of the Exchange Notes (or the Exchange Preferred Securities so long as they remain outstanding). Governing Law The Indenture and the Exchange Notes are governed by and construed in accordance with, the laws of the State of New York. Information Concerning the Indenture Trustee The Indenture Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Indenture, and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Exchange Notes, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Indenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Indenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. 132 Certain Definitions As used in the Indenture: "Additional Assets" means (i) any property or asset (other than Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of a Person that becomes a Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Subsidiary or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Subsidiary; provided that any such Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Company shall not be deemed to include the Trust. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under " -- Certain Covenants - -- Limitation on Restricted Payments," " -- Certain Covenants -- Limitation on Affiliate Transactions" and " -- Certain Covenants -- Limitations on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of any Subsidiary (other than directors qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Subsidiary or (iii) any other assets of the Company or any Subsidiary outside of the ordinary course of business of the Company or such Subsidiary (other than, in the case of (i), (ii) and (ii) above, (y) a disposition by a Subsidiary to the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of the covenant described under " - -- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under " -- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under " -- Certain Covenants -- Limitation on Restricted Payments"). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means, with respect to the Company or a Subsidiary, as the case may be, the Board of Directors (or other body performing functions similar to any of those performed by a Board of Directors). "Business Day" means any day other than (i) a Saturday or Sunday, (ii) 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 (iii) a day on which the corporate trust office of the Indenture Trustee, or, with respect to the Exchange Preferred Securities, the principal office of the Preferred Trustee under the Declaration, is closed for business. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated 133 Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interests in (however designed) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change of Control" means any transaction or series of transactions in which any Person or group (within the meaning of Rule 13d-5 under the Exchange Act and Section 13(d) and 14(d) of the Exchange Act) other than the Company and its subsidiaries acquires all or substantially all of the Company's assets or becomes the direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), by way of merger, consolidation, other business combination or otherwise, of greater than 50% of the total voting power (on a fully diluted basis as if all convertible securities had been converted and all options and warrants had been exercised) entitled to vote in the election of directors of the Company or the Surviving Person (if other than the Company). "Change of Control Triggering Event" means a Change of Control. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and its continuing Subsidiaries are not longer liable for such Indebtedness after such sale), (e) if since the beginning of such period the Company or any Subsidiary (by merger or otherwise) shall have made an Investment in any Subsidiary (or any person which becomes a Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (4) if since the beginning of such period any Person (that subsequently became a Subsidiary or was merged with or into the Company or any Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the 134 date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of twelve months). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Subsidiaries, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock held by Persons other than the Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments in discontinued operations, (ix) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Company or any Subsidiary and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company ) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income of any Person if such Person is not a Subsidiary, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, (ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income of any Subsidiary that is not a Wholly Owned Subsidiary if such Subsidiary is subject to contractual, governmental or regulatory restrictions, directly or indirectly, on owned of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Subsidiary during such period to the Company or another Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Subsidiary that is not a Wholly Owned Subsidiary, to the limitation contained in this clause) and (b) the Company's equity in a net loss of any such Subsidiary for such period shall be included in determining such Consolidated Net Income, (iv) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including pursuant to any sale and leaseback arrangement) that is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses and (vi) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the Company's most recently ended fiscal quarter for which internal financial statements are available prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Credit Agreement" means the Revolving Credit Facility, among IGF Insurance Company and Bretton Bank of Des Moines, Iowa dated February 25, 1993. "Currency Agreement" means any foregoing currency exchange contract, currency swap agreement or other similar agreement or arrangement designed and entered into to protect the Company or any Subsidiary against fluctuations in currency exchange rates. 135 "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default (as defined herein). "Disqualified Stock" means, with respect to any Person, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Senior Subordinated Notes; provided, however, that any Capital Stock that would constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Senior Subordinated Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions described under " -- Certain Covenants -- Limitation on Sale of Assets and Subsidiary Stock" and " -- Change of Control." "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company and its Subsidiaries, (b) depreciation expense and (c) amortization expense, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary that is not a Wholly Owned Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Subsidiary or its stockholders. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth (i) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants (ii) statements and pronouncements of the Financial Accounting Standards Board (iii) in such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. "Guaranty" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statements conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guaranty" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guaranty" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. 136 "Incur" means issue, assume, Guaranty, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, (ii) all Capital Lease Obligations of such Person, (iii) all obligations of such Person issued or assumed as the deferred purchase price of property or services, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (other than (x) customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business, (y) trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof and (z) obligations incurred under a pension, retirement or deferred compensation program or arrangement regulated under the Employee Retirement Income Security Act of 1974, as amended, or the laws of a foreign government), (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, bank guaranty, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit and bank guaranties (A) not made under the Credit Agreement and (B) securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit), (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends), (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guaranty, (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amounts of the obligation so secured and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed and entered into to protect the Company or any Subsidiary against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extensions of credit (including by way of Guaranty or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase of acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Investment Grade" means a rating of BBB- or higher by S&P and Baa3 or higher by Moody's and the equivalent in respect of Rating Categories of any Rating Agency substituted for S&P or Moody's. "Issue Date" means the date on which the Old Senior Subordinated Notes were originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). 137 "Marketable Securities" means securities listed on a national securities exchange which have a minimum weekly trading volume of at least 100,000 shares. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Subsidiary after such Asset Disposition. "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Permitted Investment" means an Investment by the Company or any Subsidiary in (i) a Person that will, upon the making of such Investment, be or become a Subsidiary; provided, however, that the primary business of such Subsidiary is a Related Business, (ii) a Person if a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Subsidiary; provided, however, that such Person's primary business is a Related Business, (iii) Temporary Cash Investments, (iv) any demand deposit account with an Approved Lender, (v) receivables owing to the Company or any Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Subsidiary deems reasonable under the circumstances, (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business, (vii) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary, (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Subsidiary, or in satisfaction of judgments, (ix) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under " -- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and (x) any Affiliate (the primary business of which is a Related Business) that is not a Subsidiary (other than the Company); provided, that the aggregate of all such Investments outstanding at any one time under this clause (x) shall not exceed $1 million. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other entity. "Preferred Stock," as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. 138 "Principal" of a Senior Subordinated Note means the principal of the Senior Subordinated Note plus the premium, if any, payable on the Senior Subordinated Note which is due or overdue or is to become due at the relevant time. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier that the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Subsidiary that Refinances Indebtedness of another Subsidiary. "Related Business" means the business of providing property and casualty insurance to individuals or farms and any business related, ancillary or complementary to such business of the Company. "Restricted Payment" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock)) and dividends or distributions payable solely to the Company or a Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Subsidiary held by any Affiliate of the Company (other than a Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), or (iv) the making of any Investment in any Person (other than a Permitted Investment). "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Senior Indebtedness" means, with respect to the Company, (i) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter incurred and (ii) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person, whether or not the claim for such interest is allowed as a claim after such filing) in respect of (A) any Indebtedness of such Person under the Credit Agreement, (B) Indebtedness of such Person for money borrowed and (c) Indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Exchange Notes; provided, however, that Senior Indebtedness 139 shall not include (1) any obligation of such Person to any subsidiary of such Person, (2) any liability for federal, state, local or other taxes owed or owing by such Person, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person or (5) that portion of any Indebtedness which at the time of incurrence is incurred in violation of the Indenture. "Senior Subordinated Indebtedness" means the Exchange Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Exchange Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company that is not Senior Indebtedness. "S&P" means Standard & Poor's Corporation and its successors. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Senior Subordinated Notes pursuant to a written agreement to that effect. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or by one or more Subsidiaries, or by the Company and one or more Subsidiaries. "Surviving Person" means, with respect to any Person involved in any merger, consolidation or other business combination or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets, the Person formed by or surviving such transaction or the Person to which such disposition is made. "Temporary Cash Investments" means any of the following: (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith, and credit of the United States of America is pledged in support thereof), (b) time deposits and certificates of deposit, Eurodollar time deposits and Eurodollar certificates of deposit of (i) any lender under the Credit Agreement or (ii) any United States commercial bank of recognized standing (y) having capital and surplus in excess of $500 million and (z) whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Lender"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by an Approved Lender (or by the parent company thereof) and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by a Person with a bank or trust company (including any of the lenders under the Credit Agreement) or recognized securities dealer having capital and surplus in excess of $500,000,000 for (i) direct obligations issued or fully guaranteed by the United States of America, (ii) time deposits or certificates of deposit described under subsection (b) above or (iii) commercial paper or other notes described under subsection (c) above, in which, in each such case, such bank, trust company or dealer shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (e) obligations of any State of the United States or any political subdivision thereof, the interest with respect to which is exempt from federal income taxation under Section 103 of the United States Internal Revenue Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within three years from the date of acquisition thereof, (f) Investments in municipal auction 140 preferred stock (i) rated AAA (or the equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or better by Moody's and (ii) with dividends that reset at least once every 365 days and (g) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, in each case which are administered by reputable financial institutions having capital of at least $100,000,000 and the portfolios of which are limited to Investments of the character described in clauses (a), (b), (c), (e) and (f) above. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock (other than director's qualifying shares and shares held by other Persons, to the extent such shares are required by applicable law to be held by a Person other than the Company or a Subsidiary) of which is owned by the Company or by one or more Wholly Owned Subsidiaries, or by the Company and one or more Wholly Owned Subsidiaries. 141 DESCRIPTION OF EXCHANGE GUARANTEE The Exchange Guarantee was executed and delivered by the Company concurrently with the issuance by the Trust of the Exchange Preferred Securities for the benefit of the holders from time to time of the Exchange Preferred Securities. As soon as practicable after the date hereof, the Company Guarantee will be exchanged by the Company for the Exchange Guarantee for the benefit of the holders from time to time of the Exchange Preferred Securities. The Exchange Guarantee has been qualified under the Trust Indenture Act. This summary of certain provisions of the Exchange Guarantee does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Exchange Guarantee, including the definitions therein of certain terms, and the Trust Indenture Act. The Guarantee Trustee will hold the Exchange Guarantee for the benefit of the holders of the Exchange Preferred Securities. General Pursuant to the Exchange Guarantee, the Company will irrevocably and unconditionally agree to pay in full on a senior subordinated basis, to the extent set forth herein, the Guarantee Payments (as defined below) to the holders of the Exchange Preferred Securities, as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert, other than the defense of payment. The following payments or distributions with respect to the Exchange Preferred Securities, (the "Guarantee Payments"), will be subject to the Exchange Guarantee (without duplication): (i) any accrued and unpaid Distributions that are required to be paid on the Exchange Preferred Securities, to the extent the Trust has funds legally available therefor, (ii) the Redemption Price with respect to the Exchange Preferred Securities called for redemption, to the extent the Trust has funds legally available therefor and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of the Trust (other than in connection with a Distribution of the Exchange Notes to holders of Exchange Preferred Securities or redemption of all the Exchange Preferred Securities), the less of (a) the aggregate of the Liquidation Amount and all accrued and unpaid distributions on the Exchange Preferred Securities to the date of payment, to the extent the Trust has funds legally available therefor and (b) the amount of cash assets of the Trust remaining legally available for distribution to holders of the Exchange Preferred Securities upon the liquidation of the Trust. If the Company does not make interest payments on the Exchange Notes held by the Trust, the Trust will not be able to pay Distributions on the Exchange Preferred Securities and will not have funds legally available therefor. The Exchange Guarantee will be an irrevocable and unconditional guarantee on a senior subordinated basis of the Trust's obligations under the Exchange Preferred Securities, but will apply only to the extent that the Trust has funds sufficient to make such payments and is not a guarantee of collection. The Exchange Guarantee will rank subordinate and junior in right of payment to all Senior Indebtedness of the Company. See " -- Status of the Exchange Guarantee." Almost all of the assets of the Company consist of stock of the Subsidiaries. Accordingly, the Company relies primarily on dividends and fees from such Subsidiaries to meet its obligations for payment of principal and interest on its outstanding debt obligations and corporate expenses. The inability of the Company's direct and indirect Subsidiaries to pay dividends to the Company in an amount sufficient to meet debt service obligations and pay operating expenses would have a material adverse effect on the Company and the Trust. The payment of dividends by the Company's Subsidiaries without prior regulatory approval is subject to restrictions set forth in the insurance laws and regulations of Indiana and Florida, the states of domicile of the Company's Insurance Subsidiaries. The Company currently does not expect such regulatory requirements to impair its ability to meet interest payment obligations and to pay operating expenses in the future. However, the Company can give no assurance that dividends will be declared or paid by its Subsidiaries. In addition, payment of dividends to the Company by the Insurance Subsidiaries is subject to ongoing review by insurance regulators and is subject to various statutory limitations and in certain circumstances requires approval by insurance regulatory authorities. The right of the Company to participate in any distribution of assets of any Subsidiary upon such Subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of the Subsidiary, except to the extent the Company may itself be recognized as a creditor of that Subsidiary. Accordingly, the Exchange Notes will be effectively subordinated to all existing and future liabilities of the Company's 142 Subsidiaries, and holders of Exchange Notes should look only to the assets of the Company for payments on the Exchange Notes. Accordingly, the Company's obligations under the Exchange Guarantee, as well as its obligation to pay interest and principal on the Exchange Notes, will be effectively subordinated to all existing and future liabilities of the Company's Subsidiaries. See "Risk Factors -- Holding Company Structure; Dividend and Other Restrictions; Management Fees." As of June 30, 1997, the liabilities of the Company's Subsidiaries were approximately $469 million. The Company has, through the Exchange Guarantee, the Declaration, the Exchange Notes and the Indenture, taken together, fully, irrevocably and unconditionally guaranteed all of the Trust's obligations under the Exchange Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the Trust's obligations under the Exchange Preferred Securities. See "Relationship Among the Exchange Preferred Securities, the Declaration, the Exchange Notes and the Exchange Guarantee." The Company has also agreed separately to irrevocably and unconditionally guarantee the obligations of the Trust with respect to the Common Securities to the same extent as the Exchange Guarantee, except that upon the occurrence and during the continuation of a Indenture Event of Default, holders of Exchange Preferred Securities shall have priority over holders of Common Securities with respect to distributions and payments on liquidation, redemption or otherwise. Status of the Exchange Guarantee The Exchange Guarantee will constitute an unsecured senior subordinated obligation of the Company and will rank subordinate and junior in right of payment to all Senior Indebtedness of the Company as defined under "Description of the Exchange Notes -- Certain Definitions." The Exchange Guarantee will constitute a guarantee of payment and not of collection (i.e., the guaranteed party may institute a legal proceeding directly against the Company to enforce its rights under the Exchange Guarantee without first instituting a legal proceeding against any other person or entity). The Exchange Guarantee will be held for the benefit of the holders of the Exchange Preferred Securities. The Exchange Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by the Trust out of funds legally available therefor or upon distribution of the Exchange Notes to the holders of the Exchange Preferred Securities. The Exchange Guarantee does not place a limitation on the amount of additional Senior Indebtedness that may be incurred by the Company. However, the ability of the Company and its Subsidiaries to incur indebtedness is restricted under the Exchange Notes. The Company expects from time to time to incur additional indebtedness constituting Senior Indebtedness. See "Description of the Exchange Notes -- Certain Covenants." The Company may not make a Guarantee Payment to holders of Exchange Preferred Securities if (i) the Specified Senior Indebtedness is not paid when due or (ii) any other default on Specified Senior Indebtedness of the Company occurs and the maturity of such Specified Senior Indebtedness is accelerated in accordance with its terms, unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Specified Senior Indebtedness has been paid in full. The failure to make a payment under the Exchange Guarantee shall not be considered an Event of Default. However, the Company may make a Guarantee Payment without regard to the foregoing if the Company and the Guarantee Trustee receive written notice approving such payment from a representative of the Specified Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Specified Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not make a Guarantee Payment to holders of Preferred Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Guarantee Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the representative of the holders of such Specified Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if 143 such Payment Blockage Period is terminated (i) by written notice to the Guarantee Trustee and the Company from the representative of the holders of such specified Senior Indebtedness, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Specified Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Specified Senior Indebtedness or the representative of such holders have accelerated the maturity of such Specified Senior Indebtedness, the Company may resume Guarantee Payments after the end of such Payment Blockage Period. The Exchange Guarantee shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Specified Senior Indebtedness during such period. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of such Senior Indebtedness before the holders of Exchange Preferred Securities are entitled to receive any Guarantee Payment, and until the Senior Indebtedness of the Company is paid in full, any payment or Distribution to which holders of Exchange Preferred Securities would be entitled but for the subordination provisions of the Exchange Guarantee will be made to holders of such Senior Indebtedness as their interests may appear. If a Distribution is made to holders of Exchange Preferred Securities, that, due to the subordination provisions, should not have been made to them, such holders are required to hold it in trust for the holders of Senior Indebtedness of the Company and pay it over to them as their interests may appear. If a Guarantee Payment is to be made by the Company to holders of Exchange Preferred Securities, the Company or the Guarantee Trustee shall promptly notify the holders of Senior Indebtedness of the Company or the representative of such holders of such Guarantee Payment. If any Senior Indebtedness of the Company is outstanding, the Company may not pay such Guarantee Payment until five Business Days after the representatives of all the issues of Senior Indebtedness of the Company receive notice of such Guarantee Payment and, thereafter, may pay such Guarantee Payment only if the Exchange Guarantee otherwise permits payment at that time. Amendments and Assignment Except with respect to any changes that do not materially adversely affect the rights of holders of the Exchange Preferred Securities (in which case no vote will be required), the Exchange Guarantee may not be amended without the prior approval of the holders of not less than a majority in aggregate Liquidation Amount of the outstanding Exchange Preferred Securities. The manner of obtaining any such approval will be as set forth under "Description of the Exchange Preferred Securities -- Voting Rights." All guarantees and agreements contained in the Exchange Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the holders of the Exchange Preferred Securities then outstanding. The Exchange Guarantee shall not be amended without the prior receipt by the Company of an opinion of independent tax counsel to the effect that such amendment of the Exchange Guarantee will not result in the recognition of income, gain or loss by holders of the Exchange Preferred Securities. Events of Default An event of default under the Exchange Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate Liquidation Amount of the Exchange Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Exchange Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Exchange Guarantee. Upon the occurrence of a payment default under the Exchange Guarantee, any holder of the Exchange Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Exchange Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other persons or entity. 144 The Company, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether the Company is in compliance with all the conditions and covenants applicable to it under the Exchange Guarantee. Termination of the Exchange Guarantee The Exchange Guarantee will terminate and be of no further force and effect upon full payment of the Redemption Price of the Exchange Preferred Securities, upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust or upon distribution of Exchange Notes to the holders in exchange for all of the Exchange Preferred Securities. The Exchange Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Exchange Preferred Securities must restore payment of any sums paid under such Exchange Preferred Securities or such Exchange Guarantee. Governing Law The Exchange Guarantee will be governed by and construed in accordance with the laws of the State of New York. Information Concerning the Guarantee Trustee The Guarantee Trustee, other than during the occurrence and continuance of a default by the Company in performance of the Exchange Guarantee, undertakes to perform only such duties as are specifically set forth in the Exchange Guarantee and, after default with respect to the Exchange Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Exchange Guarantee at the request of any holder of the Exchange Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. 145 RELATIONSHIP AMONG THE EXCHANGE PREFERRED SECURITIES, THE DECLARATION, THE EXCHANGE NOTES AND THE EXCHANGE GUARANTEE Full and Unconditional Guarantee Payments of Distributions and other amounts due on the Exchange Preferred Securities (to the extent the Trust has funds legally available for the payment of such Distributions) are irrevocably guaranteed by the Company as and to the extent set forth under "Description of the Exchange Guarantee." Taken together, the Company's obligations under the Exchange Notes, the Indenture, the Declaration and the Exchange Guarantee provide, in effect, a full, irrevocable and unconditional guarantee of payments of Distributions and other amounts due on the Exchange Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the Trust's obligations under the Exchange Preferred Securities. If and to the extent that the Company does not make payments on the Exchange Notes, the Trust will not pay Distributions or other amounts due on its Exchange Preferred Securities. The Exchange Guarantee does not cover payment of Distributions when the Trust does not have sufficient funds legally available to pay such Distributions. In such event, the remedy of a holder of an Exchange Preferred Security is to institute a legal proceeding directly against the Company on behalf of the Trust for enforcement of the Company's obligations on the Exchange Notes. The obligations of the Company under the Exchange Guarantee are subordinate and junior in right of payment to all Senior Indebtedness of the Company. Sufficiency of Payments As long as payments of interest and other payments are made when due on the Exchange Notes, such payments will be sufficient to cover Distributions and other payments due on the Exchange Preferred Securities, primarily because (i) the aggregate principal amount of the Exchange Notes will be equal to the sum of the aggregate stated Liquidation Amount of the Exchange Preferred Securities and Common Securities, (ii) the interest rate and interest and other payment dates on the Exchange Notes will match the distribution rate and distribution and other payment dates for the Exchange Preferred Securities, (iii) the Indenture provides that the Company shall pay, and the Trust shall not be obligated to pay, directly or indirectly, all and any costs, expenses and liabilities of such Trust except the Trust's obligations to holders of its Exchange Preferred Securities under such Exchange Preferred Securities and (iv) the Declaration further provides that the Trust will not engage in any activity that is not consistent with the limited purposes of such Trust. Notwithstanding anything to the contrary in the Indenture, the Company has the right to set-off any payment it is otherwise required to make thereunder with and to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Exchange Guarantee. Enforcement Rights of Holders of Exchange Preferred Securities If a Declaration Event of Default has occurred and is continuing and is attributable to the failure of the Company to make payments on the Exchange Notes, then holders of not less than 25% in Liquidation Amount of outstanding Exchange Preferred Securities have the right to appoint a trustee (the "Special Trustee") to act on behalf of all holders of Exchange Preferred Securities. The Special Trustee appointed in accordance with the preceding sentence will represent the holders of all outstanding Exchange Preferred Securities unless the holders of at least a majority in Liquidation Amount of the outstanding Exchange Preferred Securities appoint an alternative Special Trustee in which case the Special Trustee appointed in accordance with the preceding sentence will be required to resign as Special Trustee. At no time can there be more than one Special Trustee acting on behalf of the holders of Exchange Preferred Securities. The Special Trustee will have the right to directly institute a proceeding (a "Trustee Action") for enforcement of payment to the holders of Exchange Preferred Securities of the principal of or interest on the Exchange Notes having a principal amount equal to the aggregate Liquidation Amount of the Exchange Preferred Securities outstanding on or after the respective due date specified in the Exchange Notes. The holders of the Exchange Preferred 146 Securities would not be able to exercise directly any other remedies available to the holders of the Exchange Notes unless the Preferred Trustee or the Special Trustee, acting for the benefit of the Preferred Trustee, fails to do so. In such event, the holders of at least 25% in aggregate Liquidation Amount of outstanding Exchange Preferred Securities would have a right to institute such proceedings. In addition, if the Company fails to make interest or other payments on the Senior Subordinated Notes when due, the Indenture provides that a holder of Exchange Preferred Securities may institute legal proceeding directly against the Company to enforce the Preferred Trustee's rights under the Exchange Notes without first instituting a legal proceeding against the Preferred Trustee, the Trust or any other person or entity. See "Description of the Exchange Preferred Securities -- Voting Rights." If the Company fails to make a payment under the Exchange Guarantee, a holder of a Preferred Security may institute a legal proceeding directly against the Company to enforce its rights under the Exchange Guarantee without first instituting a legal proceeding against the Guarantee Trustee, the Trust or any other person or entity. If the Company fails to make payments in respect of the Trust's costs and expenses as required by the Indenture, a creditor of the Trust may institute a legal proceeding directly against the Company to enforce such payments. In the event of payment defaults under, or acceleration of, Senior Indebtedness of the Company, the subordination provisions of the Indenture provide that no payments may be made in respect of the Exchange Notes until such Senior Indebtedness has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on the Exchange Notes would constitute an Event of Default. Limited Purpose of the Trust The Trust's Exchange Preferred Securities evidence a beneficial ownership interest in such Trust, and the Trust exists for the sole purpose of issuing its Exchange Preferred Securities and Common Securities and investing the proceeds thereof in the Exchange Notes. A principal difference between the rights of a holder of an Exchange Preferred Security and a holder of an Exchange Note is that a holder of an Exchange Note is entitled to receive from the Company the principal amount of and interest accrued on Exchange Notes held, while a holder of Exchange Preferred Securities is entitled to receive distributions from the Trust (or from the Company under the applicable Company Guarantee) if and to the extent the Trust has funds available for the payment of such distributions. Rights Upon Dissolution Upon any voluntary or involuntary dissolution, winding-up or liquidation of any Trust involving the liquidation of the Exchange Notes after satisfaction of liabilities to creditors of the Trust, the holders of the Preferred Securities will be entitled to receive, out of assets held by such Trust, the Liquidation Distribution in cash. See "Description of the Exchange Preferred Securities -- Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of the Company, the Preferred Trustee, as holder of the Exchange Notes, would be a subordinated creditor of the Company, subordinated in right of payment to all Senior Indebtedness, but entitled to receive payment in full of principal and interest, before any stockholders of the Company receive payments or distributions. Since the Company is the guarantor under the Exchange Guarantee and has agreed to pay for all costs, expenses and liabilities of the Trust (other than the Trust's obligations to the holders of its Exchange Preferred Securities), the positions of a holder of the Exchange Preferred Securities and a holder of the Exchange Notes relative to other creditors and to stockholders of the Company in the event of liquidation or bankruptcy of the Company are expected to be substantially the same. 147 DESCRIPTION OF OLD SECURITIES The terms of the Old Securities are identical in all material respects to the Exchange Securities, except that (i) the Old Securities have not been registered under the Securities Act and are entitled to certain rights under the Registration Rights Agreement (which rights will terminate upon consummation of the Exchange Offer, except under limited circumstances), (ii) the Exchange Preferred Securities will not contain the $100,000 minimum Liquidation Amount transfer restriction and certain other restrictions on transfer applicable to the Preferred Securities, (iii) the Exchange Preferred Securities will not provide for any increase in the Distribution rate thereon, (iv) the Exchange Notes will not contain the $100,000 minimum principal amount transfer restriction and (v) the Exchange Notes will not provide for any increase in the interest rate thereon. The Preferred Securities provide that, in the event that a registration statement relating to the Exchange Offer has not been filed by September 30, 1997 and declared effective by February 9, 1998, or, in certain limited circumstances, in the event a shelf registration statement (the "Shelf Registration Statement") with respect to the resale of the Preferred Securities is not declared effective by February 9, 1998, then interest will accrue (in addition to the stated interest rate on the Old Senior Subordinated Notes) at the rate of 0.25% per annum on the principal amount of the Old Senior Subordinated Notes and Distributions will accrue (in addition to the stated Distribution rate on the Preferred Securities) at the rate of 0.25% per annum on the Liquidation Amount of the Preferred Securities, for the period from the occurrence of such event until such time as such required Exchange Offer is consummated or any required Shelf Registration Statement is effective. The Exchange Securities are not, and upon consummation of the Exchange Offer the Preferred Securities will not be, entitled to any such additional interest or Distributions. Accordingly, holders of Preferred Securities should review the information set forth under "Risk Factors -- Consequences of a Failure to Exchange Preferred Securities" and "Description of Exchange Preferred Securities." 148 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain material United States federal income tax considerations of the purchase, ownership and disposition of the Exchange Preferred Securities held as capital assets by a Holder. Unless otherwise stated, this summary only addresses the tax consequences to a Holder that acquired Preferred Securities upon original issuance at their original issue price. As used herein, a "United States Person" means (i) a person that is a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all the substantial decisions of such trust. The tax treatment of a holder may vary depending on such holder's particular situation. This summary does not address all the tax consequences that may be relevant to a particular holder or to holders who may be subject to special tax treatment, such as banks, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, or tax-exempt investors. In addition, this summary does not include any description of any alternative minimum tax consequences or the tax laws of any state, local or foreign government that may be applicable to a holder of Preferred Securities. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. The authorities on which this summary is based are subject to various interpretations and the opinions of Tax Counsel are not binding on the Internal Revenue Service ("IRS") or the courts, either of which could take a contrary position. Moreover, no rulings have been or will be sought by the Company from the IRS with respect to the transactions described herein. Accordingly, there can be no assurance that the IRS will not challenge the opinions expressed herein or that a court would not sustain such a challenge. Nevertheless, Tax Counsel has advised that it is of the view that, if challenged, the opinions expressed herein would be sustained by a court with jurisdiction in a properly presented case. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE EXCHANGE PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF THE EXCHANGE PREFERRED SECURITIES - TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION OR DISTRIBUTION." Exchange of Securities The exchange of Preferred Securities for Exchange Preferred Securities will not be a taxable event to holder for United States federal income tax purposes. Under applicable Treasury Regulations, the exchange of Preferred Securities for Exchange Preferred Securities pursuant to the Exchange Offer will not be treated as an "exchange" for United States federal income tax purposes. Accordingly, the Exchange Preferred Securities will have the same issue price as the Preferred Securities, and a holder will have the same adjusted tax basis and holding period in the Exchange Preferred Securities as the holder had in the Preferred Securities immediately before the exchange. Classification of the Trust In connection with the issuance of the Exchange Preferred Securities, Dann Pecar Newman & Kleiman, P.C. ("Tax Counsel") will render its opinion that under current law and assuming full compliance with the terms of the Indenture, the Trust will be classified as a grantor trust for United States federal income tax purposes and not as an association taxable as a corporation. Accordingly, for United Stated federal income tax purposes, each beneficial owner of Preferred Securities generally will be considered the owner of an undivided interest in the Exchange Notes and, thus, 149 will be required to include in its gross income its pro rata share of the interest income or original issue discount ("OID") that is paid or accrued on the Exchange Notes. See " -- Interest Income and Original Issue Discount." Classification of the Exchange Notes The Company, the Trust and the holders of the Preferred Securities (by acceptance of a beneficial ownership interest in a Security) will agree to treat the Exchange Notes as indebtedness for all United States tax purposes. Accordingly, the Company intends to take the position that the Exchange Notes will be classified as indebtedness for United States federal income tax purposes. The following discussion assumes that the Exchange Notes will be classified as indebtedness for such purposes. Interest Income and Original Issue Discount Because the Company has the right to defer the payment of stated interest on the Exchange Notes, the stated interest on the Exchange Notes will be considered to be original issue discount ("OID") (within the meaning of Section 1273(a) of the Code). Consequently, holders must include such stated interest in gross income on a daily economic accrual basis (using the constant-yield-to-maturity method of accrual described in Section 1272 of the Code, regardless of their regular method of tax accounting and in advance of receipt of the cash attributable to such income. The application of these OID accrual rules may accelerate the timing of a holder's recognition of such income in certain situations. Actual payments of stated interest on the Exchange Notes, however, will not be separately reported as taxable income. Any amount of OID included in a holder's gross income with respect to an Exchange Preferred Security will increase such holder's adjusted tax basis in such Exchange Preferred Security, and the amount of Distributions received by a holder in respect of such OID will reduce such holder's adjusted tax basis in such Exchange Preferred Security. Corporate holders of Exchange Preferred Securities will not be entitled to a dividends-received deduction with respect to any income recognized by such holders with respect to the Exchange Preferred Securities. Distribution of Notes or Cash upon Liquidation of the Trust As described under the caption "Description of Exchange Preferred Securities -- Liquidation Distribution Upon Dissolution," Exchange Notes may be distributed to holders in exchange for the Exchange Preferred Securities and in liquidation of the Trust. Under current law, such a distribution would be non-taxable, and will result in the holder receiving directly its pro rata share of the Exchange Notes previously held indirectly through the Trust, with a holding period and aggregate tax basis equal to the holder period and aggregate tax basis such holder had in its Exchange Preferred Securities before such distribution. If, however, the liquidation of the Trust were to occur because the Trust is subject to United States federal income tax with respect to income accrued or received on the Exchange Notes, the distribution of the Exchange Notes to holders would be a taxable event to the Trust and to each holder and a holder would recognize gain or loss as if the holder had exchanged its Exchange Preferred Securities for the Exchange Notes it received upon liquidation of the Trust. A holder would accrue interest in respect of the Exchange Notes received from the Trust in the manner described above under " -- Interest Income and Original Issue Discount." Under certain circumstances described herein (see "Description of Exchange Preferred Securities -- Redemption"), the Exchange Notes may be redeemed for cash, with the proceeds of such redemption distributed to holders in redemption of their Exchange Preferred Securities. Under current law, such a redemption would constitute a taxable disposition of the redeemed Exchange Preferred Securities for United States federal income tax purposes, and a holder would recognize gain or loss as if it sold such redeemed Exchange Preferred Securities for cash. See " -- Resales of Exchange Preferred Securities." 150 Sales of Exchange Preferred Securities A holder that sells Exchange Preferred Securities will recognize gain or loss equal to the difference between the amount realized by the holder on the sale or redemption of the Exchange Preferred Securities (except to the extent that such amount realized is characterized as a payment in respect of accrued but unpaid interest on such holder's allocable share of the Exchange Notes that such holder has not included in gross income previously) and the holder's adjusted tax basis in the Exchange Preferred Securities sold or redeemed. Such gain or loss generally will be a capital gain or loss and generally will be a long-term capital gain or loss if the Exchange Preferred Securities have been held for more than one year. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United Stated federal income tax purposes. A holder will be required to add any accrued and unpaid OID to its adjusted tax basis for its Exchange Preferred Securities. To the extent the selling price of such holder's Exchange Preferred Securities is less than the adjusted tax basis (which will include any accrued and unpaid OID) a holder will recognize a capital loss. Possible Tax Law Changes The United States Congress has recently passed and the President approved certain changes to United States federal income tax law. While President Clinton proposed as part of the legislation a denial to an issuer of an interest deduction, for United States federal income tax purposes, on instruments such as the Senior Subordinated Notes, the law does not include any such provision. There can be no assurance, however, that future legislation will not adversely affect the ability of the Company to deduct interest on the Senior Subordinated Notes or otherwise affect the tax treatment of the transactions described herein. Moreover, such legislation could give rise to a Tax Event which would permit the Company to distribute the Senior Subordinated Notes to the holders of the Preferred Securities or cause a redemption of the Preferred Securities as described more fully under "Description of the Exchange Notes" and "Description of the Exchange Preferred Securities." See also "Certain United States Federal Income Tax Considerations -- Possible Tax Law Changes." Non-United States Holders As used herein, the term "Non-United States Holder" means any person that is not a United States Person (as defined above). As discussed above, the Exchange Preferred Securities will be treated as evidence of an indirect beneficial ownership interest in the Exchange Notes. See " -- Classification of the Trust." Thus, under present United States federal income tax law, and subject to the discussion below concerning backup withholding: (a) no withholding of United States federal income tax will be required with respect to the payment by the Company or any paying agent or principal or interest (which for purposes of this discussion includes any OID) with respect to the Preferred Securities (or on the Senior subordinated Notes) to a Non-United States Holder; provided (i) that the beneficial owner of the Preferred Securities (or Senior Subordinated Notes) ("Beneficial Owner") does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote within the meaning of section 871(h)(3) of the Code and the regulations thereunder, (ii) the Beneficial Owner is not a controlled foreign corporation that is related to the Company through stock ownership, (iii) the Beneficial Owner is not a bank whose receipt of interest with respect to the Exchange Preferred Securities (or on the Exchange Notes as described in section 881(c)(3)(A) of the Code) and (iv) the Beneficial Owner satisfies the statement requirement (described generally below) set forth in section 871(h) and section 881(c) of the Code and the regulations thereunder, and (b) no withholding of United States federal income tax will be required with respect to any gain realized by a Non-Untied States Holder upon the sale or other disposition of the Exchange Preferred Securities (or the Exchange Notes). 151 To satisfy the requirement referred to in (a)(iv) above, the Beneficial Owner, or a financial institution holding the Exchange Preferred Securities (or the Exchange Notes on behalf of such owner, must provide, in accordance with specified procedures, to the Trust or any paying agent (a "Paying Agent"), a statement to the effect that the Beneficial Owner is not a United States Holder. Pursuant to current temporary Treasury regulations, these requirements will be met if (1) the Beneficial Owner provides his name and address, and certifies, under penalties of perjury, that it is not a United States person (which certification may be made on an IRS Form W-8 (or successor form)) or (2) a financial institution holder the Exchange Preferred Securities (or the Senior Subordinated Notes) on behalf of the Beneficial Owner certifies, under penalties of perjury, that such statement has been received by it and furnishes a paying agent with a copy thereof. If a Non-United States Holder cannot satisfy the requirements of the "portfolio interest" exception described in (a) above, payments of premium, if any, and interest (including any OID) made to such Non-United States Holder will be subject to a 30% withholding tax unless the Beneficial Owner provides the Company or the relevant Paying Agent, as the case may be, with a properly executed (1) IRS Form 1001 (or successor form) claiming an exemption from, or a reduction of, such withholding United States income tax under the benefit of a tax treaty or (2) IRS Form 4224 (or successor form) stating that interest paid with respect to the Preferred Securities (or on the Senior Subordinated Notes) is not subject to withholding tax because it is effectively connected with the Beneficial Owner's conduct of a trade or business in the United States. As discussed above, the Company will treat the Exchange Notes as indebtedness for United States federal income tax purposes. If, however, the Exchange Notes were to be recharacterized as equity, for United States federal income tax purposes, the income on the Exchange Notes would be recharacterized as dividends which would generally be subject to 30% withholding tax when paid to a Non-United States Holder. If a Non-United States Holder is engaged in a trade or business in the United States and interest with respect to the Exchange Preferred Securities (or on the Exchange Notes) is effectively connected with the conduct of such trade or business, the Non-United States Person, although exempt from the withholding tax discussed above, will be subject to United States federal income tax on such interest on a net income basis in the same manner as if it were a United States Holder. In addition, if such Non-United States Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to adjustments. For this purpose, such interest would be included in such foreign corporation's earnings and profits. Any gain realized upon the sale or other taxable disposition of the Exchange Preferred Securities (or the Exchange Notes) by a Non-United States Holder generally will not be subject to United States federal income tax unless (i) such gain is effectively connected with a trade or business carried on in the United States by such Non-United States Holder, (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale or disposition, and certain other conditions are met and (iii) in the case of any gain representing accrued interest with respect to the Exchange Preferred Securities (or on the Exchange Notes) the requirements described above are not satisfied. Information Reporting and Backup Withholding Income on the Exchange Preferred Securities (or the Exchange Notes) held of record by United States Persons (other than corporations and other exempt holders) will be reported annually to such holders and to the IRS. The Preferred Trustee currently intends to deliver such reports to holders of record prior to January 31 following each calendar year. It is anticipated that persons who hold Exchange Preferred Securities (or the Senior Subordinated Notes) as nominees for beneficial holders will report the required tax information to beneficial holders on Form 1099. "Backup withholding" at a rate of 31% will apply to payments of interest to non-exempt United States Persons unless the holder furnishes its taxpayer identification number in the manner prescribed in applicable Treasury regulations, certifies that such number is correct, certifies as to no loss of exemption from backup withholding and meets certain other conditions. 152 No information reporting or backup withholding will be required with respect to payments made by the Trust or any Paying Agent to Non-United States holders if a statement described in (a)(iv) under "Non-United States Holders" has been received and the payor does not have actual knowledge that the beneficial owner is a United States Person. In addition, backup withholding and information reporting will not apply if payments of the principal, interest, OID or premium with respect to the Exchange Preferred Securities (or on the Exchange Notes) are paid or collected by a foreign office of a custodian, nominee or other foreign agent on behalf of the Beneficial Owner, of if a foreign office of a broker (as defined in applicable Treasury regulations) pays the proceeds of the sale of the Exchange Preferred Securities (or the Exchange Notes) to the owner thereof. If, however, such nominee, custodian, agent or broker is, for United States federal income tax purposes, a United States person, a controlled foreign corporation or a foreign person that derives 50% or more of its gross income for certain periods form the conduct of a trade or business in the United States, such payments will not be subject to backup withholding but will be subject to information reporting, unless (1) such custodian, nominee, agent or broker has documentary evidence in its records that the Beneficial Owner is not a United States person and certain other conditions are met or (2) the Beneficial Owner otherwise establishes an exemption. Payment of the proceeds from disposition of Exchange Preferred Securities (or Exchange Notes) to or through a United States office of a broker is subject to information reporting and backup withholding unless the holder or beneficial owner establishes an exemption from information reporting and backup withholding. Any amounts withheld from a holder of the Exchange Preferred Securities under the backup withholding rules generally will be allowed as a refund or a credit against such holder's United States federal income tax liability, provided the required information is furnished to the IRS. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE EXCHANGE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. 153 ERISA CONSIDERATIONS Generally, employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code ("Plans"), may purchase the Exchange Preferred Securities, subject to the investing fiduciary's determination that the investment in the Exchange Preferred Securities satisfied ERISA's fiduciary standards and other requirements applicable to investments by the Plan. The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section 2510.3-101) (the "DOL Regulation") concerning the definition of what constitutes the assets of a Plan. The DOL Regulation provides that, as a general rule, the underlying assets and properties of corporations, partnerships, trusts and certain other entities in which a Plan makes an equity investment will be deemed for purposes of ERISA to be assets of the investing plan unless certain exceptions apply. There can be no assurance that any of the exceptions set forth in the DOL Regulation will apply to the purchase of the Exchange Preferred Securities offered hereby and, as a result, an investing Plan's assets could be considered to include an undivided interest in the Exchange Notes and any other assets held by the Trustees. In the event that assets of the Trust are considered assets of an investing Plan, the Trust, the Trustee and other persons, in providing services with respect to the Exchange Notes, may be considered fiduciaries to such Plan and subject to the fiduciary responsibility provisions of Title I of ERISA (including the prohibited transaction provisions thereof). In addition, the prohibited transaction provisions of Section 4975 of the Code would apply with respect to transactions engaged in by any "disqualified person," as defined below, involving such assets unless a statutory or administrative exemption applies. The Trust and/or any of its affiliates may be considered a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of Section 4975 of the Code) with respect to the Plans. The acquisition and ownership of the Exchange Preferred Securities by a Plan (or by an individual retirement arrangement or other plan described in Section 4975(e)(1) of the Code) may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless the preferred Securities are acquired pursuant to and in accordance with an applicable exemption. As a result, Plans should not acquire the Exchange Preferred Securities unless such Exchange Preferred Securities are acquired pursuant to and in accordance with an applicable prohibited transaction exemption. Any plans or other entities whose assets include Plan assets subject to ERISA or Section 4975 of the Code proposing to acquire the Exchange Preferred Securities should consult with their own counsel. 154 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Preferred Securities for its own account in connection with the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Preferred Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by Participating Broker-Dealers during the period referred to below in connection with resales of Exchange Preferred Securities received in exchange for Preferred Securities if such Preferred Securities were acquired by such Participating Broker-Dealers for their own accounts as a result of market-making activities or other trading activities. The Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Preferred Securities for a period ending 90 days after the Expiration Date (subject to extension under certain limited circumstances described herein) or, if earlier, when all such Exchange Preferred Securities have been disposed of by such Participating Broker-Dealer. However, a Participating Broker-Dealer who intends to use this Prospectus in connection with the resale of Exchange Preferred Securities received in exchange for Preferred Securities pursuant to the Exchange Offer must notify the Company or the Trust, or cause the Company or the Trust to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under "The Exchange Offer -- Exchange Agent." See "The Exchange Offer -- Resales of Exchange Preferred Securities." Neither the Company or the Trust will receive any cash proceeds from the issuance of the Exchange Preferred Securities offered hereby. Exchange Preferred Securities received by broker-dealers for their own accounts in connection with the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Preferred Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Preferred Securities. Any broker-dealer that resells Exchange Preferred Securities that were received by it for its own account in connection with the Exchange Offer and any broker or dealer that participates in a distribution or such Exchange Preferred Securities may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of Exchange Preferred Securities and any commissions or concession received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and be delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 155 LEGAL MATTERS The validity of the Exchange Notes and the Exchange Guarantee will be passed upon for the Company by Dann Pecar Newman & Kleiman, P.C., Indianapolis, Indiana. Certain matters relating to United States federal income tax considerations will be passed upon for the company by Dann Pecar Newman & Kleiman, P.C., Indianapolis, Indiana. Certain matters of Delaware law relating to the validity of the Exchange Preferred Securities will be passed upon for the Trust by Richards, Layton & Finger, Wilmington, Delaware. Principals in the law firm of Dann Pecar Newman & Kleiman, P.C. own less than 1% of the Common Stock of the Company. EXPERTS The consolidated financial statements and related schedules of the Company as of December 31, 1995 and 1996 and for each of the years in the three-year period ended December 31, 1996 appearing in this Prospectus and the Registration Statement have been audited and reported upon by Coopers & Lybrand L.L.P., independent accountants, as set forth in their report thereon appearing elsewhere herein and are included herein upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements and related schedules of Superior as of December 31, 1994 and 1995 and for each of the years in the three-year period ended December 31, 1995 appearing in this Prospectus and Registration Statement have been audited and reported upon by Coopers & Lybrand L.L.P., independent accountants, as set forth in their report thereon appearing elsewhere herein and are included herein upon the authority of said firm as experts in accounting and auditing. 156 GLOSSARY OF TERMS
1940 Act............................ The Investment Company Act of 1940, as amended. 1994 Reform Act..................... The Federal Crop Insurance Reform Act of 1994. 1996 Reform Act..................... The Federal Agriculture Improvement and Reform Act of 1996. Acquisition......................... The acquisition by GGS Holdings of Superior Insurance Company, a Florida property and casualty insurer primarily engaged in the writing of nonstandard automobile insurance. Actual Production History (APH)..... A plan of MPCI which provides the yield component and yield forecast of an insured by utilizing the insured's historic yield record. CRC plans use the policy terms and conditions of the APH as their basic provisions of coverage. A.M. Best........................... A.M. Best Company, Inc., a rating agency and publisher for the insurance industry. Board of Directors.................. With respect to the Company or a Subsidiary, as the case may be, the Board of Directors (or other body performing functions similar to any of those performed by a Board of Directors). Buyout Transaction.................. A combination of the GGS Buyout and the Repayment from the proceeds of this offering. Buy-up Coverage..................... Multi-Peril Crop Insurance policy providing coverage in excess of that provided by CAT Coverage. Buy-up Coverage is offered only through private insurers. Buy-up Expense Reimbursement Payment An expense reimbursement payment made by the FCIC to an MPCI insurer equal to a percentage of Gross Premiums Written for each Buy-up Coverage policy written by such MPCI insurer. Casualty Insurance.................. Insurance which is primarily concerned with the losses caused by injuries to third persons (i.e., not the policyholder) and the legal liability imposed on the insured resulting therefrom. It includes, but is not limited to, employers' liability, workers' compensation, public liability, automobile liability, personal liability and aviation liability insurance. It excludes certain types of loss that by law or custom are considered as being exclusively within the scope of other types of insurance, such as fire or marine. 157 CAT Coverage (CAT).................. The minimum available level of Multi-Peril Crop Insurance, providing coverage for 50% of a farmer's historical yield for eligible crops at 60% of the price per commodity unit for such crop set by the FCIC. This coverage is offered through private insurers and, in certain states, USDA field offices. CAT Coverage Fee.................... A fixed administrative fee of $50 per policy for which farmers may purchase CAT Coverage. The CAT Coverage Fee takes the place of a premium. CAT LAE Reimbursement Payment....... An LAE reimbursement payment made by the FCIC to an MPCI insurer equal to 13.0% of MPCI Imputed Premiums for each CAT Coverage policy written by such MPCI insurer. Cede; Ceding Company................ When an insurance company reinsures its risk with another insurance company, it "cedes" business and is referred to as the "ceding company." Code................................ Internal Revenue Code of 1986, as amended. Combined Ratio...................... The sum of the Expense Ratio and the Loss and LAE Ratio determined in accordance with GAAP or SAP. Commission.......................... The Securities and Exchange Commission. Common Stock....................... The shares of common stock, no par value, of the Company. Company (Or SIG).................... Symons International Group, Inc. and its Subsidiaries, unless the context indicates otherwise. Contribution........................ The contribution by Pafco of IGF to IGF Holdings in exchange for all of the capital stock of IGF Holdings. Crop Revenue Coverage (CRC)......... CRC provides the insured with a guaranteed revenue stream by combining both yield and price variability protection and protects against a grower's loss of revenue resulting from fluctuating crop prices and/or low yields by providing coverage when any combination of crop yield and price results in revenue that is less than the revenue guarantee provided by the policy. 158 Crop Year........................... For MPCI, a crop year commences on July 1 and ends on the following June 30. For example, the 1998 crop year begins July 1, 1997 and ends on June 30, 1998. For crop hail insurance, the crop year is the calendar year. Dividend............................ The payment by IGF Holdings to Pafco of a dividend consisting of $7.5 million in cash and the IGF Note. EBITDA.............................. Calculation of earnings before income taxes, minority interest, depreciation and amortization. Exchange Act........................ The Securities Exchange Act of 1934, as amended. Expense Ratio....................... Under statutory accounting, the ratio of underwriting expenses to net premiums written. Under GAAP accounting, the ratio of underwriting expenses to net premiums earned. Federal Crop Insurance Corporation (FCIC)............................. A wholly owned federal government corporation within the United States Department of Agriculture (USDA). Florida Commissioner................ The Florida Commissioner of Insurance. Florida Department.................. The Florida Department of Insurance. Formation Transaction............... The formation of GGS Management Holdings, Inc., a corporation which previously was 52% owned by the Company and 48% owned by the GS Funds. Fortis.............................. Fortis, Inc., the parent company of Interfinancial, the former holding company for Superior. Generally Accepted Accounting Principles (GAAP).................. Generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth (i) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants (ii) statements and pronouncements of the Financial Accounting Standards Board (iii) in such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. 159 GGS Agreement....................... The agreement by and among Goran, SIG, GGS Holdings and the GS Funds dated January 31, 1996 evidencing the Formation Transaction. GGS Buyout.......................... The agreement between SIG and GS Funds, an affiliate of Goldman Sachs, for SIG to purchase GS Funds' 48% interest in GGS Holdings with a portion of the proceeds of this Offering. GGS Holdings........................ GGS Management Holdings, Inc., a holding company for Pafco and Superior controlled by the Company. GGS Management...................... GGS Management, Inc., a wholly owned subsidiary of GGS Holdings. GGS Senior Credit Facility.......... A $48 million senior bank facility extended to GGS Management used to partially fund the purchase of Superior. Goldman Sachs....................... Goldman, Sachs & Co. Goran............................... Goran Capital Inc., a Canadian federally chartered corporation and the current approximately 67% shareholder of the Company. Goran Distribution.................. The distribution by the Company to Goran of all of the outstanding capital stock of Symons International Group, Inc. (Florida), a Florida-based surplus lines underwriting manager. Granite............................. Granite Insurance Company, a subsidiary of Goran. Granite Re ......................... Granite Reinsurance Company Ltd., a subsidiary of Goran domiciled in Barbados. Gross Premiums Written.............. Direct premiums written plus premiums collected in respect of policies assumed, in whole or in part, from other insurance carriers. GS Funds............................ Investments funds affiliated with Goldman Sachs, consisting of GS Capital Partners II, L.P.; GS Capital Partners II Offshore, L.P.; Stone Street Funds L.P.; Bridge Street Funds L.P.; and Goldman Sachs & Co. Verwaltungs GmbH. IBCL................................ The Indiana Business Corporation Law. IGF................................. IGF Insurance Company, an indirect wholly owned subsidiary of the Company.
160 IGFH Bank Debt...................... A bank loan in the principal amount of $7.5 million issued by IGF Holdings which was repaid from proceeds of the IPO. IGF Holdings........................ IGF Holdings, Inc., a wholly owned subsidiary of the Company. IGF Note............................ A subordinated promissory note of IGF Holdings in the principal amount of approximately $3.5 million issued to Pafco by IGF Holdings as part of the Dividend. IGF Revolver........................ IGF's revolving line of credit used to finance premium payables on amounts not yet received from farmers. Incurred but Not Reported (IBNR) Claims.............................. Claims under policies that have been incurred but have not yet been reported to the Company by the insured. Incurred But Not Reported (IBNR) Reserves............................ IBNR reserves include LAE related to losses anticipated from IBNR Claims and may also provide for future adverse loss development on reported claims. Indiana Commissioner................ The Indiana Commissioner of Insurance. Indiana Department.................. The Indiana Department of Insurance. Initial Public Offering (IPO)....... The Company's initial public offering of Common Stock in November 1996. Insurance Regulatory Information System (IRIS)...................... A system of ratio analysis developed by the NAIC primarily intended to assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance companies. Insurers or Insurance Subsidiaries.. The direct and indirect consolidated insurance subsidiaries of the Company, which include IGF, Pafco and Superior. Interfinancial...................... Interfinancial, Inc., a wholly owned subsidiary of Fortis, Inc. and the former holding company for Superior. IRS................................. Internal Revenue Service. LIBOR............................... An annual rate equal to the London Interbank Offered Rate for the corresponding deposits of United States dollars. 161 Loss Adjustment Expenses (LAE)...... Expenses incurred in the settlement of claims, including outside adjustment expenses, legal fees and internal administrative costs associated with the claims adjustment process, but not including general overhead expenses. Loss and LAE Ratio (Loss Ratio)..... The ratio of Losses and LAE incurred to premiums earned. Loss and LAE Reserves............... Liabilities established by insurers to reflect the ultimate estimated cost of claim payments as of a given date. MPCI Excess LAE Reimbursement Payment............................ A small excess LAE reimbursement payment made by the FCIC to an MPCI insurer of two hundredths of one percent of MPCI Retention determined after ceding to the FCIC's three reinsurance pools, to the extent that loss ratios on a per state basis exceeds certain levels. MPCI Imputed Premium................ For purposes of the profit/loss sharing arrangement with the federal government, the amount of premiums credited to the Company for all CAT Coverage it sells, as such amount is determined by formula. MPCI Premium........................ For purposes of the profit/loss sharing arrangement with the federal government, the amount of premiums credited to the Company for all Buy-up Coverage sold, consisting of amounts paid by farmers plus the amount of any related federal premium subsidies. MPCI Retention...................... The aggregate amount of MPCI Premium and MPCI Imputed Premium on which the Company retains risk after allocating farms to the three federal reinsurance pools. Multi-Peril Crop Insurance (MPCI)... A federally-regulated and subsidized crop insurance program that provides producers of crops with varying levels of insurance protection against substantially all natural perils to growing crops. NAIC................................ The National Association of Insurance Commissioners. NASDAQ National Market.............. The NASDAQ Stock Market's National Market. NCIS................................ National Crop Insurance Services, Inc., the actuarial data facility for the commercial crop insurance industry. 162 Net Premiums Earned................. The portion of net premiums written applicable to the expired period of policies and, accordingly, recognized as income during a given period. Net Premiums Written ............... Total premiums for insurance written (less any return premiums) during a given period, reduced by premiums ceded in respect of liability reinsured by other carriers. Nonstandard Automobile Insurance.... Personal lines automobile insurance written for those individuals presenting an above average risk profile in terms of payment history, driving experience, record of prior accidents or driving violations, particular occupation or type of vehicle and other factors. OID................................. Original issue discount under the Code. Pafco............................... Pafco General Insurance Company, an Indiana property and casualty insurance company. Policies In-Force................... Policies written and recorded on the books of an insurance carrier which are unexpired as of a given date. Price Election...................... The maximum per unit commodity price by crop to be used in computing MPCI Premiums, which is set each year by the FCIC. Quota Share Reinsurance............. A form of reinsurance in which the reinsurer shares a proportional part of both the original premiums and the losses of the reinsured. Reinsurance......................... The practice whereby a company called the "reinsurer" assumes, for a share of the premium, all or part of a risk originally undertaken by another insurer called the "ceding" company or "cedent." Reinsurance may be affected by "treaty" reinsurance, where a standing agreement between the ceding and reinsuring companies automatically covers all risks of a defined category, amount and type, or by "facultative" reinsurance where reinsurance is negotiated and accepted on a risk-by-risk basis. Repayment........................... The payment of GGS Senior Credit Facility indebtedness with a portion of the proceeds from this offering. Retention........................... The amount of liability, premiums or losses which an insurance company keeps for its own account after reinsurance. 163 Risk-based Capital (RBC) Requirements........................ Capital requirements for property and casualty insurance companies adopted by the NAIC to assess minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Securities Act...................... The Securities Act of 1933, as amended. Senior Subordinated Notes........... The Company's securities to be purchased with the proceeds of the Offering. Short-Tail.......................... A "short-tail" insurance product is one where losses are known comparatively quickly; ultimate losses under a "long-tail" insurance product are sometimes not known for years. SIG (Or The Company)................ Symons International Group, Inc., a specialty insurer which underwrites and markets nonstandard private passenger automobile insurance and crop insurance. SIGF................................ Symons International Group, Inc. (Florida), a Florida based surplus lines underwriting manager and a subsidiary of Goran. SIGL................................ Symons International Group, Ltd., a Canadian corporation and the controlling shareholder of Goran. Standard Automobile Insurance....... Personal lines automobile insurance written for those individuals presenting an average risk profile in terms of loss history, driving record, type of vehicle driven and other factors. Statutory Accounting Practices (SAP) Accounting practices which consist of recording transactions and preparing financial statements in accordance with the rules and procedures prescribed or permitted by state regulatory authorities. Statutory accounting emphasizes solvency rather than matching revenues and expenses during an accounting period. Subsidiaries........................ All of the direct and indirect consolidated subsidiaries of the Company. 164 Superior............................ Superior Insurance Company, a Florida property and casualty insurer primarily engaged in the writing of nonstandard automobile insurance and its principal subsidiaries, Superior American Insurance Company, a Florida insurance company and Superior Guaranty Insurance Company, a Florida insurance company. Superior Purchase Agreement......... Stock Purchase Agreement, dated January 31, 1996, by and among Goran, the Company, Fortis and Interfinancial pursuant to which the Company purchased Superior. Tail................................ The period of time that elapses between the incurrence and settlement of losses under a policy. Transactions........................ The Formation Transaction, the Acquisition and other related transactions, including the Transfer and the Dividend. Transfer............................ The transfer by Pafco of all of the outstanding capital stock of IGF to IGF Holdings and the distribution of IGF Holdings to the Company. Treaty Reinsurance.................. The reinsurance of a specified type or category of risks defined in a reinsurance agreement (a "treaty") between a primary insurer or other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is obligated to offer and the reinsurer is obligated to accept a specified portion of all such type or category of risks originally underwritten by the primary insurer or reinsured. Underwriting........................ The insurer's or reinsurer's process of reviewing applications submitted for insurance coverage, deciding whether to accept all or part of the coverage requested and determining the applicable premiums. USDA................................ United States Department of Agriculture.
165 INDEX TO FINANCIAL STATEMENTS Symons International Group, Inc. and Subsidiaries Report of Independent Accountants...........................................F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997...........................................................F-3 Consolidated Statements of Earnings for the Years Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June 30, 1996 and 1997......................................................F-4 Consolidated Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June 30, 1996 and 1997......................................................F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June 30, 1996 and 1997................................................F-6 Notes to Consolidated Financial Statements.....................F-7 through F-37 Superior Insurance Company and Subsidiaries Report of Independent Accountants..........................................F-38 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996..............................................................F-39 Consolidated Statements of Earnings for the Years Ended December 31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996...............................................F-40 Consolidated Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996....................................................F-41 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996....................................F-42 Notes to Consolidated Financial Statements....................F-43 through F-58 F-1 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders of Symons International Group, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Symons International Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Symons International Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand Indianapolis, Indiana March 21, 1997 F-2 SYMONS INTERNATIONAL GROUP, INC. Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (dollars in thousands, except share data)
December 31, December 31, June 30, 1995 1996 1997 -------------- -------------- -------------- ASSETS: (unaudited) Investments Available for Sale: Fixed Maturities, at market $ 12,931 $ 127,681 $ 143,905 Equity Securities, at market 4,231 27,920 32,031 Short-term investments, at amortized cost which approximates market 5,283 9,565 11,742 Real Estate, at cost 487 466 457 Mortgage Loans, at cost 2,920 2,430 2,290 Other 50 75 75 Investments in and advances to related parties 2,952 1,152 2,418 Cash and cash equivalents 2,311 13,095 18,329 Receivables (net of allowance for doubtful account of $927, $1,480 and $1,340 (unaudited) in 1995, 1996 and June 30, 1997 8,203 65,194 176,045 Reinsurance recoverable on paid and unpaid losses, net 54,136 48,294 70,694 Prepaid reinsurance premiums 6,263 14,983 73,927 Deferred policy acquisition costs 2,379 12,800 13,121 Deferred income taxes 1,421 3,329 2,899 Property and equipment, net of accumulated depreciation 5,502 8,137 9,555 Federal income taxes recoverable --- 319 --- Goodwill --- 2,122 2,114 Other 1,447 7,117 8,039 ----- ----- ----- Total Assets $ 110,516 $ 344,679 $ 567,641 ======= ======= ======= LIABILITIES: Losses and loss adjustment expenses $ 59,421 $ 101,719 $ 137,924 Unearned premiums 17,497 87,285 160,741 Reinsurance payable 6,206 6,508 100,475 Payables to affiliates 6,474 366 --- Federal income tax payable 133 --- 1,594 Line of credit and notes payable 5,811 --- --- Term debt --- 48,000 44,872 Other 5,439 18,291 23,411 ----- ------ ------ Total Liabilities 100,981 262,169 469,017 ------- ------- ------- Minority Interest in Consolidated Subsidiary --- 21,610 26,724 --- ------ ------ Commitments and contingencies STOCKHOLDERS' EQUITY: Common stock, no par value, 100,000,000 shares authorized and 7,000,000, 10,450,000 and 10,450,000 (unaudited) issued and outstanding in 1995, 1996 and 1997, respectively 1,000 38,969 39,019 Additional paid-in capital 3,130 5,905 5,905 Unrealized gain/(loss) on investments, net of deferred tax benefit (expense) of $23 in 1995, $625 in 1996 and $(72) (unaudited) at June 30, 1997 (45) 820 2,184 Retained earnings 5,450 15,206 24,792 ----- ------ ------ Total Stockholders' Equity 9,535 60,900 71,900 ----- ------ ------ Total Liabilities and Stockholders' Equity $ 110,516 $ 344,679 $ 567,641 ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-3 SYMONS INTERNATIONAL GROUP, INC. Consolidated Statements of Earnings for the Years Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June 30, 1996 and 1997 (dollars in thousands, except per share data) Six Months Ended Years Ended December 31, June 30, --------------------------------------------- ----------------------------
(unaudited) 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- Gross premiums written $ 103,134 $ 124,634 $ 305,499 $ 146,950 $ 279,065 Less ceded premiums (67,995) (71,187) (95,907) (69,908) (128,541) -------- -------- -------- -------- --------- Net premiums written 35,139 53,447 209,592 77,042 150,524 Change in unearned premiums (3,013) (3,806) (17,833) (17,976) (14,512) ------- ------- -------- -------- -------- Net premiums earned 32,126 49,641 191,759 59,066 136,012 Net investment income 1,241 1,173 6,733 1,533 5,276 Other income 1,632 2,170 9,286 4,062 10,791 Net realized capital gain/(loss) (159) (344) (1,015) 228 1,684 ----- ----- ------- --- ----- Total Revenues 34,840 52,640 206,763 64,889 153,763 ------ ------ ------- ------ ------- Expenses: Loss and loss adjustment expenses 26,470 35,971 137,109 45,275 103,293 Policy acquisition and general and administrative expenses 5,801 7,981 42,013 12,283 30,397 Interest expense 1,184 1,248 3,938 1,261 2,744 ----- ----- ----- ----- ----- Total Expenses 33,455 45,200 183,060 58,819 136,434 ------ ------ ------- ------ ------- Earnings before income taxes and minority interest 1,385 7,440 23,703 6,070 17,329 ----- ----- ------ ----- ------ Income taxes: Current income tax expense 462 2,275 7,982 1,190 7,252 Deferred income tax expense (benefit) (1,180) 344 64 664 (1,069) ------- --- -- --- ------- Total Income Taxes (718) 2,619 8,046 1,854 6,183 ----- ----- ----- ----- ----- Net earnings before minority interest 2,103 4,821 15,657 4,216 11,146 Minority interest 14 --- (2,401) 88 (1,560) -- --- ------- -- ------- Net Earnings $ 2,117 $ 4,821 $ 13,256 $ 4,304 $ 9,586 ===== ===== ====== ===== ===== Weighted average shares outstanding 7,000 7,000 7,537 7,000 10,617 ===== ===== ===== ===== ====== Net earnings per share $ 0.30 $ 0.69 $ 1.76 $ 0.61 $ 0.90 ==== ==== ==== ==== ====
The accompanying notes are an integral part of the consolidated financial statements. F-4 SYMONS INTERNATIONAL GROUP, INC. Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 and the Six Months ended June 30, 1996 and 1997 (dollars in thousands)
Additional Unrealized Gain Retained Total Common Paid-In (Loss) on Earnings Stockholders' Stock Capital Investments (Deficit) Equity ----- ------- ----------- --------- ------ Balance at January 1, 1994 $ 1,000 $ 3,130 $ (423) $ (1,488) $ 2,219 Unrealized gain on fixed maturities, resulting from a change in accounting principle, net of deferred taxes --- --- 139 --- 139 Change in unrealized loss on investments, net of deferred taxes --- --- (220) --- (220) Net Earnings --- --- --- 2,117 2,117 --- --- --- ----- ----- Balance at December 31, 1994 1,000 3,130 (504) 629 4,255 Change in unrealized loss on investments, net of deferred taxes --- --- 459 --- 459 Net Earnings --- --- --- 4,821 4,821 --- --- --- ----- ----- Balance at December 31, 1995 1,000 3,130 (45) 5,450 9,535 Sale of subsidiary stock --- 3,389 --- --- 3,389 Change in unrealized loss on investments, net of deferred taxes (unaudited) --- --- 529 --- 529 Net Earnings (unaudited) --- --- --- 4,304 4,304 --- --- --- ----- ----- Balance at June 30, 1996 (unaudited) $ 1,000 $ 6,519 $ 484 $ 9,754 $ 17,757 ===== ===== === ===== ====== Balance at December 31, 1995 $ 1,000 $ 3,130 $ (45) $ 5,450 $ 9,535 Sale of subsidiary stock --- 2,775 --- --- 2,775 Change in unrealized loss on investments, net of deferred taxes --- --- 865 --- 865 Issuance of common stock 37,969 --- --- --- 37,969 Dividend to parent --- --- --- (3,500) (3,500) Net Earnings --- --- --- 13,256 13,256 --- --- --- ------ ------ Balance at December 31, 1996 $ 38,969 $ 5,905 $ 820 $ 15,206 $ 60,900 Adjustment of Offering costs 50 --- --- --- 50 Change in unrealized gain on investments, net of deferred taxes (unaudited) --- --- 1,364 --- 1,364 Net Earnings (unaudited) --- --- --- 9,586 9,586 --- --- --- ----- ----- Balance at June 30, 1997 (unaudited) $ 39,019 $ 5,905 $ 2,184 $ 24,792 $ 71,900 ====== ===== ===== ====== ======
The accompanying notes are an integral part of the consolidated financial statements. F-5 SYMONS INTERNATIONAL GROUP, INC. Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,1995 and 1996 and the Six Months Ended June 30, 1996 and 1997 (dollars in thousands) Six Months Ended Years Ended December 31, June 30, --------------------------------------------- -------------------------- (unaudited)
1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings For the Period $ 2,117 $ 4,821 $ 13,256 $ 4,304 $ 9,586 Adjustments to reconcile Net Earnings to Net Cash provided from (used in) Operations: Minority interest (14) --- 2,401 (88) 1,560 Depreciation and amortization 690 742 2,194 221 1,169 Deferred income tax expense (benefit) (1,180) 344 64 664 (1,068) Net realized capital loss/(gain) 159 344 1,015 (228) (1,684) Net changes in operating assets and liabilities (net of assets acquired): Receivables (9,057) 6,462 (22,673) (48,085) (110,851) Reinsurance recoverable on paid and unpaid losses, net 25,130 (41,250) 5,842 (29,475) (22,400) Prepaid reinsurance premiums (3,343) 725 (8,720) (3,824) (58,944) Deferred policy acquisition costs (727) (900) (2,496) (2,888) (321) Other assets 98 1,019 (2,923) (3,264) (1,198) Losses and loss adjustment expenses (24,874) 30,152 (2,125) (10,216) 36,205 Unearned premiums 6,356 3,081 24,508 52,077 73,456 Reinsurance payables 1,982 2,133 (1,978) 46,349 93,967 Federal income taxes recoverable/(payable) 759 325 (1,270) (490) 1,913 Other liabilities (1,398) 1,656 2,908 2,925 5,120 ------- ----- ----- ----- ----- Net Cash Provided From (used in) Operations (3,302) 9,654 10,003 7,982 26,510 ------- ----- ------ ----- ------ Cash Flow Provided From (Used In) Investing Activities: Cash paid for Superior net of cash acquired --- --- (66,590) (66,389) --- Net (Purchases)/Sales of short-term investments (308) (4,493) 8,026 11,342 (2,177) Purchases of fixed maturities (7,587) (12,517) (73,503) (24,976) (36,846) Proceeds from sales, calls and maturities of fixed maturities 8,460 8,603 56,903 17,896 20,964 Proceeds from sales of equity securities 10,510 29,599 19,796 65,944 16,531 Purchase of equity securities (10,122) (28,173) (34,157) (86,177) (15,188) Proceeds from the sale of real estate 1,165 --- --- --- --- Purchases of mortgage loans (50) (100) --- --- --- Proceeds from repayment of mortgage loans 60 120 490 360 140 Purchase of property and equipment (655) (1,874) (3,734) (579) (2,294) ----- ------- ------- ----- ------- Net cash provided from (used in) investing activities 1,473 (8,835) (92,769) (82,579) (18,870) ----- ------- -------- -------- -------- Cash flow provided from (used in) from financing activities: Proceeds from initial public offering, net of expenses --- --- 37,969 --- --- Proceeds from line of credit and notes payable 26,900 1,620 --- 7,750 --- Proceeds from term debt --- --- 48,000 48,000 (3,128) Payments on line of credit and notes payable (26,459) (1,250) (5,811) (5,811) --- Proceeds from consolidated subsidiary minority interest owner --- --- 21,200 21,200 2,304 Payment of dividend to parent --- --- (3,500) --- --- Repayments from related parties 711 44 1,800 1,063 --- Loans from and (repayments to) related parties 425 1,036 (6,108) 84 (1,582) --- ----- ------- -- ------- Net cash provided from financing activities 1,577 1,450 93,550 72,286 (2,406) ----- ----- ------ ------ ------- Increase (decrease) in cash and cash equivalents (252) 2,269 10,784 (2,311) 5,234 Cash and cash equivalents, beginning of year 294 42 2,311 2,311 13,095 --- -- ----- ----- ------ Cash and cash equivalents, end of year $ 42 $ 2,311 $ 13,095 $ -- 18,329 == ===== ====== ===== ======
The accompanying notes are an integral part of the consolidated financial statements. F-6 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) 1. Nature of Operations and Significant Accounting Policies Symons International Group, Inc. (the "Company") is a 67% owned subsidiary of Goran Capital, Inc. (Goran). The Company is primarily involved in the sale of personal nonstandard automobile insurance and crop insurance. Nonstandard automobile represents approximately 61% of the Company's premium volume. The Company's products are marketed through independent agents and brokers, within a 31-state area, primarily in the Midwest and Southern United States. The following is a description of the significant accounting policies and practices employed: a. Principles of Consolidation: The consolidated financial statements include the accounts, after intercompany eliminations, of the Company and its subsidiaries as follows: GGS Management Holdings, Inc. (GGS Holdings)-a holding company for the nonstandard automobile operations which includes GGS Management, Inc., Pafco General Insurance Company, Pafco Premium Finance Company and the Superior entities, as described below - 52% owned; GGS Management, Inc. (GGS)-a management company for the nonstandard automobile operations-52% owned; Superior Insurance Company (Superior)-an insurance company domiciled in Florida-52% owned; Superior American Insurance Company (Superior American)-an insurance company domiciled in Florida-52% owned; Superior Guaranty Insurance Company (Superior Guaranty)-an insurance company domiciled in Florida-52% owned; Pafco General Insurance Company (Pafco)-an insurance company domiciled in Indiana-52% owned; IGF Holdings, Inc. (IGF Holdings)-a holding company for the crop operations which includes IGF and Hail Plus Corp.-100% owned; and IGF Insurance Company (IGF)-an insurance company domiciled in Indiana-100% owned. On January 31, 1996, the Company entered into an agreement with GS Capital Partners II, L.P. (Goldman Funds) to create a company, GGS Holdings, to be owned 52% by the Company and 48% by Goldman Funds. GGS Holdings created GGS, a management company for the nonstandard automobile operations which include PGIC and the Superior entities. On April 30, 1996, GGS Holdings acquired the Superior entities through a purchase business combination. The Company's Consolidated Results of Operations for the year ended December 31, 1996 include the results of operations of the Superior entities subsequent to April 30, 1996. (See Note 2.) F-7 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) On January 1, 1996, the Company sold its excess and surplus lines insurance operations, Symons International Group, Inc. of Florida (SIGF), with a net book value of $2, to Goran for $2. Accordingly, no gain or loss was recognized in 1996 on the transaction. b. Basis of Presentation: The accompanying financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) which differ from statutory accounting practices (SAP) prescribed or permitted for insurance companies by regulatory authorities in the following respects: Certain assets are excluded as "Nonadmitted Assets" under statutory accounting. Costs incurred by the Company relating to the acquisition of new business are expensed for statutory purposes. The investment in wholly owned subsidiaries is consolidated for GAAP rather than valued on the statutory equity method. The net income or loss and changes in unassigned surplus of the subsidiaries is reflected in net income for the period rather than recorded directly to unassigned surplus. Fixed maturity investments are reported at amortized cost or market value based on their National Association of Insurance Commissioners' (NAIC) rating. The liability for losses and loss adjustment expenses and unearned premium reserves are recorded net of their reinsured amounts for statutory accounting purposes. Deferred income taxes are not recognized on a statutory basis. Credits for reinsurance are recorded only to the extent considered realizable. Under SAP, credit for reinsurance ceded are allowed to the extent the reinsurers meet the statutory requirements of the Insurance Departments of the States of Indiana and Florida, principally statutory solvency. c. Use of Estimates: The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. F-8 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) Net earnings and capital and surplus for the insurance subsidiaries reported on the statutory accounting basis is as follows: 1996 1995 1994 ---------- ---------- --------- Capital and surplus: Superior entities $ 57,121 $ N/A $ N/A Pafco 18,112 11,875 7,848 IGF 29,412 9,219 4,512 Net earnings (losses): Superior entities $ 1,978 $ N/A $ N/A Pafco 5,151 (553) (571) IGF 12,122 6,574 1,511 d. Premiums: Premiums are recognized as income ratably over the life of the related policies and are stated net of ceded premiums. Unearned premiums are computed on the semimonthly pro rata basis. e. Investments: Investments are presented on the following bases: Fixed maturities and equity securities-at market value-all such securities are classified as available for sale and are carried at market value with the unrealized gain or loss as a component of stockholders' equity, net of deferred tax, and accordingly, has no effect on net income. Real estate-at cost, less allowances for depreciation. Mortgage loans-at outstanding principal balance. Realized gains and losses on sales of investments are recorded on the trade date and are recognized in net income on the specific identification basis. Interest and dividend income are recognized as earned. f. Cash and Cash Equivalents: For purposes of the statement of cash flows, the Company includes in cash and cash equivalents all cash on hand and demand deposits with original maturities of six months or less. g. Deferred Policy Acquisition Costs: Deferred policy acquisition costs are comprised of agents' commissions, premium taxes and certain other costs which are related directly to the acquisition of new and renewal business, net of expense allowances received in connection with reinsurance ceded, which have been accounted for as a reduction of the related policy acquisition costs and are deferred and amortized accordingly. These costs are deferred and amortized over the terms of the policies to which they relate. Acquisition costs that exceed estimated losses and loss adjustment expenses and maintenance costs are charged to expense in the period in which those excess costs are determined. F-9 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) h. Property and Equipment: Property and equipment are recorded at cost. Depreciation for buildings is based on the straight-line method over 31.5 years and the declining balance method for other property and equipment over their estimated useful lives ranging from five to seven years. Asset and accumulated depreciation accounts are relieved for dispositions, with resulting gains or losses reflected in net earnings. i. Other Assets: Other assets consists primarily of goodwill, debt acquisition costs, and organization costs. Goodwill resulting from the acquisition of the Superior entities is amortized over a 25-year period on a straight-line basis based upon management's estimate of the expected benefit period. Deferred debt acquisition costs are amortized over the term of the debt (six years). Organization costs are amortized over five years. j. Losses and Loss Adjustment Expenses: Reserves for losses and loss adjustment expenses include estimates for reported unpaid losses and loss adjustment expenses and for estimated losses incurred but not reported. These reserves have not been discounted. The Company's losses and loss adjustment expense reserves include an aggregate stop-loss program. The Company retains an independent actuarial firm to estimate reserves. Reserves are established using individual case-basis valuations and statistical analysis as claims are reported. Those estimates are subject to the effects of trends in loss severity and frequency. While management believes the reserves are adequate, the provisions for losses and loss adjustment expenses are necessarily based on estimates and are subject to considerable variability. Changes in the estimated reserves are charged or credited to operations as additional information on the estimated amount of a claim becomes known during the course of its settlement. The reserves for losses and loss adjustment expenses are reported net of the receivables for salvage and subrogation of approximately $4,766 and $948 at December 31, 1996 and 1995, respectively. k. Income Taxes: The Company utilizes the liability method of accounting for deferred income taxes. Under the liability method, companies will establish a deferred tax liability or asset for the future tax effects of temporary differences between book and taxable income. Changes in future tax rates will result in immediate adjustments to deferred taxes. (See Note 11.) Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. l. Reinsurance: Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. m. Certain Accounting Policies for Crop Insurance Operations: In 1996, IGF instituted a policy of recognizing (i) 35% of its estimated Multi Peril Crop Insurance (MPCI) gross premiums written for each of the first and second quarters, (ii) commission expense at a rate of 16% of MPCI gross premiums written recognized, and (iii) Buy-up Expense Reimbursement at a rate of 31% of MPCI gross premiums written recognized along with normal operating expenses incurred in connection with premium writings. In the third quarter, if a sufficient volume of policyholder acreage reports have been received and processed by IGF, IGF's policy is to recognize MPCI gross premiums written for the first nine months based on a reestimate which takes into account actual gross premiums processed. IGF followed the foregoing approach for the 1996 third quarter. If an insufficient volume of policies has been processed, IGF's policy is to recognize in the third quarter 20% of its full year estimate of MPCI gross premiums written, unless other circumstances require a different approach. The remaining amount of gross premiums written is recognized in the fourth quarter, when all amounts are reconciled. In prior years, recognition of MPCI gross premiums written was 30%, F-10 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) 30%, 30% and 10%, for the first, second, third and fourth quarters, respectively. Commencing with its June 30, 1995 financial statements, IGF also began recognizing MPCI underwriting gain or loss during the first and second quarters, as well as the third quarter, reflecting IGF's best estimate of the amount of such gain or loss to be recognized for the full year, based on, among other things, historical results, plus a provision for adverse developments. n. Accounting Changes: On January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, (Statement 115). In accordance with Statement 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect as of January 1, 1994 of adopting Statement 115 had no effect on net earnings. The effect of this change in accounting principle was an increase to stockholders' equity of $139, net of deferred taxes of $73, of net unrealized gains on fixed maturities classified as available for sale that were previously carried at amortized cost. On January 1, 1996, the Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121 requires that long-lived assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a material impact on the Company's results of operations. In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was issued. It introduces the use of a fair value-based method of accounting for stock-based compensation. It encourages, but does not require, companies to recognize compensation expense for stock-based compensation to employees based on the new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. However, SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro forma net income and earnings per share under the new method. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 15, 1995. The Company has adopted the disclosure provisions of SFAS No. 123 (see Note 22). In February 1997, SFAS No. 128, Earnings per Share, was issued. This statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This statement simplifies the standards for computing earnings per share previously found in APB Opinion No. 15, Earnings per Share, and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15. F-11 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) This statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. This statement requires restatement of all prior period EPS data presented. The Company has determined the adoption of this statement will not have a material effect on its consolidated financial statements. o. Vulnerability from Concentration: At December 31, 1996, the Company did not have a material concentration of financial instruments in an industry or geographic location. Also at December 31, 1996, the Company did not have a concentration of (1) business transactions with a particular customer, lender or distributor, (2) revenues from a particular product or service, (3) sources of supply of labor or services used in the business, or (4) a market or geographic area in which business is conducted that makes it vulnerable to an event that is at least reasonably possible to occur in the near term and which could cause a serious impact to the Company's financial condition. p. Earnings Per Share: The Company's net earnings per share calculations are based upon the weighted average number of shares of common stock outstanding during each period, as restated for the 7,000-for-1 stock split. The weighted average shares outstanding in 1996 have been increased by 44,000 shares for the $3.5 million dividend paid to Goran from the proceeds of the offering, in accordance with GAAP. Earnings per share for the first quarter of 1997 were computed using actual weighted average shares outstanding during the first quarter of 1997 of 10,450,000 plus 191,000 assumed shares from stock options proceeds calculated based upon the treasury stock method. q. Unaudited Interim Financial Statements: The consolidated financial statements for the six months ended June 30, 1996 and 1997 have been prepared using the applicable accounting principles used in the audited financial statements. These statements are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the financial information set forth herein. The operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. 2. Corporate Reorganization and Acquisition In April 1996, Pafco contributed all of the outstanding shares of capital stock of IGF to IGF Holdings, a wholly owned and newly formed subsidiary of Pafco, and the Board of Directors of IGF Holdings declared an $11,000 distribution to Pafco in the form of cash of $7,500 and a note payable of $3,500 (PGIC Note). IGF Holdings borrowed the $7,500 portion of the distribution from a bank (IGFH Note). The notes were paid in full from the proceeds of the Offering. Immediately following the distribution, Pafco distributed all of the outstanding common stock of IGF Holdings to the Company. Although the Company believes the plan of reorganization or spin off did not result in gain or loss, no assurance can be given that the Internal Revenue Service will not challenge the transaction. On January 31, 1996, the Company entered into an agreement (Agreement) with GS Capital Partners II, L.P. to create GGS Holdings, to be owned 52% by the Company and 48% owned by the Goldman Funds. In accordance with the Agreement, on April 30, 1996, the Company contributed certain fixed assets and PGIC with a combined book value, determined in accordance with GAAP, of $17,186, to GGS Holdings. Goldman Funds contributed $21,200 to GGS Holdings, in accordance with the Agreement. In return for the cash contribution of $21,200, Goldman Funds received a minority interest share in GGS Holdings at the date of contribution of $18,425, resulting in a $2,775 increase to additional paid-in capital. At December 31, 1996, Goldman Funds' minority interest share consisted of the following: Contribution, April 30, 1996 $ 18,425 GGS Holdings earnings 2,401 Unrealized gains, net of deferred tax of $599 784 -------------- $ 21,610 -------------- F-12 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) In connection with the above transactions, GGS Holdings acquired (the "Acquisition") all of the outstanding shares of common stock of Superior Insurance Company and its wholly owned subsidiaries, domiciled in Florida, (collectively referred to as "Superior") for cash of $66,590. In conjunction with the Acquisition, the Company's funding was through a senior bank facility of $48,000 and a cash contribution from Goldman Funds of $21,200. The acquisition of Superior was accounted for as a purchase and was recorded as follows: Assets required: Invested assets $ 118,665 Receivables 34,933 Deferred acquisition costs 7,925 Other assets 2,082 -------------- Total 163,605 -------------- Liabilities assumed: Unpaid losses and loss adjustment expense 44,423 Unearned premiums 45,280 Other liabilities 10,863 -------------- Total 100,566 -------------- Net assets acquired 63,039 Purchase price 66,590 -------------- Excess purchase price 3,551 Less amounts allocated to deferred income taxes 1,334 on unrealized gains on investments -------------- Goodwill $ 2,217 ============== The Company's results from operations for the year ended December 31, 1996 include the results of Superior subsequent to April 30, 1996. 3. Initial Public Offering On November 5, 1996, the Company sold 3,000,000 shares at $12.50 per share in an initial public offering of common stock (the "IPO"). An additional 450,000 shares were sold in December 1996 representing the exercise of the overallotment option. The Company generated net proceeds, after underwriter's discount and expenses, of $37,900 from the IPO. The proceeds were used to repay the IGFH Note and PGIC Note totaling $11,000, repay F-13 indebtedness to Goran and Granite Re of approximately $7,500, pay Goran a dividend of $3,500 and contribute capital to IGF of $9,000. The remainder will be used for general corporate purposes, including acquisitions. After completion of the IPO, Goran owns 67% of the total common stock outstanding. Assuming that these transactions, described in Notes 2 and 3, took place (including the IPO) at January 1, 1995 or at January 1, 1996, the pro forma effect of these transactions on the Company's Consolidated Statements of Earnings is as follows: 1996 1995 ----------------- ------------------ (unaudited) Revenues $ 250,848 $ 159,899 Net Earnings $ 15,238 $ 6,701 Net Earnings Per Common Share $ 1.42 $ 0.65 Assuming that these transactions took place (including the IPO) at January 1, 1995 or January 1, 1996 and that shares outstanding only included shares issued in connection with the IPO whose proceeds were used to repay indebtedness, the pro forma effect of these transactions on the Company's net income per common share is as follows: 1996 1995 ----------------- ------------------ (unaudited) Net Earnings Per Common Share $1.86 $0.81 ================= ================== Outstanding shares used in the above calculation include the 7,000,000 shares outstanding before the IPO plus 1,200,000 shares issued in connection with the IPO whose proceeds were used to pay external indebtedness. The latter calculation was determined by dividing the aggregate amount of the repayment of the $7.5 million IGFH Note and the $7.5 million repayment of parent indebtedness by the IPO price of $12.50 per share. The pro forma results are not necessarily indicative of what actually would have occurred if these transactions had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results. F-14 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) 4. Investments Investments are summarized as follows: Unrealized ------------------------------ Cost or Estimated Amortized Cost Gain Loss Market Value -------------- ---- ---- ------------
December 31, 1996 Fixed maturities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 55,034 $ 343 $ (233) $ 55,144 Foreign governments 1,515 0 (30) 1,485 Obligations of states and political subdivisions 2,945 11 (4) 2,952 Corporate securities 67,545 977 (422) 68,100 ------ --- ----- ------ Total Fixed Maturities 127,039 1,331 (689) 127,681 ------- ----- ----- ------- Equity Securities: Common stocks 25,734 2,884 (698) 27,920 Short-term investments 9,565 0 0 9,565 Real estate 466 0 0 466 Mortgage loans 2,430 0 0 2,430 Other loans 75 0 0 75 -- - - -- Total Investments $ 165,309 $ 4,215 $ (1,387) $ 168,137 ======= ===== ======= ======= December 31, 1995 Fixed maturities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 10,978 $ 63 $ (1) $ 11,040 Obligations of states and political subdivisions 1,470 57 (1) 1,526 Corporate securities 364 1 0 365 --- - - --- Total Fixed Maturities 12,812 121 (2) 12,931 ------ --- --- ------ Equity Securities: Preferred stocks 100 1 (4) 97 Common stocks 4,318 108 (292) 4,134 ----- --- ----- ----- 4,418 109 (296) 4,231 ----- --- ----- ----- Short-term investments 5,283 0 0 5,283 Real estate 487 0 0 487 Mortgage loans 2,920 0 0 2,920 Other loans 50 0 0 50 -- - - -- Total Investments $ 25,970 $ 230 $ (298) $ 25,902 ====== === ===== ======
At December 31, 1996, 90.2% of the Company's fixed maturities were considered investment grade by The Standard & Poors Corporation or Moody's Investor Services, Inc. Securities with quality ratings Baa and above are considered investment grade securities. In addition, the Company's investments in fixed maturities did not contain any significant geographic or industry concentration of credit risk. F-15 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) The amortized cost and estimated market value of fixed maturities at December 31, 1996, by contractual maturity, are shown in the table which follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty: Amortized Estimated Cost Market Value ---------------- ----------------- Maturity: Due in 1 year or less $ 6,412 $ 6,423 Due after 1 year through 5 years 70,848 71,086 Due after 5 years through 10 years 43,109 43,404 Due after 10 years 6,670 6,768 ---------------- ----------------- Total $ 127,039 $ 127,681 ================ ================= Gains and losses realized on sales of investments in fixed maturities are as follows: 1996 1995 1994 ---------------- --------------- ---------------- Proceeds from sales $ 40,153 $ 7,903 $ 4,083 Gross gains realized 92 106 119 Gross losses realized 561 291 29 Real Estate is reported net of accumulated depreciation of $164 and $143 for 1996 and 1995, respectively. Investments in a single issuer greater than 10% of stockholders' equity at December 31, 1996 are as follows: Description Fixed Maturities - ---------------------------------------- -------------------- United States Treasury Notes $ 26,318 Federal National Mortgage Association $ 14,885 -------------------- $ 41,203 -------------------- F-16 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) An analysis of net investment income for the years ended December 31, 1996, 1995, and 1994 follows: 1996 1995 1994 -------------- -------------- ------------ Fixed maturities $ 5,714 $ 534 $ 470 Equity securities 756 256 677 Cash and short-term investments 281 194 99 Real Estate 51 52 273 Mortgage Loans 207 231 132 Other 25 270 96 -------------- -------------- ------------ Total Investment Income 7,034 1,537 1,747 Investment Expenses (301) (364) (506) -------------- -------------- ------------ Net Investment Income $ 6,733 $ 1,173 $ 1,241 -------------- -------------- ------------ In 1992, PGIC acquired a hotel property through a deed in lieu of foreclosure on a mortgage it held in the amount of $2,985. In 1993, the property was renovated and changed to a Comfort Inn. In June 1994, the property was sold for net proceeds of $4,166, resulting in a gain on sale of $147. Upon the sale, PGIC issued an 8% mortgage loan due in the year 2001 in the amount of $3,000. It calls for monthly principal payments of $10 plus interest. All payments on the mortgage were current at December 31, 1996. Investments with a market value of $23,419 and $6,410 (amortized cost of $22,749 and $6,296) as of December 31, 1996 and 1995, respectively, were on deposit in the United States and Canada. The deposits are required by law to support certain reinsurance contracts, performance bonds and outstanding loss reserves on assumed business. Fixed maturities and short-term investments with a market value of $1,539 (amortized cost of $1,571) as of December 31, 1996 were pledged as collateral on an unused letter of credit of $1,500 issued to a ceding reinsurer. 5. Deferred Policy Acquisition Costs Policy acquisition costs are capitalized and amortized over the life of the policies. Policy acquisition costs are those costs directly related to the issuance of insurance policies including commissions, premium taxes, and underwriting expenses net of reinsurance commission income on such policies. Policy acquisition costs both acquired and deferred, and the related amortization charged to income were as follows: F-17 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) 1996 1995 1994 ------------ ------------ ---------- Balance, Beginning of year $ 2,379 $ 1,479 $ 752 Deferred policy acquisition costs purchase in the Superior acquisition 7,925 0 0 Costs deferred during year 27,657 8,050 5,579 Amortization during year (25,161) (7,150) (4,852) ------------ ------------ ---------- Balance, end of year $ 12,800 $ 2,379 $ 1,479 ------------ ------------ ---------- 6. Property and Equipment Property and equipment at December 31 are summarized as follows:
Accumulated 1996 Cost Depreciation 1996 Net 1995 Net ---------------- ---------------- -------------- --------------- Land $ 226 $ 0 $ 226 $ 226 Buildings 4,342 (1,186) 3,156 3,209 Office furniture and equipment 2,023 (999) 1,024 610 Automobiles 20 (7) 13 1 Computer equipment 5,535 (1,817) 3,718 1,456 ---------------- ---------------- -------------- --------------- $ 12,146 $ (4,009) $ 8,137 $ 5,502 ================ =============== ============== ===============
Accumulated depreciation at December 31, 1995 was $2,226. Depreciation expense related to property and equipment for the years ended December 31, 1996, 1995 and 1994 were $1,783, $637, and $374, respectively. F-18 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) 7. Other Assets Other assets at December 31, 1996 includes the following intangible assets: Accumulated Amortization Cost Amortization Expense ----------------- ----------------- ---------------- Goodwill $ 2,217 $ 95 $ 95 Deferred debt costs 1,386 154 154 Organization costs 1,689 162 162 ----------------- ----------------- ---------------- $ 5,292 $ 411 $ 411 ----------------- ----------------- ---------------- No such amounts existed at December 31, 1995. 8. Line of Credit At December 31, 1996, IGF maintained a revolving bank line of credit in the amount of $7,000. At December 31, 1996 and 1995, the outstanding balance was $0 and $5,811, respectively. Interest on this line of credit was at the New York prime rate (8.25% at December 31, 1996) plus 0.25% adjusted daily. This line is collateralized by the crop-related uncollected premiums, reinsurance recoverable on paid losses, Federal Crop Insurance Corporation (FCIC) annual settlement, and a first lien on the real estate owned by IGF. The line requires IGF to maintain its primary banking relationship with the issuing bank, limits dividend payments and capital purchases and requires the maintenance of certain financial ratios. At December 31, 1996, IGF was in compliance with all covenants associated with the line, except the covenant pertaining to certain investments as a percentage of total admitted assets, for which IGF obtained a waiver. The weighted average interest rate on the line of credit was 8.6%, 9.7%, and 8.1% during December 31, 1996, 1995, and 1994, respectively. 9. Term Debt The term debt, with an outstanding principal balance of $48,000, matures on April 30, 2002, and will be repaid in 11 consecutive semiannual installments, the first of which will occur on the first anniversary of the closing date. The first installments of principal repayments will be $3,128 and $2,886 in 1997, respectively, with the remaining annual installments over the term of the debt to be paid as follows: 1998-$6,494; 1999-$7,938; 2000-$9,742; 2001- $11,612; and 2002-$6,200. Interest on the term debt is payable quarterly at LIBOR plus 2.75%. In 1996, the Company entered into an interest rate swap agreement to protect the Company against interest rate volatility. As a result, the Company fixed its interest rate on the term debt at 8.31% through November 1996, 8.85% through January 1997, 9.08% through April 1997, 9.24% through July 1997, and 8.80% through October 1999. The term debt is collateralized by a pledge of all of the tangible and intangible assets of GGS Holdings, including all of the outstanding shares of GGS, and by a pledge of all of the tangible and intangible assets of GGS, including all of the outstanding shares of capital stock of PGIC and Superior. F-19 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) As of December 31, 1996, GGS was in default of six covenants in the term debt. The first covenant required Pafco and Superior to maintain a Combined Ratio of statutory net premiums written to surplus of 3:1. The commercial bank lenders under the term debt have amended the agreement to cure this default. While there can be no assurance that GGS will have in the future sufficient cash flow after satisfaction of its debt service requirements to permit GGS to infuse sufficient capital into its insurance subsidiaries to permit them to maintain a ratio of net premiums written to surplus not in excess of 3:1, the Company believes that it or GGS will be able either to contribute additional capital to PGIC and Superior or, if necessary, to obtain reinsurance, reduce premium writings, or obtain additional financing in order to permit them to satisfy this covenant in future years. The second covenant violation relates to insufficient funds posted by an affiliate reinsurer to cover its obligations under reinsurance treaties with Pafco. The affiliate has posted sufficient funds in 1997, and the Company does not expect future violations of this covenant to occur. The commercial bank lenders under the term debt have agreed that this violation has been cured. The third violation relates to Superior's risk-based capital ratio being less than 300% due to growth in premium writings. The commercial lenders under the term debt have amended the agreement to cure this default. 10. Unpaid Losses and Loss Adjustment Expenses Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
1996 1995 1994 --------------- --------------- -------------- Balance at January 1 $ 59,421 $ 29,269 $ 54,143 Less reinsurance recoverables 37,798 12,542 36,891 --------------- --------------- -------------- Net balance at January 1 21,623 16,727 17,252 --------------- --------------- -------------- Reserves acquired in connection with the Superior acquisition 44,423 0 0 --------------- --------------- -------------- Incurred related to: Current year 138,618 35,184 26,268 Prior years (1,509) 787 202 --------------- --------------- -------------- Total incurred 137,109 35,971 26,470 --------------- --------------- -------------- Paid related to: Current year 102,713 21,057 16,647 Prior years 28,182 10,018 10,348 --------------- --------------- -------------- Total paid 130,895 31,075 26,995 --------------- --------------- -------------- Net balance at December 31 72,260 21,623 16,727 Plus reinsurance recoverables 29,459 37,798 12,542 --------------- --------------- -------------- Balance at December 31 $ 101,719 $ 59,421 $ 29,269 =============== =============== ==============
F-20 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) The foregoing reconciliation shows that the (redundancies) deficiencies of $(1,509), $787, and $202 in the December 31, 1995, 1994 and 1993 reserves, respectively, emerged in the following year. These (redundancies) deficiencies resulted from (lower) higher than anticipated losses resulting from a change in settlement costs relating to those estimates. The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated price increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends. Those anticipated trends are monitored based on actual development and are modified if necessary. Liabilities for loss and loss adjustment expenses have been established when sufficient information has been developed to indicate the involvement of a specific insurance policy. In addition, a liability has been established to cover additional exposure on both known and unasserted claims. These liabilities are reviewed and updated continually. 11. Income Taxes The Company files a consolidated federal income tax return with its wholly owned subsidiaries. GGS Holdings files a consolidated tax return with its wholly owned subsidiaries. Intercompany tax sharing agreements between the Company and its wholly owned subsidiaries and GGS Holdings and its wholly owned subsidiaries provide that income taxes will be allocated based upon separate return calculations in accordance with the Internal Revenue Code of 1986, as amended. Intercompany tax payments are remitted at such times as estimated taxes would be required to be made to the Internal Revenue Service. A reconciliation of the differences between federal tax computed by applying the federal statutory rate of 35% in 1996 and 34% in 1995 and 1994 to income before income taxes and the income tax provision is as follows: 1996 1995 1994 --------- --------- ---------- Computed income taxes at statutory rate $ 8,296 $ 2,531 $ 468 Dividends received deduction (158) (54) (30) Tax-exempt interest (270) (32) (36) Change in valuation allowance (23) (237) (1,492) Change in tax rate (14) 0 0 Other 215 414 372 --------- --------- ---------- Income Taxes $ 8,046 $ 2,622 $ (718) --------- --------- ---------- F-21 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) State income taxes for 1996, 1995 and 1994 are not significant. Therefore, state income taxes have been recorded in general and administrative expenses and not as part of income taxes. The net deferred tax asset at December 31, 1996 and 1995 is comprised of the following: 1996 1995 ------------ ------------ Deferred tax assets: Unpaid losses and loss adjustment expenses $ 2,705 $ 422 Unearned premiums 5,061 764 Allowance for doubtful accounts 518 315 Unrealized losses on investments 0 23 Net operating loss carryforwards 328 457 Other 685 411 ------------ ------------ 9,297 2,392 Valuation allowance 0 23 ------------ ------------ Net deferred tax asset 9,297 2,369 ------------ ------------ Deferred tax liabilities: Deferred policy acquisition costs (4,480) (809) Unrealized gains on investments (1,224) 0 Other (264) (139) ------------ ------------ (5,968) (948) ------------ ------------ Net deferred tax asset $ 3,329 $ 1,421 ============ ============ The Company is required to establish a "valuation allowance" for any portion of its deferred tax assets which is unlikely to be realized. No valuation allowance was established as of December 31, 1996 since management believes it is more likely than not that the Company will realize the benefit of its deferred tax assets through utilization of such amounts under the carryback rules and through future taxable income. F-22 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) As of December 31, 1996, the Company has unused net operating loss carryovers available as follows: Years ending not later than December 31, Amount - ---------------------------------------------- --------------- 2000 $ 811 2002 126 --------------- Total $ 937 =============== Federal income tax attributed to the Company has been examined through 1993. In the opinion of management, the Company has adequately provided for the possible effects of future assessments related to prior years. 12. Leases The Company has certain commitments under long-term operating leases for a branch office and sales offices for Superior Insurance Company. Rental expense under these commitments was $751 for 1996. Future minimum lease payments required under these noncancellable operating leases are as follows: 1997 $ 928 1998 466 1999 373 2000 62 2001 and thereafter 0 -------------- Total $ 1,829 ============== 13. Reinsurance The Company limits the maximum net loss that can arise from a large risk, or risks in concentrated areas of exposure, by reinsuring (ceding) certain levels of risks with other insurers or reinsurers, either on an automatic basis under general reinsurance contracts known as "treaties" or by negotiation on substantial individual risks. Such reinsurance includes quota share, excess of loss, stop-loss and other forms of reinsurance on essentially all property and casualty lines of insurance. In addition, the Company assumes reinsurance on certain risks. The Company remains contingently liable with respect to reinsurance, which would become an ultimate liability of the Company in the event that such reinsuring companies might be unable, at some later date, to meet their obligations under the reinsurance agreements. F-23 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) Approximately 66% of amounts recoverable from reinsurers are with the FCIC, a branch of the federal government. Another 28% of recoverable amounts are with Granite Re, a foreign corporation, which has not applied for an A.M. Best rating. An additional 5% of uncollateralized recoverable amounts are with companies which maintain an A.M. Best rating of at least A+. Company management believes amounts recoverable from reinsurers are collectible. Amounts recoverable from reinsurers relating to unpaid losses and loss adjustment expenses were $29,459, $37,798, and $12,542 as of December 31, 1996, 1995, and 1994, respectively. These amounts are reported gross of the related reserves for unpaid losses and loss adjustment expenses in the accompanying Consolidated Balance Sheets. On April 29, 1996, PGIC and IGF entered into a 100% quota share reinsurance agreement, whereby all of IGF's nonstandard automobile business from 1996 and forward was ceded to PGIC effective January 1, 1996. On April 29, 1996, PGIC retroactively ceded all of its commercial business relating to 1995 and previous years to Granite Re, with an effective date of January 1, 1996. Amounts ceded for outstanding losses and loss adjustment expenses and unearned premiums were approximately $3,519 and $2,380, respectively. No gain or loss was recognized in 1996 on the transaction. On this date, PGIC also entered into a 100% quota share reinsurance agreement with Granite Re, whereby all of PGIC's commercial business from 1996 and forward was ceded to Granite Re effective January 1, 1996. (See Note 17.) F-24 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) Reinsurance activity for 1996, 1995, and 1994, which includes reinsurance with related parties, is summarized as follows:
Direct Assumed Ceded Net --------------- -------------- --------------- -------------- 1996 Premiums written $ 298,596 $ 6,903 $ (95,907) $ 209,592 Premiums earned 279,061 6,903 (94,205) 191,759 Incurred losses and loss adjustment 223,879 4,260 (91,030) 137,109 expenses Commission expenses (income) 44,879 3,663 (46,716) 1,826 1995 Premiums written $ 123,381 $ 1,253 $ (71,187) $ 53,447 Premiums earned 116,860 1,256 (68,475) 49,641 Incurred losses and loss adjustment expenses 125,382 2,839 (92,250) 35,971 Commission expenses (income) 17,177 174 (27,092) (9,741) 1994 Premiums written $ 102,178 $ 956 $ (67,995) $ 35,139 Premiums earned 96,053 1,308 (65,235) 32,126 Incurred losses and loss adjustment expenses 57,951 1,588 (33,069) 26,470 Commission expenses (income) 19,619 48 (24,174) (4,507)
The Company and its subsidiaries have entered into transactions with various related parties including transactions with Goran, and its affiliates, Symons International Group, Ltd. (SIG Ltd.), Goran's parent, Granite Insurance Company (Granite), and Granite Reinsurance Company, Ltd. (Granite Re), Goran's subsidiaries. F-25 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) The following balances were outstanding at December 31, 1996 and 1995:
1996 1995 --------------- -------------- Investments in and advances to related parties: Nonredeemable, nonvoting preferred stock of Granite $ 702 $ 702 Secured notes receivable from related parties 0 1,355 Unsecured mortgage loan from director and officer 278 278 Due from directors and officers 172 199 Other receivables from related parties 0 418 --------------- -------------- $ 1,152 $ 2,952 =============== ============== Payable to affiliates: Loan and related interest payable to Goran $ 0 $ 2,232 Loan and related interest payable to Granite Re 0 3,733 Other payable to Goran 350 500 Other payables to related parties 16 9 --------------- -------------- $ 366 $ 6,474 =============== ==============
F-26 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) The following transactions occurred with related parties in the years ended December 31, 1996, 1995, and 1994:
1996 1995 1994 -------------- --------------- -------------- Management fees charges by Goran $ 139 $ 414 $ 494 Reinsurance under various treaties, net: Ceded premiums earned 5,463 5,235 (73) Ceded losses and loss adjustment expenses incurred 5,168 2,612 0 Ceded commissions 2,620 1,142 0 Consulting fees charged by various related parties 180 26 75 Interest charged by Goran 196 208 188 Dividend income from Granite Re 0 0 18 Interest charged by Granite Re 385 346 312
The unsecured mortgage loan to the Chairman and CEO of the Company was repaid in full in February 1997. Amounts due from directors and officers of the Company bear interest at the 180-day Treasury bill rate payable semiannually. Loan principal is payable on demand. The loans payable, including accrued interest, to Goran and Granite Re at December 31, 1995, were repaid in full in 1996 from the proceeds of the offering. 15. Stockholders' Equity On July 29, 1996, the Board of Directors approved an increase in the authorized common stock of the Company from 1,000 shares to 100,000,000 shares. The common stock remains no par value. On July 29, 1996, the Board approved a 7,000-for-1 stock split of the Company's issued and outstanding shares. All share and per share amounts have been restated to retroactively reflect the stock split. On July 29, 1996, the Board of Directors authorized the issuance of 50,000,000 shares of preferred stock. No shares of preferred stock have been issued. 16. Effects of Statutory Accounting Practices and Dividend Restrictions At December 31, 1996 and 1995, PGIC's statutory capital and surplus was $18,112 and $11,875, respectively, and IGF's statutory capital and surplus was $29,412 and $9,219, respectively. The minimum regulatory requirement for capital and surplus is $1,250. The Indiana statute allows 10% of surplus as regards policyholders or 100% of net income, whichever is greater, to be paid as dividends only from earned surplus. Statutory requirements place limitations on the amount of funds which can be remitted to the Company from PGIC and to PGIC from IGF. F-27 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) Subsequent to Board of Directors and regulatory approval, IGF declared and paid in April 1996 and December 1995 extraordinary dividends to PGIC in the amounts of $11 million and $2 million on the 2,494,000 shares of convertible preferred stock owned by PGIC. In December 1995, upon Board of Directors of PGIC and regulatory approval, PGIC declared and paid to the Company a $1.5 million extraordinary dividend on the common stock owned by the Company. At December 31, 1996, the Superior entities' statutory capital and surplus was $57,121. In the consent order approving the Acquisition, the Florida Department has prohibited Superior from paying any dividends for four years without the prior written approval of the Florida Department. 17. Regulatory Matters PGIC and IGF, domiciled in Indiana, prepare their statutory financial statements in accordance with accounting practices prescribed or permitted by the Indiana Department of Insurance (IDOI). The Superior entities, domiciled in Florida, prepare their statutory financial statements in accordance with accounting practices prescribed or permitted by the Florida Department of Insurance (FDOI). Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. IGF received written approval through December 31, 1996 from the IDOI to reflect its business transacted with the FCIC as a 100% cession with any net underwriting results recognized in ceding commissions for statutory accounting purposes, which differs from prescribed statutory accounting practices. As of December 31, 1996, that permitted transaction had no effect on statutory surplus or net income. The underwriting profit results of the FCIC business, net of reinsurance of $12,277, $9,653, and $3,257, are netted with policy acquisition and general and administrative expenses for the years ended December 31, 1996, 1995, and 1994, respectively, in the accompanying Consolidated Statements of Earnings. PGIC received approval from the IDOI to record its quota share reinsurance agreement with Granite Re for its commercial business as reinsurance effective January 1, 1996 for statutory accounting purposes, which differs from prescribed statutory practices. SAP prescribed by the IDOI require certain administrative matters to be completed by an insurance company to recognize a reinsurance agreement as of its effective date. As of December 31, 1996, these permitted transactions increased statutory surplus by $512 over what it would have been had prescribed accounting practices been followed. The NAIC is considering the adoption of a recommended statutory accounting standard for crop insurers, the impact of which is uncertain since several methodologies are currently being examined. Although the Indiana Department has permitted the Company to continue for its statutory financial statements through December 31, 1996 its practice of recording its MPCI business as 100% ceded to the FCIC with net underwriting results recognized in ceding commissions, the Indiana Department has indicated that in the future it will require the Company to adopt the MPCI accounting practices recommended by the NAIC or any similar practice adopted by the Indiana Department. Since such a standard would be adopted industry-wide for crop insurers, the Company would also be required to conform its future GAAP financial statements to reflect the new MPCI statutory accounting methodology and to restate all historical GAAP financial statements consistently with this methodology for comparability. The Company cannot predict what accounting methodology will eventually be implemented or when the Company will be required to adopt such methodology. The Company anticipates that any such new crop accounting methodology will not affect GAAP net earnings. F-28 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) The NAIC has promulgated risk-based capital (RBC) requirements for property/casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks, such as asset quality, asset and liability matching, loss reserve adequacy and other business factors. The RBC information is used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized. In addition, the formula defines new minimum capital standards that will supplement the current system of fixed minimum capital and surplus requirements on a state-by-state basis. Regulatory compliance is determined by a ratio (the "Ratio") of the enterprise's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Generally, a Ratio in excess of 200% of authorized control level RBC requires no corrective actions by PGIC, IGF or regulators. As of December 31, 1996, IGF, PGIC and the Superior entities had Ratios that were in excess of the minimum RBC requirements. The NAIC currently has a project under way to codify SAP, as existing SAP does not address all accounting issues and may differ from state to state. Upon completion, the Codification is expected to replace prescribed or permitted SAP in each state as the new comprehensive statutory basis of accounting for insurance companies. The final format of the Codification is uncertain at this time, yet implementation could be required as early as January 1, 1998. Due to the project's uncertainty, the Company has not yet quantified the impact any such changes would have on the statutory capital and surplus or results of operations of the Company's insurance subsidiaries. The impact of adopting this new comprehensive statutory basis of accounting is, however, expected to materially impact statutory capital and surplus. 18. Commitments and Contingencies The Company, and its subsidiaries, are named as defendants in various lawsuits relating to their business. Legal actions arise from claims made under insurance policies issued by the subsidiaries. These actions were considered by the Company in establishing its loss reserves. The Company believes that the ultimate disposition of these lawsuits will not materially affect the Company's operations or financial position. IGF is responsible for the administration of a run-off book of business. FCIC has requested that IGF take responsibility for the claim liabilities under its administration of these policies, and IGF has requested reimbursement of certain expenses from the FCIC with respect to this run-off activity. It is the Company's opinion, and that of its legal counsel, that there is no material liability on the part of the Company for claim liabilities of other companies under IGF's administration. The increase in number of insurance companies that are under regulatory supervision has resulted, and is expected to continue to result, in increased assessments by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. The Company recognizes its obligations for guaranty fund assessments when it receives notice that an amount is payable to a guaranty fund. The ultimate amount of these assessments may differ from that which has already been assessed. F-29 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) The Company received a commitment from a commercial bank which provided funds to certain executives and a director of the Company to purchase 69,500 shares in the Directed Share Program in the Company's Offering. The Company agreed to guarantee 100% of the aggregate principal amount, including unpaid accrued interest, extended by the commercial bank under this commitment. The amount of the Company's guarantee under this commitment is approximately $869. The Company has entered into a purchase agreement to acquire an office building in Des Moines, Iowa, to be used as its crop insurance division home office. The purchase price was $2.6 million, of which $2.4 million was escrowed on February 1, 1997. The terms include a floating closing date whereby the transaction will close on the earlier of February 1, 1998 or thirty days after the closing of the Company's currently occupied home office building, also located in Des Moines. The purchase of the new building is not contingent on the sale of the current building. 19. Supplemental Cash Flow Information Cash paid for interest and income taxes are summarized as follows: 1996 1995 1994 ------------- --------------- -------------- Cash paid for interest $ 5,178 $ 553 $ 685 Cash paid for income taxes, net of refunds $ 9,825 $ 1,953 $ 166 During 1994, IGF exchanged 700,000 shares of Granite Reinsurance Company, Ltd. stock for 9,800 shares of Granite Insurance Company stock, recording no gain or loss. In addition, PGIC exchanged an investment in real estate for a mortgage loan of $3,000 plus cash of $1,166. During 1996, the Company contributed the stock of PGIC and certain assets of the Company totaling $17,186 to GGS Holdings in exchange for a 52% ownership interest in GGS Holdings. In addition, Goldman Funds received a minority interest share of $18,425 in GGS Holdings for its $21,200 contribution, resulting in a $2,775 increase to additional paid-in capital from the sale of PGIC common stock and certain assets. 20. Disclosures About Fair Values of Financial Instruments The following discussion outlines the methodologies and assumptions used to determine the estimated fair value of the Company's financial instruments. Considerable judgment is required to develop these fair values and, accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of the Company's financial instruments. a. Fixed Maturity and Equity Securities: Fair values for fixed maturity and equity securities are based on market values obtained from the NAIC Securities Valuation Office. Such values approximate quoted market prices from published information. b. Mortgage Loan: The estimated fair value of the mortgage loan was established using a discounted cash flow method based on credit rating, maturity and future income when compared to the expected yield for mortgages having similar characteristics. The estimated fair value of the mortgage loan was $2,360 at December 31, 1996. F-30 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) c. Short-term Investments, and Cash and Cash Equivalents: The carrying value for assets classified as short-term investments, and cash and cash equivalents in the accompanying Consolidated Balance Sheets approximates their fair value. d. Short-term and Long-term Debt: Fair values for long-term debt issues are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. In 1996, the rate on the Company's term debt approximated 8.38%, below the current rate of 8.41% for similar types of borrowing arrangements. The estimated fair value of the term debt was $49,047 at December 31, 1996. For short-term debt, the carrying value approximates fair value. e. Advances to Related Parties and Payables to Affiliates: It is not practicable to determine the fair value of the advances to related parties or the payables to affiliates as of December 31, 1996 and 1995, because these are related party obligations and no comparable fair value measurement is available. 21. Segment Information The Company has two business segments: Nonstandard automobile and Crop insurance. The Nonstandard automobile segment offers personal nonstandard automobile insurance coverages through a network of independent general agencies. These products are sold by PGIC in seven states, Superior in eight states, and IGF in six states. Effective in the first quarter of 1996, all nonstandard automobile business will be retained in PGIC (see Note 13). The Crop segment writes MPCI and crop hail insurance in 31 states through independent agencies with its primary concentration in the Midwest. Activity which is not included in the major business segments is shown as "Corporate and Other." "Corporate and Other" includes operations not directly related to the business segments and unallocated corporate items (i.e., corporate investment income, interest expense on corporate debt and unallocated overhead expenses). Identifiable assets by business segment are those assets in the Company's operations in each segment. Corporate and other assets are principally cash, short-term investments, related-party assets, intangible assets, and property and equipment. Capital expenditures are reported exclusive of the Acquisition. F-31 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) Segment information for 1994 through 1996 is as follows (certain information for 1995 and 1994 is not available by segment due to general use by all segments of corporate assets): Year Ended December 31, 1996 1995 1994 -------------- --------------- ---------------
Revenue: Nonstandard automobile $ 181,799 $ 36,363 $ 27,784 Crop 24,865 12,830 4,873 Corporate and other 99 3,447 2,183 -------------- --------------- --------------- Total Revenue $ 206,763 $ 52,640 $ 34,840 ============== =============== =============== Earnings (loss) before taxes and minority interest: Nonstandard automobile $ 7,434 $ (1,989) $ 772 Crop 17,685 11,040 2,152 Corporate and other (1,416) (1,611) (1,539) -------------- --------------- --------------- Total earnings (loss) before taxes and minority interest $ 23,703 $ 7,440 $ 1,385 ============== =============== =============== Identifiable assets: Nonstandard automobile $ 260,332 Crop 72,916 Corporate and other 6,550 -------------- Total identifiable assets: $ 339,798 ============== Depreciation and amortization Nonstandard automobile $ 1,568 Crop 574 Corporate and other 52 -------------- Total depreciation and amortization $ 2,194 ============== Capital expenditures: Nonstandard automobile $ 2,058 Crop 1,676 Corporate and other 0 -------------- Total capital expenditures $ 3,734 ==============
F-32 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) 22. Stock Option Plans On November 1, 1996, the Company adopted the SIG 1996 Stock Option Plan (the "SIG Stock Option Plan"). The SIG Stock Option Plan provides the Company authority to grant nonqualified stock options and incentive stock options to officers and key employees of the Company and its subsidiaries and nonqualified stock options to nonemployee directors of the Company and Goran. A total of 1,000,000 shares of common stock have been reserved for issuance under the SIG Stock Option Plan. On November 1, 1996, the Company issued 830,000 stock options to the Company's nonemployee directors and certain Goran directors and certain officers, and certain other key employees of the Company and Goran. The options were granted at an exercise price equal to the Offering price of the Company's common stock. The Company has granted (i) options to purchase 20,000 shares of common stock to the nonemployee directors of the Company, (ii) options to purchase 791,000 shares of common stock to officers and key employees of the Company and the subsidiaries, (iii) options to purchase 6,000 shares of common stock to certain nonemployee directors of Goran and (iv) options to purchase 13,000 shares of common stock to certain employees of Goran and its subsidiaries who have provided valuable services or assistance for the benefit of the Company and the subsidiaries. The options granted to the Company's Chairman (375,000 shares) vest and become exercisable in full on the first anniversary of the grant date. All of the remaining outstanding stock options vest and become exercisable in six equal installments on the first, second and third anniversaries of the date of grant. The Board of Directors of GGS Holdings adopted the GGS Management Holdings, Inc. 1996 Stock Option Plan (the "GGS Stock Option Plan"), effective as of April 30, 1996. A maximum of 10% of the issued and outstanding shares of GGS Holding's common stock (on a fully diluted basis assuming exercise in full of all options) may be made the subject of options granted under the GGS Stock Option Plan. A total of 111,111 shares of common stock of GGS Holdings have actually been reserved for issuance under the GGS Stock Option Plan, which authorizes the granting of nonqualified and incentive stock options to such officers and other key employees as may be designated by the Board of Directors of GGS Holdings. During 1996, 55,972 options have been granted under the GGS Stock Option Plan. Stock options granted under the GGS Stock Option Plan will be exercisable at such times and at such exercise prices as the Board of Directors of GGS Holdings shall determine, but in any event not prior to the earlier of (i) an initial public offering of GGS Holdings, and (ii) a GGS Holdings Sale, as defined, and not later than ten years from the date of the grant. Options granted under the GGS Stock Option Plan vest at a rate of 20% per year for five years after the date of the grant. The exercise price of options granted as of April 30, 1996 is, with respect to 50% of the shares subject to each such option, $44.17 per share. The exercise price per share for the remaining 50% is $44.17, subject to a compound annual increase in the exercise price of 10% for the duration of the vesting period. The exercise price of any options granted under the GGS Stock Option Plan after April 30, 1996, will be subject to a similar formula, with 50% of the shares subject to any such option having an exercise price determined by the Board of Directors in its discretion, and the other 50% having an exercise price which increases on each anniversary of the date of the grant for the duration of the vesting period. No option granted under the GGS Stock Option Plan is transferable by the option holder other than by the laws of descent and distribution. Shares received upon exercise of such an option are not transferable, except as provided in the Stockholder Agreement among the Company and the Goldman Funds. F-33 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) At December 31, 1996, the Company applied APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plans in the accompanying Statement of Earnings. Had compensation cost for the Company's stock option plan been determined consistent with FASB Statement No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: 1996 ---------------------------------------- As Reported Pro Forma ----------------- ----------------- Net earnings $13,256 $13,021 ======= ======= Net earnings per share $1.76 $1.73 ===== ===== The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used: no dividend yield for all years; expected volatility of 40% for the SIG Stock Option Plan and no percentage for the GGS Stock Option Plan, since the GGS Holdings stock is privately held; risk-free interest rate of 6.0% to 6.5% for the SIG Stock Option Plan and 6.4% for the GGS Stock Option Plan; and an expected life of two to four years for the SIG Stock Option Plan and five years for the GGS Stock Option Plan. 23. Quarterly Financial Information (unaudited): Quarterly financial information is as follows: Quarters ---------------------------------------------------------------------------- First Second Third Fourth Total --------------- -------------- --------------- --------------- ---------------
1996 Gross written premiums $ 41,422 $ 105,528 $ 71,813 $ 86,736 $ 305,499 Net earnings 1,586 2,718 4,589 4,363 13,256 Earnings per share 0.22 0.39 0.66 0.49 1.76 1995 Gross written premiums $ 28,272 $ 67,487 $ 16,978 $ 11,897 $ 124,634 Net earnings 1,066 940 1,464 1,351 4,821 Earnings per share 0.15 0.14 0.21 0.19 0.69
F-34 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) As is customary in the crop insurance industry, insurance company participants in the FCIC program receive more precise financial results from the FCIC in the fourth quarter based upon business written on spring-planted crops. On the basis of FCIC-supplied financial results, IGF recorded, in the fourth quarter, an additional underwriting gain, net of reinsurance, on its FCIC business of $5,572 during 1996 and $3,139 during 1995. 24. Subsequent Events (Unaudited): The Company is currently negotiating the 1998 Standard Reinsurance Agreement with the FCIC. The current government proposal is to reduce the MPCI Expense Reimbursement to 24.5% and reduce the profit sharing arrangement. The negotiations are on-going and the ultimate results cannot be determined at this time. There can be no assurance that the Company will negotiate terms for the 1998 Standard Reinsurance Agreement which are favorable to the Company. During the first half of 1997, and most noticeably in the second quarter of 1997, the Company, as part of its efforts to reduce costs and combine the operations of the two nonstandard automobile insurance companies, has combined the claims settlement practices as well as the reserving philosophies of Superior and Pafco. Superior had historically provided higher case reserves and lower IBNR levels than Pafco while paying claims in a manner where such payments were generally less than applicable reserves. Pafco had historically carried adequate reserves while paying claims in a manner where such payments were generally greater than applicable reserves. In connection with this change in claims management philosophy, the Company will record additional Loss and LAE Reserves, relating primarily to operations at Pafco, resulting in an after tax charge to earnings of approximately $1.8 million or $0.17 per share in the second quarter of 1997. While the Company believes these actions are necessary, the establishment and monitoring of reserve levels is a highly subjective process involving numerous assumptions and estimates. Therefore, actual results may ultimately differ from current estimates. The effects of these additional Loss and LAE Reserves on the Company's historical and pro forma results of operations and financial condition as of and for the six months ended June 30, 1997 follows. The following amounts have been credited for the minority interest owner's share of the after tax effects of the reserve adjustment: F-35 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) As Adjusted Historical June Pro Forma 30, 1997 June 30, 1997 ------------------- ------------- Earnings before income taxes, minority interest and extraordinary item $ 6,582 $ 7,565 Net earnings from continuing operations 4,118 4,350 Earning per common share 0.39 0.41 EBITDA 8,440 8,440 Adjusted EBITDA 7,498 7,498 Ratio of EBITDA to interest expense and Distributions on Preferred Securities 2.62x Ratio of Adjusted EBITDA to interest expense and Distributions on Preferred Securities 2.33x Ratio of earnings to fixed charges 5.61x 2.34x Stockholder's Equity $ 64,075 $ 63,368 Loss Ratio 80.1% 80.1% Combined Ratio 100.7% 101.3% The Company sold the Trust Preferred Securities (the "Preferred Securities") on August 12, 1997 in an aggregate amount of $ 135,000,000. These Preferred Securities were offered through a wholly-owned trust subsidiary of the Company and are backed by Senior Subordinated Notes to the Trust from the Company. These Preferred Securities were issued under Rule 144A of the SEC and the Company will ultimately file a Form S-1 Registration Statement. The proceeds of this offering were used to repurchase the remaining minority interest in GGSH, repay the Term Debt and provide capital to the nonstandard automobile insurers. Assuming this offering took place at January 1, 1996 or at January 1, 1997, the pro forma effect of this offering on the Company's consolidated statement of earnings is as follows: December 31, June 30, 1996 1997 (unaudited) (unaudited) Revenues $ 206,763 $ 71,533 Net earnings $ 9,751 $ 6,141 Net earnings per common share $ 1.29 $ 0.58 F-36 SYMONS INTERNATIONAL GROUP, INC. Notes to Consolidated Financial Statements (dollars in thousands) Effective January 1, 1997, the Company's nonstandard automobile insurers entered into a quota share reinsurance treaty, for all new and renewal policies written on or after the effective date, by placing 90% with Vesta Fire Insurance Company and 10% with Granite Re. Also in 1997 the Company increased its quota share reinsurance percentage to 40% from 15% on crop/hail business. F-37 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders of Superior Insurance Company, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Superior Insurance Company, Inc. and Subsidiaries as of December 31, 1994 and 1995, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Superior Insurance Company, Inc. and Subsidiaries as of December 31, 1994 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities in 1993. As discussed in Notes 1 and 6 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes, during the year ended December 31, 1993. /s/ Coopers & Lybrand Atlanta, Georgia June 14, 1996 F-38 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Consolidated Balance Sheet as of December 31, 1994 and 1995 and June 30, 1996 (dollars in thousands, except share data) December 31, December 31, (unaudited) 1994 1995 June 30, 1996 --------------- --------------- ---------------
ASSETS: Investments: Available for Sale: Fixed Maturities, at market $ 93,860 $ 99,556 $ 102,777 Equity Securities, at market 7,140 8,070 13,987 Short-term investments, at amortized cost which approximates market 5,538 8,462 3,739 Other investment, at cost 808 274 --- Cash and cash equivalents 11 1,430 4,331 Receivables (net of allowance for doubtful account of $310 and $500 at December 31, 1994 and 1995, respectively, and $500(unaudited) in at June 30, 1996 31,425 30,209 32,894 Reinsurance recoverable on paid and unpaid losses, net 1,099 987 1,478 Accrued investment income 1,888 1,602 1,586 Deferred policy acquisition costs 9,004 7,574 8,038 Deferred income taxes 3,785 44 1,511 Property and equipment 357 697 657 Federal income taxes receivable 3,521 --- --- Other assets 3,428 1,225 1,160 --------------- --------------- --------------- Total Assets $ 161,864 $ 160,130 $ 172,158 =============== =============== =============== LIABILITIES: Losses and loss adjustment expenses $ 54,577 $ 47,112 $ 47,155 Unearned premiums 44,593 41,048 47,016 Draft payables 6,509 6,070 7,998 Federal income tax payable --- 177 1,284 Accrued expenses 4,307 4,107 4,088 --------------- --------------- --------------- Total Liabilities 109,986 98,514 107,541 --------------- --------------- --------------- STOCKHOLDERS' EQUITY: Common stock, $ 100 par value, 30,000 shares authorized, issued and outstanding 3,000 3,000 3,000 Additional paid-in capital 37,025 37,025 37,025 Unrealized gain/(loss) on investments, net of deferred tax benefit (expense) of (412) in 1994 and 2,605 in 1995, 1,702 (unaudited) at June 30, 1996 (765) 4,838 1,808 Retained earnings 12,618 16,753 22,784 --------------- --------------- --------------- Total Stockholders' Equity 51,878 61,616 64,617 --------------- --------------- --------------- Total Liabilities and Stockholders' Equity $ 161,864 $ 160,130 $ 172,158 =============== =============== ===============
F-39 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Earnings for the Years Ended December 31, 1993, 1994 and 1995 and the Six Months ended June 30, 1995 and 1996 (dollars in thousands, except per share data) Six Months Ended Years Ended December 31, June 30, --------------------------------------------- ----------------------------
(unaudited) 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- Gross premiums written $ 115,660 $ 112,906 $ 94,756 $ 42,915 $ 69,119 Less ceded premiums (366) (391) (686) (400) (412) ----- ----- ----- ----- ----- Net premiums written 115,294 112,515 94,070 42,515 69,707 Change in unearned premiums 2,842 322 3,544 7,538 (5,968) ----- --- ----- ----- ------- Net premiums earned 118,136 112,837 97,614 50,053 62,739 Net investment income 8,170 7,024 7,093 4,161 3,476 Other income 5,879 3,344 4,171 1,692 3,092 Net realized capital gain/(loss) 3,559 (200) 1,954 711 2,104 ----- ----- ----- --- ----- Total Revenues 135,744 123,005 110,832 56,617 71,411 ------- ------- ------- ------ ------ Expenses: Losses and loss adjustment expenses 85,902 92,378 72,343 38,129 45,963 Policy acquisition and general and administrative expenses 36,292 38,902 32,705 17,212 17,104 ------ ------ ------ ------ ------ Total Expenses 122,194 131,280 105,048 55,341 63,067 ------- ------- ------- ------ ------ Earnings (loss) before income taxes and cumulative effect of change in accounting principle 13,550 (8,275) 5,784 1,276 8,344 ------ ------- ----- ----- ----- Income taxes: Current income tax expense (benefit) 3,207 (2,770) 925 (539) 2,153 Deferred income tax expense (benefit) 774 (1,030) 724 700 160 --- ------- --- --- --- Total Income Taxes 3,981 (3,800) 1,649 161 2,313 ----- ------- ----- --- ----- Earnings (loss) before cumulative effect of a change in accounting principle 9,569 (4,475) 4,135 1,115 6,031 Cumulative effect of a change in accounting principle 1,389 --- --- --- --- ----- --- --- --- --- Net Earnings (loss) $ 10,958 $ (4,475) $ 4,135 $ 1,115 $ 6,031 ====== ======= ===== ===== =====
F-40 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and the Six Months ended June 30, 1995 and 1996 (dollars in thousands) Additional Unrealized Retained Total Common Paid-In Gain (Loss) Earnings Stockholders' Stock Capital Investments (Deficit) Equity ----- ------- ----------- --------- ------
Balance at January 1, 1993 $ 1,500 $ 37,025 $ 655 $ 29,635 $ 68,815 Change in unrealized (loss) gain on investments, net of deferred taxes --- --- 3,983 --- 3,983 Cash dividends paid --- --- --- (10,000) (10,000) Common stock dividends paid 1,500 --- --- (1,500) --- Net Earnings --- --- --- 10,958 10,958 --- --- --- ------ ------ Balance at December 31, 1993 3,000 37,025 4,638 29,093 73,756 Change in unrealized (loss) gain on investments, net of deferred taxes --- --- (5,403) --- (5,403) Cash dividends paid --- --- --- (12,000) (12,000) Net Loss --- --- --- (4,475) (4,475) --- --- --- ------- ------- Balance at December 31, 1994 3,000 37,025 (765) 12,618 51,878 Change in unrealized gain on investments, net of deferred taxes (unaudited) --- --- 4,211 --- 4,211 Net Earnings (unaudited) --- --- --- 1,115 1,115 ---------- -------- -------- ---------- -------- Balance at June 30, 1995 (unaudited) $ 3,000 $ 37,025 $ 3,446 $ 13,733 $ 57,204 ===== ====== ===== ====== ====== Balance at December 31, 1994 $ 3,000 $ 37,025 $ (765) $ 12,618 $ 51,878 Change in unrealized loss on investments, net of deferred taxes --- --- 5,603 --- 5,603 Net Earnings --- --- --- 4,135 4,135 --- --- --- ----- ----- Balance at December 31, 1995 3,000 37,025 4,838 16,753 61,616 Change in unrealized loss on investments, net of deferred taxes (unaudited) --- --- (3,030) --- (3,030) Net Earnings (unaudited) --- --- --- 6,031 6,031 -------- ----------- -------- ------ ------ Balance at June 30, 1996 (unaudited) $ 3,000 $ 37,025 $ 1,808 $ 22,784 $ 64,617 ===== ====== ===== ====== ======
F-41 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,1994 and 1995 and the Six Months ended June 30, 1995 and 1996 (dollars in thousands) Six Months Ended Years Ended December 31, June 30, ------------------------------------------- -------------------------- (unaudited) 1993 1994 1995 1995 1996 ---- ---- ---- ---- ----
Cash Flows from Operating Activities: Net Earnings(loss) For The Period $ 10,958 $ (4,475) $ 4,135 $ 1,115 $ 6,031 Adjustments to reconcile net earnings to net cash provided from (used in) operations: Net amortization on fixed maturities 909 499 205 108 124 Depreciation of property and equipment 128 185 214 81 97 Deferred income tax expense (benefit) (615) (1,030) 724 700 160 Net loss/(gain) on sale of fixed assets and investments (3,546) 210 (1,940) (711) (2,104) Net changes in operating assets and liabilities: Receivables (4,052) (1,303) 1,216 6,839 (2,685) Reinsurance recoverable on unpaid losses (12) --- 49 4 --- Accrued investment income 504 524 286 177 16 Federal income taxes receivable/(payable) (23) (4,075) 3,698 (558) 1,107 Deferred policy acquisition costs 248 (78) 1,430 1,684 (464) Other assets 89 (2,382) 2,203 2,210 65 Losses and loss adjustment expenses (4,260) 985 (7,402) (4,966) 43 Unearned premiums (2,842) (322) (3,545) (7,538) 5,968 Drafts payables (2,091) (1,897) (439) (562) 1,928 Accrued expenses --- 4,307 (200) (835) (19) --- ----- ----- ----- ---- Net cash provided from (used in) operations (4,605) (8,852) 634 (2,252) 10,627 ------- ------- --- ------- ------ Cash Flow From (Used In) Investing Activities: Net (purchases)/sales of short-term investments 5,322 1,845 (2,924) (2,242) 4,723 Proceeds from sales, calls and maturities of fixed maturities 91,866 77,224 58,725 36,513 49,057 Purchases of fixed maturities (76,991) (64,678) (56,222) (32,461) (55,323) Proceeds from sales of equity securities 91,397 136,121 87,319 43,210 80,205 Purchase of equity securities (92,605) (133,482) (86,663) (43,022) (86,233) Proceeds from the sale of other investments --- --- 1,105 382 274 Proceeds from sales of property and equipment 30 33 --- --- --- Purchases of property and equipment (388) (198) (555) (139) (69) ----- ----- ----- ----- ---- Net cash provided from (used in) investing activities 18,631 16,865 785 2,241 (7,366) ------ ------ --- ----- ------- Cash flow used in financing activities: Payment of dividends (10,000) (12,000) --- --- --- -------- -------- --- --- --- Net cash used in financing activities (10,000) (12,000) --- --- --- -------- -------- --- --- --- Increase (decrease) in cash and cash equivalents 4,026 (3,987) 1,419 (11) 2,901 Cash and cash equivalents, beginning of year (28) 3,998 11 11 1,430 ---- ----- -- -- ----- Cash and cash equivalents, end of year $ 3,998 $ 11 $ 1,430 $ -- $ 4,331 ===== == ===== == ===== Supplemental cash flow information: Cash paid for income taxes, net of refunds $ 3,230 $ 1,305 $ (2,773) $ 19 $ 1,046 ===== ===== ====== == =====
F-42 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 1. Nature of Operations and Significant Accounting Policies Superior Insurance Company, Inc. ("Superior" or the "Company") was a wholly-owned subsidiary of Interfinancial Inc. (the "Parent"). Interfinancial Inc. is a wholly-owned subsidiary of Fortis, Inc. Fortis, Inc. is equally owned by Fortis AMEV, The Netherlands ("AMEV") and Fortis AG, Brussels, Belgium. As further discussed in Note 14 the Company was sold by the Parent to GGS Holdings on May 1, 1996. The Company writes primarily private passenger automobile insurance coverage. Approximately one-half of the Company's business is written in the State of Florida. As such, a significant portion of agents' balances and uncollected premiums is due from Florida policyholders. The following is a description of the significant accounting policies and practices employed: Principles of Consolidation The consolidated financial statements include the accounts, after intercompany eliminations, of the Company and its wholly owned subsidiaries as follows: Superior American Insurance Company ("Superior American") and Superior Guaranty Insurance Company ("Superior Guaranty"). Basis of Presentation The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") which differ from statutory accounting practices ("SAP") prescribed or permitted for insurance companies by regulatory authorities in the following respects: o Certain assets are included in the balance sheet that are excluded as "Nonadmitted Assets" under statutory accounting. o Costs incurred by the Company relating to the acquisition of new business which are expensed for statutory purposes are deferred and amortized on a straight-line basis over the term of the related policies. Commissions allowed by reinsurers on business ceded are deferred and amortized with policy acquisition costs. o The investment in wholly owned subsidiaries is consolidated for GAAP rather than valued on the statutory equity method. The net earnings or loss and changes in unassigned surplus of the subsidiaries is reflected in net earnings for the period rather than recorded directly to unassigned surplus. o Investments in bonds are designated at purchase as held to maturity, trading, or available for sale. Held-to-maturity fixed maturity investments are reported at amortized cost, and the remaining fixed maturity investments are reported at fair value with unrealized holding gains and losses reported in operations for those designated as trading and as a separate component of stockholders' equity for those designated as available for sale. All securities have been designated as available for sale. For SAP, such fixed maturity investments would be reported at amortized cost or market value based on their NAIC rating. F-43 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) o The liability for losses and loss adjustment expenses and unearned premium reserves are recorded net of their reinsured amounts for statutory accounting purposes. o Deferred income taxes are not recognized on a statutory basis. o Credits for reinsurance are recorded only to the extent considered realizable. Under SAP, credit for reinsurance ceded are allowed to the extent the reinsurers meet the statutory requirements of the Insurance Department of the State of Florida, principally statutory solvency. A reconciliation of statutory net earnings and capital and surplus to GAAP net earnings and stockholders' equity for Superior Insurance Company is as follows: 1993 1994 1995 ---------------------------- ------------------------------ ----------------------------- Capital Net Capital Net Capital Net and Earnings and Earnings and Earnings Surplus Surplus Surplus
Statutory Balance $ 56,656 $ 10,597 $ 43,577 $ 201 $ 49,277 $ 5,639 Non-admitted assets 130 --- 225 --- 472 --- Investments market value adjustment 5,571 --- (1,988) --- 5,279 --- Deferred acquisition costs 8,926 (248) 9,004 78 7,574 (1,430) Losses and loss adjustment expense 2,677 59 (1,600) (4,822) --- 600 Deferred income tax (154) 615 3,785 1,030 44 (724) Rent rebate --- --- (333) (333) (277) 55 Pension and other postretirement benefits (50) 49 (548) (479) (667) (120) Other --- (114) (244) (150) (86) 115 ----- ----- ----- ----- ---- --- GAAP Balance $ 73,756 $ 10,958 $ 51,878 $ (4,475) $ 61,616 $ 4,135 ====== ====== ====== ======= ====== =====
Premiums Premiums are recognized as income ratably over the life of the related policies and are stated net of ceded premiums. Unearned premiums are computed on the semimonthly pro rata basis. F-44 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Investments During 1993, the Company adopted Financial Accounting Standards Board's Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, investments are presented on the following bases: o Fixed maturities and equity securities -- at market value -- all such securities are classified as available for sale and are carried at market value with the unrealized gain or loss as a component of stockholders' equity. o Short-term investments -- at amortized cost, which approxi- mates market o Other investment at cost Realized gains and losses on sales of investments are recorded on the trade date and are recognized in net earnings on the specific identification basis. Other than temporary market value declines are recognized in the period in which they are determined. Other changes in market values of debt and equity securities are reflected as unrealized gain or loss directly in stockholders' equity, net of deferred tax, and, accordingly, have no effect on net earnings. Interest and dividend income are recognized as earned. Cash And Cash Equivalents For purposes of the statement of cash flows, the Company includes in cash and cash equivalents all cash on hand and demand deposits with original maturities of three months or less. Deferred Policy Acquisition Costs Deferred policy acquisition costs are comprised of agents' commissions, premium taxes and certain other costs which are related directly to the acquisition of new and renewal business, net of expense allowances received in connection with reinsurance ceded, which have been accounted for as a reduction of the related policy acquisition costs and are deferred and amortized accordingly. These costs, to the extent that they are considered recoverable, are deferred and amortized over the terms of the policies to which they relate. Property And Equipment Property and equipment are recorded at cost. All additions to property and equipment made in 1995 are depreciated based on the straight-line method over their estimated useful lives. Additions made prior to 1995 are depreciated using the declining balance method over their estimated useful lives ranging from five to seven years. Asset and accumulated depreciation accounts are relieved for dispositions, with resulting gains or losses reflected in net income. F-45 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Losses And Loss Adjustment Expenses The liability for losses and loss adjustment expenses includes estimates for reported unpaid losses and loss adjustment expenses and for estimated losses incurred, but not reported. This liability has not been discounted. The Company's losses and loss adjustment expense liability includes an aggregate stop-loss program. The Company retains an independent actuarial firm to estimate the liability. The liability is established using individual case-basis valuations and statistical analysis as claims are reported. Those estimates are subject to the effects of trends in loss severity and frequency. While management believes the liability is adequate, the provisions for losses and loss adjustment expenses are necessarily based on estimates and are subject to considerable variability. Changes in the estimated liability are charged or credited to operations as additional information on the estimated amount of a claim becomes known during the course of its settlement. The liability for losses and loss adjustment expenses is reported net of the receivables for salvage and subrogation of approximately $2,242 and $1,622 at December 31, 1994 and 1995, respectively. Income Taxes During January 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The Company adopted SFAS No. 109 during the year ended December 31, 1993. The Statement adopts the liability method of accounting for deferred income taxes. Under the liability method, companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and taxable income. Changes in future tax rates result in immediate adjustments to deferred taxes. (See Note 6). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Reinsurance Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. Other Income Other income consists of finance and service fees paid by policyholders in relation to installment billings. Recently Issued Accounting Pronouncements In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, was issued. SFAS No. 121 requires that long-lived assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This Statement is effective for financial statements for fiscal years beginning after December 31, 1995. The Company intends to adopt SFAS No. 121 in 1996. Based upon management's review and analysis, adoption of SFAS No. 121 is not expected to have a material impact on the Company's results of operations in 1996. F-46 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Vulnerability From Concentration At December 31, 1995, the Company did not have a material concentration of financial instruments in a single investee, industry or geographic location. Also at December 31, 1995, the Company did not have a concentration of (1) business transactions with a particular customer, lender or distributor, (2) revenues from a particular product or service, (3) sources of supply of labor or services used in the business, or (4) a market or geographic area in which business is conducted that makes it vulnerable to an event that is at least reasonably possible to occur in the near term and which could cause a serious impact to the Company's financial condition, except for the market and geographic concentration described in the following paragraph. The Company writes nonstandard automobile insurance primarily in California and Florida. As a result, the Company is always at risk that there could be significant losses arising in certain geographic areas. The Company protects itself from such events by purchasing catastrophe insurance. Use of Estimates The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. Unaudited Interim Financial Statements The consolidated financial statements for the six months ended June 30, 1995 and 1996 have been prepared using the applicable accounting principles used in the audited financial statements. These statements are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the financial information set forth herein. F-47 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 2. Investments Investments are summarized as follows: Unrealized ------------------------------ Amortized Estimated Cost Gain Loss Market Value ---- ---- ---- ------------
December 31, 1995 Fixed maturities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 28,612 $ 1,057 $ --- $ 29,669 Obligations of states and political subdivisions 24,595 1,251 (15) 25,831 Corporate securities 41,070 2,988 (2) 44,056 ------ ----- --- ------ Total Fixed Maturities 94,277 5,296 (17) 99,556 ------ ----- ---- ------ Equity Securities: Preferred stocks 713 25 --- 738 Common stocks 5,193 2,370 (231) 7,332 ----- ----- ----- ----- 5,906 2,395 (231) 8,070 ----- ----- ----- ------ Short-term investments (1) 8,462 --- --- 8,462 Other investments 274 --- --- 274 --- --- --- --- Total Investments $ 108,919 $ 7,691 $ (248) $ 116,362 ======= ===== ===== ======= December 31, 1994 Fixed maturities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 25,312 $ 31 $ (767) $ 24,576 Obligations of states and political subdivisions 30,567 380 (680) 30,267 Corporate securities 39,969 292 (1,244) 39,017 ------ --- ------ ------ Total Fixed Maturities 95,848 703 (2,691) 93,860 ------ --- ------- ------- Equity Securities: Preferred stocks 713 32 --- 745 Common stocks 5,616 1,201 (422) 6,395 ----- ----- ----- ----- 6,329 1,233 (422) 7,140 ----- ----- ----- ----- Short-term investments 5,538 --- --- 5,538 Other investments 808 --- --- 808 --- --- --- --- Total Investments $ 108,523 $ 1,936 $ (3,113) $ 107,346 ======= ===== ======= =======
F-48 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) The amortized cost and estimated market value of fixed maturities at December 31, 1995 and 1994, by contractual maturity, are shown in the table which follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty: 1995 1994 ----------------------------------- ---------------------------------- Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value
Maturity: Due in 1 year or less $ 2,508 $ 2,510 $ 5,514 $ 5,521 Due after 1 year through 5 years 31,166 32,164 20,403 20,086 Due after 5 years through 10 years 33,012 35,338 33,522 32,550 Due after 10 years 27,591 29,544 36,409 35,703 ------ ------ ------ ------ Total $ 94,277 $ 99,556 $ 95,848 $ 93,860 ====== ====== ====== ======
Gains and losses realized on sales of investments in fixed maturities are as follows:
1993 1994 1995 --------------- -------------- -------------- Gross gains realized on fixed maturities $ 3,040 $ 779 $ 1,442 Gross losses realized on fixed maturities 95 1,270 322 Gross gains realized on equity securities 637 694 507 Gross losses realized on equity securities 28 457 256
An analysis of net investment income for the years ended December 31, 1993, 1994, and 1995 follows: 1993 1994 1995 -------------- -------------- -------------- Fixed maturities $ 7,939 $ 6,691 $ 6,630 Equity securities 461 538 603 Short-term investments 141 106 68 -------------- -------------- -------------- Total Investment Income 8,541 7,335 7,301 Investment Expenses 371 311 208 -------------- -------------- -------------- Net Investment Income $ 8,170 $ 7,024 $ 7,093 -------------- -------------- -------------- F-49 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Investments with an approximate market value of $17,384 and $2,366 (approximate amortized cost of $16,907 and $2,362) as of December 31, 1995 and 1994, respectively, were on deposit in the United States and Canada. The deposits are required by law to support certain reinsurance contracts, performance bonds and outstanding loss liabilities on assumed business. In May 1990, Superior entered into a limited partnership agreement with AMEV Venture Management ("AVM"), an AMEV affiliate. The Limited Partnership, AMEV Venture III, is an investment pool which is managed by AVM as a general partner. The purpose of the pool is to make speculative investments in small business, with the partners sharing in the profits/losses resulting from the pool. Superior committed to an investment of $2,000 which is approximately 8% of the total pool. This investment is carried at cost and included in, "other investment". As of May, 1996, the Company had disposed of its remaining interest in this investment. 24. Deferred Policy Acquisition Costs Policy acquisition costs are capitalized and amortized over the life of the policies. Policy acquisition costs are those costs directly related to the issuance of insurance policies including commissions and underwriting expenses net of reinsurance commission income on such policies. Policy acquisition costs deferred and the related amortization charged to earnings were as follows: 1993 1994 1995 --------------- --------------- -------------- Balance, beginning of year $ 9,174 $ 8,926 $ 9,004 Costs deferred during year 23,561 23,029 17,606 Amortization during year (23,809) (22,951) (19,036) --------------- --------------- -------------- Balance, end of year $ 8,926 $ 9,004 $ 7,574 --------------- --------------- -------------- 25. Property and Equipment Property and equipment at December 31 are summarized as follows: 1995 Accumulated 1994 Net 1995 Cost Depreciation 1995 Net --------- -------- ----------- --------- Office furniture and equipment $ 62 $ 1,099 $ 723 $ 376 Automobiles --- 20 20 --- Computer equipment 295 1,086 765 321 Leasehold improvements --- 6 6 --- --------- -------- ----------- --------- $ 357 $ 2,211 $ 1,514 $ 697 --------- -------- ----------- --------- F-50 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Accumulated depreciation at December 31, 1994 was approximately $1,370. Depreciation expense related to property and equipment for the years ended December 31, 1995, 1994 and 1993 was approximately $214, $185 and $128, respectively. 5. Unpaid Losses and Loss Adjustment Expenses Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows: 1993 1994 1995 Balance at January 1 $ 57,164 $ 52,610 $ 54,577 Less reinsurance recoverables 361 68 1,099 ----------- ---------- ---------- Net balance at January 1 56,803 52,542 53,478 ----------- ---------- ---------- Incurred related to: Current year 92,619 91,064 77,266 Prior years (6,717) 1,314 (4,923) ----------- ---------- ---------- Total incurred 85,902 92,378 72,343 ----------- ---------- ---------- Paid related to: Current year 57,929 56,505 48,272 Prior years 32,234 34,937 31,424 ----------- ---------- ---------- Total paid 90,163 91,442 79,696 ----------- ---------- ---------- Net balance at December 31 52,542 53,478 46,125 Plus reinsurance recoverables on unpaid losses 68 1,099 987 ----------- ---------- ---------- Balance at December 31 $ 52,610 $ 54,577 $ 47,112 ----------- ---------- ---------- The foregoing reconciliation shows that redundancies of approximately $4,923 and $6,717 in the liabilities at January 1, 1995 and at January 1, 1993, respectively, emerged during 1995 and 1993. These redundancies resulted from lower than anticipated losses resulting from a change in settlement costs relating to those estimates. The reconciliation shows that a deficiency of approximately $1,314 in the liabilities at January 1, 1994 emerged during 1994. This deficiency resulted from higher than anticipated losses resulting primarily from a change in the settlement cost of loss reported in 1990. The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and loss adjustment expenses. While anticipated price increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for implemented changes F-51 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) in underwriting standards, policy provisions, and general economic trends. Those anticipated trends are monitored based on actual development and are modified if necessary. Case liabilities (and costs of related litigation) have been established when sufficient information has been developed to indicate the involvement of a specific insurance policy. In addition, incurred but not reported liabilities have been established to cover additional exposure on both known and unasserted claims. Those liabilities are reviewed and updated continually. 6. Income Taxes For the year ended December 31, 1995, the Company will file a consolidated federal income tax return with its former subsidiaries owned by Fortis, Inc. An intercompany tax sharing agreement between the Company and its subsidiaries provided that income taxes will be allocated based upon the percentage that each subsidiary's separate return tax liability bears to the total amount of tax liability calculated for all members of the group in accordance with the Internal Revenue Code of 1986, as amended. Intercompany tax payments are remitted at such times as estimated taxes would be required to be made to the Internal Revenue Service. A reconciliation of the differences between federal tax computed by applying the federal statutory rate of 35% to earnings before income taxes and the income tax provision is as follows:
1993 1994 1995 --------------- -------------- -------------- Computed income taxes at statutory rate $ 4,743 $ (2,896) $ 2,024 Dividends received deduction (118) (69) (53) Tax-exempt interest (1,136) (866) (538) Proration 188 140 89 Other 304 (109) 127 --------------- -------------- -------------- Income tax expense (benefit) $ 3,981 $ (3,800) $ 1,649 =============== ============ ==============
As described in Note 1, the Company adopted SFAS No. 109 effective in 1993. The effect on years prior to 1993 of changing to this method was a benefit of approximately $1,389 and is reflected in the consolidated statement of earnings as the cumulative effect of a change in accounting principle. The current or deferred tax consequences of a transaction are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable currently or in future years. The method of accounting for income taxes prior to SFAS No. 109 provided that deferred taxes, once recorded, were not adjusted for changes in tax rates. F-52 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) The net deferred tax asset at December 31, 1994 and 1995 is comprised of the following: 1994 1995 ---------------- --------------- Deferred tax assets: Unpaid losses and loss adjustment expenses $ 1,848 $ 1,454 Unearned premiums 3,122 2,873 Allowance for doubtful accounts 109 175 Unrealized losses on investments 412 --- Salvage and subrogation 694 541 Other 751 257 ---------------- --------------- 6,936 5,300 ---------------- --------------- Deferred tax liabilities: Deferred policy acquisitions costs 3,151 2,651 Unrealized gain on investments --- 2,605 ---------------- --------------- 3,151 5,256 ---------------- --------------- Net deferred tax asset $ 3,785 $ 44 ---------------- --------------- The Company is required to establish a "valuation allowance" for any portion of its deferred tax assets which is unlikely to be realized. No valuation allowance was established as of December 31, 1995 or 1994 on the deferred tax assets, since management believes it is more likely than not that the Company will realize the benefit of its deferred tax assets. Federal income tax attributed to the Company has been examined through 1993. In the opinion of management, the Company has adequately provided for the possible effects of future assessments related to prior years. 7. Retirement and Other Employee Benefits As part of the sale of the Company, as described in Note 14, the Company withdrew from all of the plans mentioned below and paid Fortis approximately $557 to assume the related liabilities. Superior participated in a non-contributory defined benefit pension plan ("the Pension Plan") administered by Fortis, Inc., covering substantially all employees who were at least 21 years of age and who had one year of service with Superior. The Pension Plan provided benefits payable to participants on retirement or disability and to beneficiaries of participants in the event of death. The benefits were based on years of service and the employee's compensation during such years of service. The Company's funding policy was to contribute annually at least the amount required to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974. F-53 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Contributions were intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The net periodic pension cost allocated to Superior under the Pension Plan for 1993, 1994 and 1995 was approximately $206, $186 and $119, respectively. In 1993, pension expense includes a one-time accrual for implementation of SFAS 106 of approximately $81. Superior also participated in a contributory profit sharing plan ("the Profit Sharing Plan") sponsored by Fortis, Inc. This Profit Sharing Plan covered all employees with one year of service to the Company and provided benefits payable to participants on retirement or disability and to beneficiaries of participants in the event of death. The amount expensed for the Profit Sharing Plan for 1993, 1994 and 1995 was approximately $252, $381 and $146, respectively. In addition to retirement benefits, the Company participated in other health care and life insurance benefit plans ("postretirement benefits") for retired employees, sponsored by Fortis, Inc. Health care benefits, either through a Fortis-sponsored retiree plan for retirees under age 65 or through a cost offset for individually purchased Medigap policies for retirees over age 65, were available to employees who retired on or after January 1, 1993, at age 55 or older, with 15 or more years of service. Life insurance, on a retiree pay all basis, was available to those who retired on or after January 1, 1993. Both the retiree medical and retiree life programs were implemented in 1993. The Company made contributions to these plans as claims were incurred; no claims were incurred during 1993, 1994 or 1995. In 1993, the NAIC issued new rules that required the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service instead of when the benefits are paid. As required, Superior complied with the new rules beginning in 1995 and elected to record these costs on a prospective basis. The effect of this accounting change on the financial statements of the Company was not material. 8. Reinsurance The Company limits the maximum net loss that can arise from a large risk, or risks in concentrated areas of exposure, by reinsuring (ceding) certain levels of risks with other insurers or reinsurers. Superior has a casualty excess of loss treaty which covers losses in excess of $100 up to a maximum of $2,000. Superior maintains both auto and property catastrophe excess reinsurance. Superior's first automobile casualty excess contains limits of $200 excess of $100, its second casualty excess contains limits of $700 excess of $300 and its third casualty excess has a limit of $1,000 excess of $1,000. Further, Superior's first layer of property catastrophe excess reinsurance covers 95% of $500 excess of $500 with an annual limit of $1,000 and its second layer or property catastrophe excess reinsurance covers 95% of $2,000 excess of $1,000 with an annual limit of $4,000. The Company remains contingently liable with respect to reinsurance, which would become an ultimate liability of the Company in the event that such reinsuring companies might be unable, at some later date, to meet their obligations under the reinsurance agreements. In 1993, 1994 and 1995, 100% of amounts recoverable from reinsurers are with Prudential Re, which maintains an A.M. Best rating of A. Company management believes amounts recoverable from reinsurers are collectible. Amounts recoverable from reinsurers relating to unpaid losses and loss adjustment expenses were approximately $1,099 and $987 as of December 31, 1994 and 1995, respectively. F-54 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) Reinsurance activity for 1993, 1994 and 1995, which includes reinsurance with related parties, is summarized as follows:
Direct Assumed Ceded Net --------------- -------------- -------------- -------------- 1993 Premiums written $ 88,877 $ 26,783 $ 366 $ 115,294 Premiums earned 87,618 31,183 665 118,136 Incurred losses and loss adjustment expenses 64,228 21,896 222 85,902 Commission expenses (income) 13,700 4,570 --- 18,270 1994 Premiums written $ 92,540 $ 20,366 $ 391 $ 112,515 Premiums earned 89,755 23,437 355 112,837 Incurred losses and loss adjustment expenses 73,181 20,244 1,047 92,378 Commission expenses (income) 14,165 3,192 --- 17,357 1995 Premiums written $ 84,840 $ 9,916 $ 686 $ 94,070 Premiums earned 84,641 13,592 619 97,614 Incurred losses and loss adjustment expenses 63,462 8,777 (104) 72,343 Commission expenses (income) 12,314 1,324 --- 13,638
9. Related-party Transactions The Company and its subsidiaries have entered into transactions with various related parties including transactions with its affiliated companies and Fortis, Inc. The following transactions occurred with related parties in the years ended December 31, 1993, 1994, and 1995:
1993 1994 1995 -------------- -------------- -------------- Management fees charged by Fortis $ 832 $ 842 $ 729 Reinsurance with affiliated companies, net: Assumed premiums earned 8,321 9,092 7,786 Assumed losses and loss adjustment expenses incurred 8,480 6,266 5,847 Assumed commissions 1,337 1,755 1,112
F-55 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 10. Effects of Statutory Accounting Practices and Dividend Restrictions Under state of Florida insurance regulations, the maximum amount of dividends Superior, Superior American and Superior Guaranty can pay to their stockholders without prior approval of the Insurance Commissioner of the State of Florida is limited. The maximum amount of dividends which Superior can pay to its stockholders during 1996 is approximately $4,900. The maximum amount of dividends which Superior American can pay to its stockholder during 1996 is approximately $320. 11. Regulatory Matters Superior, Superior American and Superior Guaranty, domiciled in Florida, prepare their statutory financial statements in accordance with accounting practices prescribed or permitted by the Florida Department of Insurance ("FDOI"). Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners ("NAIC"), as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. Superior, Superior American and Superior Guaranty utilize no significant permitted practices. The NAIC has promulgated risk-based capital ("RBC") requirements for property/casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks, such as asset quality, asset and liability matching, loss reserve adequacy and other business factors. The RBC information is used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized. In addition, the formula defines new minimum capital standards that will supplement the current system of fixed minimum capital and surplus requirements on a state-by-state basis. Regulatory compliance is determined by a ratio (the "Ratio") of the enterprise's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Generally, a Ratio in excess of 200% of authorized control level RBC (the "company action level") requires no corrective actions by Superior, Superior American, Superior Guaranty, or regulators. As of December 31, 1995, all six company's RBC level were in excess of the company action level. 12. Leases The Company has certain commitments under long-term operating leases for its home and sales offices. Rental expense under these commitments was $800, $483 and $1,012 for 1993, 1994 and 1995, respectively. Future minimum lease payments required under these noncancelable operating leases are as follows: 1996 $ 948 1997 921 1998 440 1999 350 2000 and thereafter 58 ------------- Total $ 2,717 ============= F-57 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 13. Contingencies The Company, and its subsidiaries, are named as defendants in various lawsuits relating to their business. Legal actions arise from claims made under insurance policies issued by the Company and its subsidiaries. These actions were considered by the Company in establishing its loss liabilities. The Company believes that the ultimate disposition of these lawsuits will not materially affect the Company's operations or financial position. The increase in number of insurance companies that are under regulatory supervision has resulted, and is expected to continue to result, in increased assessments by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. The Company recognizes its obligations for guaranty fund assessments when it receives notice that an amount is payable to a guaranty fund. The ultimate amount of these assessments may differ from that which has already been assessed. 14. Subsequent Event (Unaudited) On January 31, 1996, the Symons International Group, Inc. ("Symons") entered into an agreement ("Agreement") with GS Capital Partners II, L.P. to create a company, GGS Management Holdings, Inc. ("GGS Holdings") to be owned 52% by Symons and 48% by investment funds associated with Goldman, Sachs & Co. In connection with the above transaction, on April 30, 1996, GGS Holdings acquired all of the outstanding shares of common stock of the Company and its wholly owned subsidiaries, Superior American and Superior Guaranty, for cash of approximately $66,389. Subsequent to its acquisition on April 30, 1996, the Company has entered into a quota share reinsurance arrangement with Pafco General Insurance Company ("Pafco"), a wholly owned subsidiary of the Company's ultimate parent, Symons International Group, Inc. ("Registrant"), whereby Pafco shall cede 100% of its gross premiums written on or after May 1, 1996 that are in excess of six times outstanding capital and surplus. When the FDOI approved the acquisition of Superior by GGS Holdings, it prohibited Superior from paying any dividends (whether extraordinary or not) for four years from the date of acquisition without the prior written approval of the FDOI. F-57 SUPERIOR INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) The acquisition of the Company was accounted for under the purchase method of accounting and was recorded as follows: Assets Acquired: Invested assets $ 118,665 Receivables 34,933 Deferred acquisition costs 7,925 Other assets 2,082 ------------------ Total 163,605 ------------------ Liabilities Assumed: Unpaid losses and loss adjustment expenses 44,423 Unearned premiums 45,280 Other liabilities 10,863 ------------------ Total 100,566 ------------------ Net Assets Acquired 63,039 Purchase Price 66,590 Excess Purchase Price 3,551 Less amounts allocated to deferred income taxes on unrealized gains on investments 1,334 ------------------ Goodwill $ 2,217 ================== Goodwill is amortized over a 25 year period on a straight line basis based upon management's estimate of the expected benefit period. F-58 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS Chapter 37 of the Indiana Business Corporation Law, as amended (the "ICBL"), grants to each corporation broad powers to indemnify directors, officers, employees or agents against liabilities and expenses incurred in certain proceedings if the conduct in question as found to be in good faith and was reasonably believed to be in the corporation's best interests. The indemnification rights provided by the Registrant's articles of incorporation and by-laws generally provide the maximum indemnification protection available under law to the directors and officers of the Registrant, subject to certain restrictions on such indemnification in the event of the occurrence of certain changes of control and subject to restrictions on indemnification for liabilities incurred by directors and officers who unsuccessfully defend actions brought against them by or in right of the corporation. Directors, officers, employees or agents of the Registrant who also are directors, officers, employees or agents of Goran receive similar indemnification protection under Goran's by-laws. In addition, Goran carries directors and officers insurance policies. The above discussion of the Company's By-laws and the IBCL is not intended to be exhaustive and is qualified in its entirety by such By-laws and the IBCL. The Declaration provides that: (a) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee and (iv) any employee or agent of the Trust or its Affiliates (referred to herein as an "Indemnified Person") from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation, dissolution, winding-up or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of its negligence (or, in the case of the Delaware Trustee and its related Indemnified Persons, gross negligence) or willful misconduct with respect to such acts or omission; and (b) to the fullest extent permitted by applicable law, to advance expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of (i) a written affirmation by or on behalf of the Indemnified Person of its or his good faith belief that it or he has met the standard of conduct set forth herein and (ii) an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in the preceding subsection. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The exhibits furnished with this Registration Statement are listed beginning on Page E-1. (b) The following financial statement schedules of the Registrant are included in the Registration Statement beginning on Page II-6. Report of Independent Accountants Schedule II Condensed Financial Information of Registrant Schedule IV Reinsurance Schedule V Valuation and Qualifying Accounts Schedule VI Supplemental Information Concerning Property -Casualty Insurance Operations ITEM 22. UNDERTAKINGS The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any facts or events arising after the effective date of the Registration Statement which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement and to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of each undersigned Registrant pursuant to the foregoing provisions, or otherwise, each Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by each undersigned Registrant of expenses incurred or paid by a director, officer of controlling person of each Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrants hereby undertake to respond to requests for information that is incorporated by reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired or involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Symons International Group, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Indianapolis, and State of Indiana, on the _16th__ day of September, 1997. SYMONS INTERNATIONAL GROUP, INC. By__/s/ Alan G. Symons__________________________ Alan G. Symons Chief Executive Officer II-3 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board of September 16, 1997 G. Gordon Symons Directors * Chief Executive Officer and September 16, 1997 Alan G. Symons Director (Principal Executive Officer) * President and Chief Douglas H. Symons Operating Officer and September 16, 1997 Director Vice President, Chief * Financial Officer and September 16, 1997 Gary P. Hutchcraft Treasurer (Principal Financial and Accounting Officer) * Vice President, General David L. Bates Counsel and Secretary September 16, 1997 * John J. McKeating Director September 16, 1997 * Robert C. Whiting Director September 16, 1997 James G. Torrance, Q.C. Director September __, 1997 * David R. Doyle Director September 16, 1997 * Jerome B. Gordon Director September 16, 1997 *By:__/s/ Alan G. Symons_____________ Alan G. Symons Attorney-in-Fact II-4 Pursuant to the requirements of the Securities Act of 1933, SIG Capital Trust I certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Indianapolis, and State of Indiana, on the _16th_ day of September, 1997. SIG CAPITAL TRUST I By__/s/ Alan G. Symons___________________________ Alan G. Symons Company Trustee By__/s/ Douglas H. Symons________________________ Douglas H. Symons Company Trustee By__/s/ Gary P. Hutchcraft_______________________ Gary P. Hutchcraft Company Trustee II-5 Report of Independent Accountants Board of Directors and Stockholder of Symons International Group, Inc. and Subsidiaries In connection with our audits of the consolidated balance sheets of Symons International Group, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, changes in stockholder's equity and cash flows for the three years in the period ended December 31, 1996, which financial statements are included in the registration statement, we have also audited the financial statement schedules listed in Item 21 herein. In our opinion, these financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included herein. /s/ COOPERS & LYBRAND L.L.P. Indianapolis, Indiana March 21, 1997 II-6 SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT As Of December 31, (In Thousands) 1995 1996 ASSETS Assets: Investments In And Advances To Related Parties $18,589 $77,514 Cash and Cash Equivalents 0 6,160 Deferred Income Taxes 52 0 Property and Equipment 337 8 Other 57 168 Intangible Assets 0 83 Total Assets $19,035 $83,933 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Payables to Affiliates $8,671 $350 Federal Income Tax Payable 0 81 Line of Credit and Notes Payable 0 0 Other 829 992 Total Liabilities $9,500 $1,423 Minority Interest 0 21,160 Stockholders' Equity: Common Stock, No Par, 1,000,000 Shares Authorized, 10,450,000 $1,000 $38,969 Issued and Outstanding Additional Paid-In Capital 3,130 5,905 Unrealized Loss On Investments (Net of Deferred Taxes of ($23,000) (45) 820 in 1995 and $1,225,000 in 1996) Retained Earnings 5,450 15,206 Total Stockholders' Equity $9,535 $60,900 Total Liabilities and Stockholders' Equity $19,035 $83,933 II-7 SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For The Years Ended December 31, (In Thousands) 1994 1995 1996 Net Investment Income $37 $1,522 $98 Net Realized Investment Losses (8) (52) 0 Other Income 8,533 7,626 5,353 Total Revenue 8,562 9,096 5,451 Expenses: Policy Acquisition and General and 7,528 7,891 4,269 Administrative Expenses Interest Expense 874 621 613 Total Expenses 8,402 8,512 4,882 Income Before Taxes and Minority Interest 160 584 569 Provision for Income Taxes: Current Year 176 293 228 Prior Year (70) 0 0 Provision for Income Taxes 106 293 228 Net Income Before Equity in Net Income of Subsidiaries 54 291 341 Equity in Net Income of Subsidiaries 2,063 4,530 12,915 Net Income for the Period $2,117 $4,821 $13,256 II-7 SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For The Years Ended December 31, (In Thousands) 1994 1995 1996 Net Income $2,117 $4,821 $13,256 Cash Flows From Operating Activities: Adjustments to Reconcile Net Cash Provided by (Used In) Operations: Equity In Net Income of Subsidiaries (2,063) (4,530) (12,915) Depreciation of Property and Equity 91 37 52 Net Realized Capital Loss 8 (52) 0 Amortization of Intangible Assets 169 88 3 Net Changes in Operating Assets and Liabilities: Federal Income Taxes Recoverable (Payable) 206 (176) 81 Other Assets (70) 216 (145) Other Liabilities (1,060) 518 163 Net Cash Provided From (Used In) Operations (602) 922 495 Cash Flow Used In Investing Activities: Purchase of Property and Equipment (58) (179) 0 Net Cash Used in Investing Activities: (58) (179) 0 Cash Flows Provided by (Used In) Financing Activities: Proceeds From Common Stock Offering 0 0 37,969 Repayment of Loans (1,750) (1,250) 0 Contributed Capital 0 0 (20,475) Loans From Related Parties 2,410 507 (8,329) Payment of Dividend to Parent 0 0 (3,500) Net Cash Provided By (Used In) Financing Activities 660 (743) 5,665 Increase (Decrease) in Cash and Cash Equivalents 0 0 6,160 Cash and Cash Equivalents - Beginning of Year 0 0 0 Cash and Cash Equivalents - End of Year 0 0 6,160 II-8 SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For The Years Ended December 31, 1994, 1995 and 1996 Basis of Presentation The condensed financial information should be read in conjunction with the consolidated financial statements of Symons International Group, Inc. The condensed financial information includes the accounts and activities of the Parent Company which acts as the holding company for the insurance subsidiaries. SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE IV - REINSURANCE For The Years Ended December 31, (In Thousands) 1994 1995 1996 Direct Amount $102,178 $123,381 $298,596 Assumed From Other Companies $956 $1,253 $6,903 Ceded to Other Companies $67,995 $71,187 ($95,907) Net Amount $35,139 $53,447 $209,592 Percentage of Amount Assumed to Net 2.7% 2.3% 3.3% II-9 SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS For The Years Ended December 31, (In Thousands)
1994 -Allowance for 1995-Allowance for 1996-Allowance for Doubtful Accounts Doubtful Accounts Doubtful Accounts Additions: Balance at Beginning of $1,179 $1,209 $927 Period Reserves Acquired in the 0 0 500 Superior Acquisition Charged to Costs and (86) 2,523 5,034 Expenses (1) Charged to Other 0 0 0 Accounts Deductions from (116) (2) 2,805 (2) 4,981 Reserves Balance at End of Period $1,209 $927 $1,480
(1) In 1993, the Company began to direct bill policyholders rather than agents for premiums. During late 1994 and into 1995, the Company experienced an increase in premiums written. During 1995, the Company further evaluated the collectibility of this business and incurred a bad debt expense of approximately $2.5 million. The Company continually monitors the adequacy of its allowance for doubtful accounts and believes the balance of such allowance at December 31, 1994, 1995 and 1996 was adequate. (2) Uncollectible accounts written off, net of recoveries. II-10 SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS For The Years Ended December 31, (In Thousands)
Deferred Reserves Discount, Unearned Earned Net Claims and Amorti- Paid Premiums Policy for if any, Premiums Premiums Invest- Adjustment zation of claims Written Acqui- Unpaid deducted ment Expenses Deferred and Claim sition Claims in Income Incurred Related Policy Adjust- Costs and Column to: Acqui- ment Claim C sition Expenses Adjust- Costs ment Expense Current Prior Years Years 1994 1,479 29,269 0 14,416 32,126 1,241 26,268 202 4,852 26,995 103,135 1995 2,379 59,421 0 17,497 49,641 1,173 35,184 787 7,150 31,075 124,634 1996 12,800 101,719 0 87,285 191,759 6,733 137,679 (570) 27,657 130,895 305,499
Note: All amounts in the above table are net of the effects of reinsurance and related commission income, except for net investment income regarding which reinsurance is not applicable, premiums written liabilities for losses and loss adjustment expenses, and unearned premiums which are stated on a gross basis. II-11 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Registrant's Restated Articles of Incorporation* 3.2 Bylaws of Symons International Group, Inc, as restated July 29, 1996* 4.1 Indenture between Symons International Group, Inc. and Wilmington Trust Company dated as of August 15, 1997, relating to the Senior Subordinated Notes 4.2 Form of Certificate of Exchange Notes (in substantially the form of Section 2.2 to Exhibit 4.1) 4.3 Certificate of Trust of SIG Capital Trust I, dated August 4, 1997 4.4 Amended and Restated Declaration of Trust for SIG Capital Trust I, dated August 15, 1997 4.5 Form of Exchange Preferred Security Certificate for SIG Capital Trust I (included as Exhibit D to Exhibit 4.4) 4.6 Form of Exchange Guarantee of Symons International Group, Inc. relating to the Exchange Preferred Securities 4.7 Registration Rights Agreement among Symons International Group, Inc., SIG Capital Trust I and the Initial Purchasers, dated August 11, 1997 5.1 5.1 Opinion of Dann Pecar Newman & Kleiman, P.C. as to legality of the Exchange Notes and the Exchange Guarantee to be issued by Symons International Group, Inc. 5.2 Opinion of Richards, Layton & Finger as to legality of the Exchange Preferred Securities to be issued by SIG Capital Trust I 8 Opinion of Dann Pecar Newman & Kleiman, P.C. as to certain federal income tax matters 10 The GS Funds Stock Purchase Agreement 12.1 Computation of ratio of earnings to combined fixed charges and preferred stock dividends 21 Subsidiaries of Symons International Group, Inc. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Dann Pecar Newman & Kleiman, P.C. (included in Exhibit 5.1) 23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2) 24 Power of Attorney of certain officers and directors of Symons International Group, Inc. 25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Indenture 25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act a trustee under the Amended and Restated Declaration of Trust of SIG Capital Trust I 25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Exchange Guarantee for the benefit of the holders of Exchange Preferred Securities of SIG Capital Trust I E-1 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery 99.3 Form of Exchange Agent Agreement - ------------------ *Incorporated by reference to the similarly designated exhibit to the Registration Statement of Symons International Group, Inc. on S-1, Registration No. 333-9129. E-2 EX-4 2 SENIOR SUBORDINATED INDENTURE Exhibit 4.1 ----------------------------------------------------------------------- SYMONS INTERNATIONAL GROUP, INC. As Issuer WILMINGTON TRUST COMPANY As Trustee ------------------ SENIOR SUBORDINATED INDENTURE Dated as of August 12, 1997 ------------------ ----------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...... 1 Section 1.1. Definitions................................................. 1 Section 1.2. Compliance Certificate and Opinions......................... 15 Section 1.3. Form of Documents Delivered to Trustee...................... 16 Section 1.4. Acts of Holders; Record Date................................ 16 Section 1.5. Notices, Etc., to Trustee and Company....................... 17 Section 1.6. Notice to Holders; Waiver................................... 17 Section 1.7. Conflict with Trust Indenture Act........................... 17 Section 1.8. Effect of Headings and Table of Contents.................... 18 Section 1.9. Successors and Assigns...................................... 18 Section 1.10. Separability Clause......................................... 18 Section 1.11. Acknowledgement of Rights................................... 18 Section 1.12. Governing Law............................................... 18 Section 1.13. Non-Business Days........................................... 18 Section 1.14. Duplicate Originals......................................... 18 ARTICLE II. SECURITY FORMS.............................................. 19 Section 2.1. Forms Generally............................................. 19 Section 2.2. Form of Face of Security.................................... 19 Section 2.3. Form of Reverse of Security................................. 20 Section 2.4. Additional Provisions Required in Global Security........... 23 Section 2.5. Legends..................................................... 24 Section 2.6. Form of Trustee's Certificate of Authentication............. 25 ARTICLE III. THE SECURITIES.............................................. 26 Section 3.1. Title and Terms............................................. 26 Section 3.2. Denominations............................................... 26 Section 3.3. Execution, Authentication, Delivery and Dating.............. 26 Section 3.4. Temporary Securities........................................ 27 Section 3.5. Registration, Registration of Transfer and Exchange......... 27 Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities............ 29 Section 3.7. Payment of Interest; Interest Rights Preserved.............. 29 Section 3.8. Persons Deemed Owners....................................... 31 Section 3.9. Cancellation................................................ 31 Section 3.10. Computation of Interest..................................... 32 Section 3.11. Right of Set-Off............................................ 32 Section 3.12. Agreed Tax Treatment........................................ 32 Section 3.13. CUSIP Numbers............................................... 32 ARTICLE IV. SATISFACTION AND DISCHARGE.................................. 32 Section 4.1. Satisfaction and Discharge of Indenture..................... 32 Section 4.2. Application of Trust Money; Reinstatement................... 33 Section 4.3. Satisfaction, Discharge and Defeasance of Securities........ 34 ARTICLE V. REMEDIES.................................................... 35 Section 5.1. Events of Default........................................... 35 Section 5.2. Acceleration of Maturity; Rescission and Annulment.......... 36 Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.................................................. 37 Section 5.4. Trustee May File Proofs of Claim............................ 38 Section 5.5. Trustee May Enforce Claims Without Possession of Securities.................................................. 38 Section 5.6. Application of Money Collected.............................. 39 Section 5.7. Limitation on Suits......................................... 39 Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest........................................ 40 Section 5.9. Restoration of Rights and Remedies.......................... 0 Section 5.10. Rights and Remedies Cumulative.............................. 40 Section 5.11. Delay or Omission Not Waiver................................ 40 Section 5.12. Control by Holders.......................................... 40 Section 5.13. Waiver of Past Defaults..................................... 41 Section 5.14. Undertaking for Costs....................................... 41 Section 5.15. Waiver of Usury, Stay or Extension Laws..................... 42 ARTICLE VI. THE TRUSTEE................................................. 42 Section 6.1. Certain Duties and Responsibilities......................... 42 Section 6.2. Notice of Defaults.......................................... 43 Section 6.3. Certain Rights of Trustee................................... 43 Section 6.4. Not Responsible for Recitals or Issuance of Securities...... 44 Section 6.5. May Hold Securities......................................... 44 Section 6.6. Money Held in Trust......................................... 44 Section 6.7. Compensation and Reimbursement.............................. 44 Section 6.8. Disqualification; Conflicting Interests..................... 45 Section 6.9. Corporate Trustee Required; Eligibility..................... 45 Section 6.10. Resignation and Removal; Appointment of Successor........... 45 Section 6.11. Acceptance of Appointment by Successor...................... 46 Section 6.12. Merger, Conversion, Consolidation or Succession to Business. 46 Section 6.13. Preferential Collection of Claims Against Company........... 47 Section 6.14. Appointment of Authenticating Agent......................... 47 ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY .......... 49 Section 7.1. Company to Furnish Trustee Names and Addresses of Holders... 49 Section 7.2. Preservation of Information, Communications to Holders...... 49 Section 7.3. Reports by Trustee.......................................... 49 Section 7.4. Reports by Company.......................................... 49 ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE........ 50 Section 8.1. Company May Consolidate, Etc., Only on Certain Terms........ 50 Section 8.2. Successor Corporation Substituted........................... 50 ARTICLE IX. SUPPLEMENTAL INDENTURES..................................... 51 Section 9.1. Supplemental Indentures Without Consent of Holders.......... 51 Section 9.2. Supplemental Indentures with Consent of Holders............. 52 Section 9.3. Execution of Supplemental Indentures........................ 53 Section 9.4. Effect of Supplemental Indentures........................... 53 Section 9.5. Conformity with Trust Indenture Act......................... 53 Section 9.6. Reference in Securities to Supplemental Indentures.......... 53 ARTICLE X. COVENANTS................................................... 53 Section 10.1. Payment of Principal, Premium and Interest.................. 53 Section 10.2. Maintenance of Office or Agency............................. 53 Section 10.3. Money for Security Payments to be Held in Trust............. 54 Section 10.4. Existence................................................... 55 Section 10.5. Maintenance of Properties................................... 55 Section 10.6. Payment of Taxes and Other Claims........................... 55 Section 10.7. Maintenance of Insurance.................................... 55 Section 10.8. Limitation on Incurrence of Indebtedness.................... 56 Section 10.9. Limitation on Restricted Payments........................... 57 Section 10.10. Limitation on Restrictions on Distributions from Subsidiaries............................................... 57 Section 10.11. Senior Subordinated Indebtedness; Liens.................... 58 Section 10.12. Limitation on Affiliate Transactions....................... 58 Section 10.13. Limitation on Sales of Assets and Subsidiary Stock......... 59 Section 10.14. Change of Control.......................................... 60 Section 10.15. Statement as to Compliance and Default..................... 60 Section 10.16. Ownership of the Trust..................................... 61 Section 10.17. Waiver of Certain Covenants................................ 61 Section 10.18. Payment of Expenses........................................ 61 ARTICLE XI. REDEMPTION OF SECURITIES .................................. 62 Section 11.1. Applicability of This Article.............................. 62 Section 11.2. Election to Redeem; Notice to Trustee...................... 62 Section 11.3. Selection of Securities to be Redeemed..................... 62 Section 11.4. Notice of Redemption....................................... 63 Section 11.5. Deposit of Redemption Price................................ 63 Section 11.6. Payment of Securities Called for Redemption................ 63 Section 11.7. Company's Right of Redemption.............................. 64 ARTICLE XII. SUBORDINATION OF SECURITIES ............................... 64 Section 12.1. Securities Subordinate to Senior Indebtedness.............. 64 Section 12.2. Payment Over of Proceeds Upon Dissolution, Etc............. 64 Section 12.3. Prior Payment to Senior Indebtedness Upon Acceleration of Securities.............................................. 65 Section 12.4. No Payment When Specified Senior Indebtedness in Default... 66 Section 12.5. Payment Permitted If No Default............................ 66 Section 12.6. Subrogation to Rights of Holders of Senior Indebtedness.... 67 Section 12.7. Provisions Solely to Define Relative Rights................ 67 Section 12.8. Trustee to Effectuate Subordination........................ 67 Section 12.9. No Waiver of Subordination Provisions...................... 67 Section 12.10. Notice to Trustee.......................................... 68 Section 12.11. Reliance on Judicial Order or Certificate of Liquidating Agent...................................................... 68 Section 12.12. Trustee Not Fiduciary for Holders of Senior Indebtedness... 68 Section 12.13. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights........................... 68 Section 12.14. Article Applicable to Paying Agents........................ 68 Section 12.15. Certain Conversions or Exchanges Deemed Payment............ 69 ARTICLE XIII. EXTENSION OF INTEREST PAYMENT PERIOD....................... 69 Section 13.1. Extension of Interest Payment Period....................... 69 Section 13.2. Notice of Extension........................................ 70 EXHIBITS Exhibit A Amended and Restated Declaration of Trust of SIG Capital Trust I SIG CAPITAL TRUST I Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Senior Subordinated Indenture, dated as of August 12, 1997. Trust Indenture Indenture Act Section Section - --------------- --------- ss.310 (a) (1), (2) and (5)................................. 6.9 (a) (3).............................................. Not Applicable (a) (4).............................................. Not Applicable (b).................................................. 6.8, 6.10 (c).................................................. Not Applicable ss.311 (a).................................................. 6.13 (b).................................................. 6.13 (b) (2).............................................. 6.13 ss.312 (a).................................................. 7.1, 7.2(a) (b).................................................. 7.2(b) (c).................................................. 7.2(c) ss.313 (a).................................................. 7.3(a) (b).................................................. 7.3(a) (c).................................................. 7.3(a), 7.3(b) (d).................................................. 7.3(c) ss.314 (a) (1), (2) and (3)................................. 7.4 (a) (4).............................................. 10.15 (b).................................................. Not Applicable (c) (1).............................................. 1.2 (c) (2).............................................. 1.2 (c) (3).............................................. Not Applicable (d).................................................. Not Applicable (e).................................................. 1.2 (f).................................................. Not Applicable ss.315 (a).................................................. 6.1(a) (b).................................................. 6.2 (c).................................................. 6.1(b) (d).................................................. 6.1(c) (d) (1).............................................. 6.1(a) (1) (d) (2).............................................. 6.1(c) (2) (d) (3).............................................. 6.1(c) (3) (e).................................................. 5.14 ss.316 (a).................................................. 1.1 (a) (1) (A).......................................... 5.12 (a) (1) (B).......................................... 5.13 (a) (2).............................................. Not Applicable (b).................................................. 5.8 (c).................................................. 1.4(f) ss.317 (a) (1).............................................. 5.3 (a) (2).............................................. 5.4 (b).................................................. 10.3 ss.318 (a).................................................. 1.7 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Senior Subordinated Indenture. SENIOR SUBORDINATED INDENTURE, dated as of August 12, 1997, among SYMONS INTERNATIONAL GROUP, INC., a corporation organized under the laws of the State of Indiana (hereinafter called the "Company") having its principal office at 4720 Kingsway Drive, Indianapolis, Indiana 46205, and WILMINGTON TRUST COMPANY, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as Trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its 9 1/2% Senior Subordinated Notes due August 15, 2027 (hereinafter called the "Securities" or "Security") of substantially the tenor hereinafter provided, including, without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance by SIG Capital Trust I, a Delaware business trust (the "Trust"), of the Trust Preferred Securities (the "Preferred Securities") and Common Securities in such Trust (the "Common Securities" and, collectively with the Preferred Securities, the "Trust Securities"), and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company and to make this Indenture a valid agreement of the Company and in accordance with its terms, have been done. NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (4) Unless otherwise specifically set forth herein, all calculations or determinations of a Person shall be performed or made on a consolidated basis in accordance with generally accepted accounting principles; and (5) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article VI, are defined in that Article. "Act" when used with respect to any Holder has the meaning specified in Section 1.4. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person that becomes a Subsidiary as a result of the acquisition of such Capital -1- Stock by the Company or another Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Subsidiary; provided that any such Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided that an Affiliate of the Company shall not be deemed to include the Trust. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 10.9, 10.12 and 10.13 only, Affiliate shall also mean any beneficial owner of Capital Stock representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Affiliate Transaction" has the meaning specified in Section 10.12(a). "Approved Lender" has the meaning specified under the definition of "Temporary Cash Investments." "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of any Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Subsidiary or (iii) any other assets of the Company or any Subsidiary outside of the ordinary course of business of the Company or such Subsidiary (other than, in the case of (i), (ii) and (iii) above, (y) a disposition by a Subsidiary to the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of Section 10.13 only, a disposition that constitutes a Restricted Payment permitted by Section 10.9). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities. "Blockage Notice" has the meaning specified in Section 12.4. "Board of Directors" means, with respect to the Company or a Subsidiary, as the case may be, the Board of Directors of such person or any committee thereof duly authorized to act on behalf of such Board (or other body). "Board Resolution" means, with respect to the Company, a copy of a resolution certified by the Secretary or an Assistant Secretary to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of the Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) 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 (iii) a day on which -2- the Corporate Trust Office of the Trustee or, with respect to the Preferred Securities, the Corporate Trust Office of the Preferred Trustee under the Declaration, is closed for business. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change of Control" means any transaction or series of transactions in which any Person or group (within the meaning of Rule 13d-5 under the Exchange Act and Section 13(d) and 14(d) of the Exchange Act) acquires all or substantially all of the Company's assets or becomes the direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), by way of merger, consolidation, other business combination or otherwise, of greater than 50% of the total voting power (on a fully diluted basis as if all convertible securities had been converted and all options and warrants had been exercised) entitled to vote in the election of directors of the Company or the Surviving Person (if other than the Company). "Change of Control Triggering Event" means the occurrence of a Change of Control. "Collateral Agent" means Wilmington Trust Company or any successor Trustee under this Indenture and any Collateral Agent appointed as provided in this Indenture. "Commission" means the United States Securities and Exchange Commission. "Common Securities" has the meaning specified in the first paragraph of the Recitals to this Indenture. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Guarantees" means the Common Securities Company Guarantee, the Preferred Securities Company Guarantee, the Exchange Common Securities Company Guarantee and the Exchange Preferred Securities Company Guarantee. "Common Securities Company Guarantee" means the guarantee by the Company of distributions on the Common Securities of the Trust to the extent provided in the Common Securities Guarantee Agreement, dated as of August 12, 1997. "Company Request" and "Company Order" mean, respectively, the written request or order signed in the name of the Company by any two members of the Board of Directors and delivered to the Trustee. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided that (1) if the Company or any Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period -3- shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and its continuing Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Subsidiary (by merger or otherwise) shall have made an Investment in any Subsidiary (or any Person which becomes a Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (4) if since the beginning of such period any Person (that subsequently became a Subsidiary or was merged with or into the Company or any Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Subsidiaries, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock held by Persons other than the Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments in discontinued operations, (ix) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Company or any Subsidiary and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; provided that there shall not be included in such Consolidated Net Income: (i) any net income of any Person if such Person is not a Subsidiary, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such -4- Person for such period shall be included in determining such Consolidated Net Income; (ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Subsidiary that is not a Wholly Owned Subsidiary if such Subsidiary is subject to contractual, governmental or regulatory restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Subsidiary during such period to the Company or another Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Subsidiary that is not a Wholly Owned Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including pursuant to any sale and leaseback arrangement) that is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the Company's most recently ended fiscal quarter for which internal financial statements are available prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Corporate Trust Office" means the principal office of the Trustee in Wilmington, Delaware. "Corporation" means a corporation, association, partnership, business trust or other business entity. "Currency Agreement" means any foreign currency exchange contract, currency swap agreement or other similar agreement or arrangement designed and entered into to protect the Company or any Subsidiary against fluctuations in currency interest rates. "Credit Agreement" means the Business Loan Agreement, dated as of June 18, 1997, among IGF Insurance Company and Brenton Bank, National Association, as lender, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection with such Business Loan Agreement, in each case as amended, modified, renewed, refunded, replaced, restated or refinanced from time to time, provided that such amendment, modification, renewal, refunding, replacement, restatement or refinancing (i) does not increase the aggregate principal amount of Indebtedness that may be outstanding under such Business Loan Agreement except to the extent that such additional principal amount of Indebtedness could be incurred pursuant to Section 10.8(b), and (ii) does not contain, with respect to any Subsidiary, any encumbrances or restrictions of the type contained in clauses (i), (ii) and (iii) of Section 10.10 that are less favorable to the Holders of Securities than the encumbrances and restrictions with respect to such Subsidiary contained in such Business Loan Agreement prior thereto. "Declaration" means the Amended and Restated Declaration of Trust substantially in the form attached hereto as Exhibit B, as amended from time to time. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.7. -5- "Definitive Securities" means those Securities issued in fully registered, certificated form not otherwise in global form. "Depository" means, with respect to the Securities issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depository by the Company (or any successor thereto). "Disqualified Stock" means, with respect to any Person, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Securities; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of Sections 10.13 and 10.14. "Dollar" means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts. "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company and its Subsidiaries, (b) depreciation expense and (c) amortization expense, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary that is not a Wholly Owned Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Subsidiary or its stockholders. "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Common Securities Company Guarantee" means the Common Securities Company Guarantee Agreement, issued pursuant to an Exchange Offer. "Exchange Offer" means the offer that may be made pursuant to the Registration Rights Agreement (i) by the Company to exchange Exchange Trust Securities for Trust Securities, to exchange an Exchange Preferred Securities Company Guarantee for a Preferred Securities Company Guarantee and to exchange an Exchange Common Securities Company Guarantee for a Common Securities Company Guarantee and (ii) by the Trust to exchange Exchange Securities for Initial Securities. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Preferred Securities Company Guarantee" means the Preferred Securities Company Guarantee Agreement, issued pursuant to an Exchange Offer. -6- "Exchange Securities" means the Company's 9 1/2% Senior Subordinated Notes due 2027, issued pursuant to an Exchange Offer, as authenticated and issued under this Indenture. "Exchange Trust Securities" means the Trust Securities issued pursuant to an Exchange Offer. "Extension Period" has the meaning set forth in Section 13.1. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth (i) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) in such other statements by such other entity as approved by a significant segment of the accounting profession, and (iv) the rules and regulations of the Commission governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the Commission. "Global Security" means a Security in the form prescribed in Section 2.4 evidencing all or part of the Securities, issued to the Depository or its nominee for such series, and registered in the name of such Depository or its nominee. "Government Obligations" means securities which are (i) direct obligations of the United States of America or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed by the United States of America and which, in either case, are full faith and credit obligations of the United States of America and are not callable or redeemable at the option of the issuer thereof and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "Guarantor" means any Person Guaranteeing any obligation. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" means a Person in whose name a Security is registered in the Securities Register. The Preferred Trustee shall be the initial Holder of the Securities. -7- "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property or services, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (other than (x) customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business, (y) trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof and (z) obligations incurred under a pension, retirement or deferred compensation program or arrangement regulated under the Employee Retirement Income Security Act of 1974, as amended, or the laws of a foreign government); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, bank guaranty, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit and bank guaranties (A) not made under the Credit Agreement and (B) securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively, and shall include the terms of the Securities established as contemplated by Section 3.1. "Initial Securities" means the Company's 9 1/2% Senior Subordinated Notes due 2027, as authenticated and issued under this Indenture. "Interest Payment Date" means February 15 and August 15 of each year, commencing February 15, 1998. "Interest Rate" means the rate of interest specified or determined as specified as being the rate of interest payable on the Securities. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed and entered into to protect the Company or any Subsidiary against fluctuations in interest rates. -8- "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Investment Company Event" means the receipt by the Company of an Opinion of Counsel, rendered by an independent law firm having experience in tax and securities matters, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or will be considered an "investment company" that is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities of the Trust. "Issue Date" means the date on which the Securities are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Marketable Securities" means securities listed on a national securities exchange which have a minimum weekly trading volume for the most recently completed 52 weeks of at least 100,000 shares. "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "1940 Act" means the Investment Company Act of 1940, as amended. "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Subsidiary after such Asset Disposition. "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. -9- "Officers' Certificate" means a certificate signed by (a) the Chairman and Chief Executive Officer, President or Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, or (b) any two members of the Board of Directors of the Company, and delivered to the appropriate Trustee. "Opinion of Counsel" or "opinion of counsel" means, as to the Company, a written opinion of counsel, who may be counsel for the Company, as the case may be, but, other than in connection with the issuance of the Securities, not an employee of any thereof, and who shall be reasonably acceptable to the Trustee. "Outstanding" means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities in substitution for or in lieu of which other Securities have been authenticated and delivered or which have been paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company; and (iv) Securities which have been defeased pursuant to Section 4.3 hereof; provided that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of the Company, or any other obligor on the Securities or any Affiliate of the Company or such obligor, and, subject to the provisions of Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. "Payment Blockage Period" has the meaning specified in Section 12.4(b). "Paying Agent" means the Trustee or any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company. "Permitted Investment" means an Investment by the Company or any Subsidiary in (i) a Person that will, upon the making of such Investment, be or become a Subsidiary; provided that the primary business of such Subsidiary is a Related Business; (ii) a Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Subsidiary; provided that such Person's primary business is a Related Business; (iii) Temporary Cash Investments; (iv) any demand deposit account -10- with an Approved Lender; (v) receivables owing to the Company or any Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided that such trade terms may include such concessionary trade terms as the Company or any such Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vii) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary; (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Subsidiary or in satisfaction of judgments; (ix) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to Section 10.13; and (x) any Affiliate (the primary business of which is a Related Business) that is not a Subsidiary, provided that the aggregate of all such Investments outstanding at any one time under this clause (x) shall not exceed $1,000,000. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other entity. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Preferred Securities" has the meaning specified in the first para- graph of the Recitals to this Indenture. "Preferred Securities Company Guarantee" means the guarantee by the Company of distributions on the Preferred Securities of the Trust to the extent provided in the Preferred Securities Guarantee Agreement, dated August 12, 1997. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Preferred Trustee" means Wilmington Trust Company, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, solely in its capacity as Preferred Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor Preferred Trustee appointed as provided in the Declaration. "Principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Proceeding" has the meaning specified in Section 12.2. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. -11- "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture including Indebtedness that Refinances Refinancing Indebtedness; provided that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Subsidiary that Refinances Indebtedness of another Subsidiary. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of August 12, 1997, by and among the Company, the Trust and the initial purchasers named therein as such agreement may be amended, modified or supplemented from time to time. "Regular Record Date" for the interest payable on any Interest Payment Date means the date which is the fifteenth day immediately preceding such Interest Payment Date (whether or not a Business Day). "Related Business" means any business related, ancillary or complementary to the businesses of the Company and its Subsidiaries on the Issue Date. "Responsible Officer" when used with respect to the Trustee means any officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters. "Restricted Payment" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock)) and dividends or distributions payable solely to the Company or a Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Subsidiary held by any Affiliate of the Company (other than a Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition) or (iv) the making of any Investment in any Person (other than a Permitted Investment). "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" or "Security" means, collectively, the Initial Securi- ties and the Exchange Securities. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 3.5. -12- "Senior Indebtedness" means, with respect to the Company, (i) Indebtedness of the Company such Person, whether outstanding on the Issue Date or thereafter incurred and (ii) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person, whether or not the claim for such interest is allowed as a claim after such filing) in respect of (A) any Indebtedness of such Person under the Credit Agreement, (B) Indebtedness of such Person for money borrowed and (C) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Securities; provided that Senior Indebtedness shall not include (1) any obligation of such Person to any subsidiary of such Person, (2) any liability for federal, state, local or other taxes owed or owing by such person, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person or (5) that portion of any Indebtedness which at the time of incurrence is incurred in violation of the Indenture. "Senior Subordinated Indebtedness" means the Securities and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Securities in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company that is not Senior Indebtedness. "Senior Subordinated Payment" has the meaning specified in Section 12.2. "S&P" means Standard & Poor's Corporation and its successors. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company and the Trust pursuant to the provisions of Section 2(b) of the Registration Rights Agreement on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Specified Senior Indebtedness" means, with respect to the Company, Senior Indebtedness of such Person permitted under the Indenture the outstanding principal amount of which is more than $10,000,000 at the time of determination. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the Holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Securities pursuant to a written agreement to that effect. "Subsidiary" means a corporation (as defined herein) of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or by one or more Subsidiaries, or by the Company and one or more Subsidiaries. -13- "Surviving Person" means, with respect to any Person involved in any merger, consolidation or other business combination or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets, the Person formed by or surviving such transaction or the Person to which such disposition is made. "Tax Event" means that the Company shall have obtained an opinion of an independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to or change (including any announced proposed change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after the date of issuance of the Preferred Securities), which amendment or change is effective or which proposed change, interpretation or pronouncement is announced on or after the date of issuance of the Preferred Securities, there is more than an insubstantial risk that (i) the Trust is or will be subject to United States federal income tax with respect to interest received or accrued on the Securities, (ii) interest payable to the Trust on the Securities is not or will not be deductible for United States federal income tax purposes or (iii) the Trust is or will be subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges of whatever nature imposed by the United States or any other taxing authority. "Taxes" means all taxes (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the United States of America or of any territory, authority or agency thereof having power to tax. "Temporary Cash Investments" means any of the following: (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), having maturities of not more than twelve months from the date of acquisition, (b) time deposits and certificates of deposit, eurodollar time deposits and eurodollar certificates of deposit of (i) any lender under the Credit Agreement, or (ii) any United States commercial bank of recognized standing (y) having capital and surplus in excess of $500,000,000 and (z) whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Lender"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by an Approved Lender (or by the parent company thereof) and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by a Person with a bank or trust company (including any of the lenders under the Credit Agreement) or recognized securities dealer having capital and surplus in excess of $500,000,000 for (i) direct obligations issued by or fully guaranteed by the United States of America, (ii) time deposits or certificates of deposit described under subsection (b) above, or (iii) commercial paper or other notes described under subsection (c) above, in which, in each such case, such bank, trust company or dealer shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (e) obligations of any State of the United States or any political subdivision thereof, the interest with respect to which is exempt from federal income taxation under Section 103 of the U.S. Internal Revenue Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within three years from the date of acquisition thereof, (f) Investments in municipal auction preferred stock (i) rated AAA (or the equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or better by Moody's and (ii) with dividends that reset at least once every 365 days and (g) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $100,000,000 and the portfolios of which are limited to Investments of the character described in clauses (a), (b), (c), (e) and (f) above. "Trust" has the meaning specified in the first paragraph of the Recitals to this Indenture. -14- "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939 as amended and as in force at the date as of which this Indenture was executed, except as provided in Section 9.5; provided that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Securities" has the meaning specified in the first paragraph of the Recitals to this Indenture. "Vice President" when used with respect to the Company or the Trustee means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than the Company or a Subsidiary) is owned by the Company or by one or more Wholly Owned Subsidiaries, or by the Company and one or more Wholly Owned Subsidiaries. Section 1.2. Compliance Certificate and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition precedent or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.15) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. -15- Section 1.3. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless the individual attorneys actively engaged in the transaction which is the subject matter of such opinion in the office of such counsel have actual knowledge that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 1.4. Acts of Holders; Record Date. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.4. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a Person acting in other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (c) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. (d) The ownership of Securities shall be proved by the Securities Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. -16- (f) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to take any action under this Indenture by vote or consent. Except as otherwise provided herein, such record date shall be the later of 30 days prior to the first solicitation of such consent or vote or the date of the most recent list of Securityholders furnished to the Trustee pursuant to Section 7.1 prior to such solicitation. If a record date is fixed, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date, provided that unless such vote or consent is obtained from the Holders (or their duly designated proxies) of the requisite principal amount of Outstanding Securities prior to the date which is the 90th day after such record date, any such vote or consent previously given shall automatically and without further action by any Holder be cancelled and of no further effect. Section 1.5. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose (except as otherwise provided in Sections 5.1 and 5.2 hereof) hereunder if in writing and mailed, first class, postage prepaid, in the case of the Company to it at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Company; provided that all notices sent to the Company pursuant to this Indenture shall be sent in copy to Symons International Group, Inc. (4720 Kingsway Drive, Indianapolis, Indiana 46205, Attn: David L. Bates) and shall be effective five Business Days after such mailing. Section 1.6. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Securities Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 1.7. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required or deemed under the Trust Indenture Act to be part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. -17- Section 1.8. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.9. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its respective successors and assigns, whether so expressed or not. Section 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.11. Acknowledgement of Rights. The Company acknowledges that, with respect to any Securities held by the Trust or a trustee of the Trust, if the Preferred Trustee of such Trust fails to enforce its rights under this Indenture as the holder of the Securities held as the assets of the Trust, any holder of the Trust Securities may institute legal proceedings directly against the Company to enforce such Preferred Trustee's rights under this Indenture without first instituting any legal proceedings against such Preferred Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay principal of (or premium, if any) or interest on the Securities when due, the Company acknowledges that a holder of Trust Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of (or premium, if any) or interest on the Securities having a principal amount equal to the aggregate liquidation amount of the Trust Securities of such holder on or after the respective due date specified in the Securities. Section 1.12. Governing Law. THIS INDENTURE AND THE SECURITIES ENDORSED THEREON SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 1.13. Non-Business Days. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (in each case with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity)). -18- Section 1.14. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. ARTICLE II. SECURITY FORMS Section 2.1. Forms Generally. The Securities and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article. Section 2.2. Form of Face of Security. SYMONS INTERNATIONAL GROUP, INC. 9 1/2% Senior Subordinated Notes due August 15, 2027 No. $139,176,000 SYMONS INTERNATIONAL GROUP, INC., a corporation organized and existing under the laws of Indiana (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Wilmington Trust Company, or registered assigns, the principal sum of $139,176,000 Dollars on August 15, 2027. The Company further promises to pay interest on said principal sum semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 1998, (each such date, an "Interest Payment Date") at the rate of 9 1/2% per annum until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any interest which is in arrears at the rate of 9 1/2% per annum, compounded semi-annually. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) 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 (iii) a day on which the Corporate Trust Office of the Trustee, or, with respect to the Preferred Securities, the principal office of the Preferred Trustee under the Declaration hereinafter referred to for SIG Capital Trust I, is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities, as defined in the Indenture) is registered at the close of business on the Regular Record Date for such interest installment, which shall be the date which is the fifteenth day immediately preceding such Interest Payment Date (whether or not a Business Day). Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by -19- the Trustee, notice whereof shall be given to Holders not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payments on this Security issued as a Global Security shall be made in immediately available funds to the Depository. In the event that this Security is issued in certificated form, the principal of (and premium, if any) and interest on the Security will be payable at the office maintained by the Company under the Indenture; provided that unless the Security is held by the Trust or any permissible successor entity as provided under the Declaration in the event of a merger, consolidation or amalgamation of the Trust, payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto, as such address shall appear in the Register. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: ___________ SYMONS INTERNATIONAL GROUP, INC. By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: ATTEST: By: --------------------------------- Name: Title: -20- Section 2.3. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued under a Senior Subordinated Indenture, dated as of August 12, 1997 (herein called the "Indenture"), between the Company and Wilmington Trust Company, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. All terms used in this Security that are defined in the Indenture and in the Amended and Restated Declaration of Trust, dated as of August 12, 1997, as amended (the "Declaration"), for SIG Capital Trust I, shall have the meanings assigned to them in the Indenture or the Declaration, as the case may be. On or after August 15, 2007, the Company may, at its option, subject to the terms and conditions of Article IV of the Indenture, redeem this Security in whole at any time or in part from time to time, upon not less than 30 or more than 60 days' notice, at the Redemption Prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) if redeemed during the 12-month period beginning on August 15 of the years indicated below: Percentage of Year Principal --------------- 2007............................................. 104.750% 2008............................................. 103.167% 2009............................................. 101.583% 2010 and thereafter.............................. 100.000% If a Tax Event or an Investment Company Event in respect of the Trust shall occur and be continuing, the Company shall cause the Trustees (as defined in the Indenture) to liquidate the Trust and cause Securities to be distributed to the holders of the Trust Securities in liquidation of the Trust or, in the event of a Tax Event only, may cause the Securities to be redeemed, in each case, subject to and in accordance with the provisions of the Declaration and subject to Article XI of the Indenture, within 90 days following the occurrence of such Tax Event or Investment Company Event. Any redemption of the Securities as a result of a Tax Event shall be in whole at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Redemption Date. The Securities do not have the benefit of any sinking fund obligations. In the event of redemption of this Security in part only, a new Security for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for satisfaction, discharge and defeasance at any time of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and -21- obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in aggregate outstanding principal amount of the Securities affected thereby, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may declare the principal amount of and interest on all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that if the Trustee or such Holders fail to do so, the Preferred Trustee shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration such specified amount of and the accrued interest on all the Securities shall become immediately due and payable, provided that the payment of principal and interest on such Securities shall remain subordinated to the extent provided in Article XII of the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof, for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Company shall have the right, at any time and from time to time during the term of the Securities, to defer payments of interest by extending the interest payment period of such Securities for a period not exceeding ten consecutive semi-annual periods, including the first such semi-annual period during such extension period, and not to extend beyond the Maturity Date of the Securities (an "Extension Period""), at the end of which period the Company shall pay all interest then accrued and unpaid together with interest thereon at the rate specified for the Securities (to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extension Period, the Company may further defer payments of interest by further extending such Extension Period, provided that such Extension Period, together with all such previous and further extensions within such Extension Period, shall not exceed ten consecutive semi-annual periods, including the first semi-annual period during such Extension Period, or extend beyond the maturity date of the Securities. Upon the termination of any such Extension Period and the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extension Period, subject to the foregoing requirements. The Company's election to so defer payments shall not be deemed an Event of Default. -22- During any such Extension Period, the Company has agreed that it will not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's Capital Stock (which includes common and preferred stock) or (ii) make any payment of principal, interest or premium, if any, on or repay or repurchase or prepay any debt securities of the Company that rank pari passu with or junior in right of payment to the Securities or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu or junior in right of payment to the Securities (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholder rights plan, or the issuance of stock under any such plan in the future, or the prepayment or repurchase of any such rights pursuant thereto, (c) payments under the Common Securities Company Guarantee or the Preferred Securities Company Guarantee, (d) as a result of a reclassification of the Company's Capital Stock or the exchange or the conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, (e) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the exchange or conversion of such Capital Stock or the security being exchanged or converted, and (f) purchases or issuances of Common Stock under any of the Company's stock option, stock purchase, stock loan or other benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans, in each case as now existing or hereafter established or amended). The Company's election to so defer payments shall not be deemed an Event of Default. The Company will have the right at any time to liquidate SIG Capital Trust I and cause the Securities to be distributed to the holders of the Trust Securities in liquidation of the Trust. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that for United States federal, state and local tax purposes it is intended that this Security constitute indebtedness. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. Section 2.4. Additional Provisions Required in Global Security. Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depository") or a nominee of the Depository. This Security is exchangeable for Securities registered in the name of a Person other than the Depository or its nominee only in the limited circumstances described in the Indenture and no transfer of this Security (other than a transfer of this Security as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. -23- Unless this Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York) to SYMONS INTERNATIONAL GROUP, INC. or its agent for registration of transfer, exchange or payment, and any Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein." Section 2.5. Legends. Except as determined by the Company in accordance with applicable law, each Initial Security and each Exchange Security of which the Holder is either (A) a broker-dealer who purchased such Initial Security directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act, (B) a Person participating in the distribution of the Initial Securities, (C) a Person who is an affiliate (as defined in Rule 144 under the Securities Act) of the Company or (D) a qualified institutional buyer shall bear the applicable legends relating to restrictions on transfers pursuant to the securities laws in substantially the form set forth below: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (d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i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) PURSUANT TO CLAUSE (E) TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED AUGUST 7, 1997. SUCH HOLDER FURTHER -24- AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. If the Security is sold pursuant to Regulation S of the Securities Act: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE. Section 2.6. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within mentioned Indenture. as Trustee By: ------------------------------------- Authorized officer -25- ARTICLE III. THE SECURITIES Section 3.1. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $139,176,000 except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6. The Securities shall be known and designated as the "9 1/2% Senior Subordinated Notes due August 15, 2027" of the Company. Their Stated Maturity shall be August 15, 2027, at which time the Securities shall become due and payable together with any accrued and unpaid interest thereon and they shall bear interest at the rate of 9 1/2% per annum, from the Issue Date, payable semi-annually in arrears on each Interest Payment Date subject to Article XIII, to the Persons in whose name the Securities are registered at the close of business on the Regular Record Date. Interest on the Securities shall accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the Issue Date. Interest in arrears shall accrue interest (compounded semi-annually) at the same rate. Payments on the Securities issued as a Global Security shall be made in immediately available funds to the Depository. In the event that Securities are issued in certificated form, the principal of (and premium, if any) and interest on the Securities shall be payable at the office maintained by the Company pursuant to Section 10.2; provided that unless the Securities are held by the Trust or any permissible successor entity as provided under the Declaration in the event of a merger, consolidation or amalgamation of the Trust, payment of interest may be made at the option of the Company by check mailed to the address of the persons entitled thereto, as such address shall appear in the Register. The Securities shall be redeemable as provided in Article XI. The Securities shall be subordinated in right of payment to Senior Indebtedness of the Company as provided in Article XII. The Securities shall be subject to defeasance at the option of the Company as provided in Section 4.3. Section 3.2. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. Section 3.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by any two officers. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. Each Security shall be dated the date of its authentication. -26- No Security endorsed thereon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers. Section 3.4. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for that purpose without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations having the same Issue Date and Stated Maturity, having the same terms and like tenor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 3.5. Registration, Registration of Transfer and Exchange. (a) Registration. The Company shall cause to be kept at the Corporate Trust Office of the Trustee, a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Such register is herein sometimes referred to as the "Securities Register." The Trustee is hereby appointed "Securities Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations of a like aggregate principal amount, of the same Issue Date and Stated Maturity. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations, of a like aggregate principal amount, of the same Issue Date and Stated Maturity and having the same terms and like tenor upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. -27- No service charge shall be made to a Holder for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities. The Company shall not be required to (i) issue, register the transfer of or exchange Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of prepayment or any notice of selection of Securities for prepayment and ending at the close of business on the day of such mailing; or (ii) register the transfer of or exchange any Security so selected for prepayment in whole or in part, except the unprepaid portion of any Security being prepaid in part. Notwithstanding any of the foregoing, any Global Security shall be exchangeable pursuant to this Section 3.5 for Securities registered in the names of Persons other than the Depository for such Global Security or its nominee only if (i) such Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a clearing agency registered under the Exchange Act, as amended, (ii) the Company executes and delivers to the Trustee a Company Order that such Global Security shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default with respect to the Securities. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as such Depository shall direct. Notwithstanding any other provision in this Indenture, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository. Neither the Company nor the Trustee shall be required to, pursuant to the provisions of this Section, (a) issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of Securities pursuant to Article XI and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of Securities to be so redeemed, and (b) register the transfer of or exchange any Security so selected for redemption, in whole or in part, except, in the case of any Security to be redeemed in part, any portion thereof not to be redeemed. (b) Exchange of Initial Securities for Exchange Securities. The Initial Securities may be exchanged for Exchange Securities pursuant to the terms of the Exchange Offer. The Trustee shall make the exchange as follows: The Company shall present the Trustee with an Officers' Certificate certifying the following: (i) upon issuance of the Exchange Securities, the transactions con- templated by the Exchange Offer have been consummated; and (ii) the principal amount of Initial Securities properly tendered in the Exchange Offer that are represented by a Global Security and the principal amount of the Initial Securities properly tendered in the Exchange Offer that are represented by Definitive Securities, the name of each holder of such Definitive Securities, the principal amount at maturity properly tendered in the Exchange Offer by each such holder and the name and address to which Definitive Securities for Exchange Securities shall be registered and sent for each such holder. The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an Opinion of Counsel (x) to the effect that the Exchange Securities have been registered under Section 5 of the Securities Act and the Indenture has been qualified under the Trust Indenture Act and (y) with respect to the matters set forth in Section 3(p) of the Registration Rights Agreement and (iii) a Company Order, shall authenticate (A) a Global Security for Exchange Securities in aggregate principal amount equal to the aggregate principal amount of Initial Securities as having been properly tendered and -28- (B) Definitive Securities representing Exchange Securities registered in the names of, and in the principal amounts indicated in, such Officers' Certificate. If the principal amount at maturity of the Global Security for the Exchange Securities is less then the principal amount at maturity of the Global Security for the Initial Securities, the Trustee shall make an endorsement on such Global Security for the Initial Securities indicating a reduction in the principal amount at maturity represented thereby. The Trustee shall deliver such Definitive Securities for Exchange to the holders thereof as indicated in such Officers' Certificate. Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor, a new Security of like tenor and principal amount, having the same Issue Date and Stated Maturity and bearing the same Interest Rate as such mutilated Security, and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) such security or indemnity as may be required by each of them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, having the same Issue Date and Stated Maturity and bearing the same Interest Rate as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 3.7. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, except that interest payable on the Stated Maturity of a Security shall be paid to the Person to whom principal is paid. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest"), shall forthwith cease to be payable to the Holder on the -29- relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class, postage prepaid, to each Holder at the address of such Holder as it appears in the Securities Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). Such payments shall be deemed to cure any such Default. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, upon such notice as may be required by such exchange (or by the Trustee if the Securities are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Under the Registration Rights Agreement, upon the occurrence of the events discussed below, additional interest shall become payable in respect of the Securities, and corresponding additional distributions shall become payable on the Trust Securities as follows: a. If (X) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is filed with the Commission on or prior to September 30, 1997 or (Y) notwithstanding that the Company and the Trust have consummated or will consummate an Exchange Offer, the Company and the Trust are required to file a Shelf Registration Statement and such Shelf Registration Statement is not filed on or prior to the date required by Section 2(b) of the Registration Rights Agreement, then commencing on the day after the applicable required filing date, additional interest shall accrue on the principal amount of the Securities, and additional distributions shall accumulate on the liquidation amount of the Preferred Securities, each at a rate of 0.25% per annum; or b. If (X) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is declared effective by the Commission on or prior to the 180th day after the Issue Date or (Y) notwithstanding -30- that the Company and the Trust have consummated or will an Exchange Offer, the Company and the Trust are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the Commission on or prior to the 180th day after the Issue Date, then, additional interest shall accrue on the principal amount of the Securities and additional distributions shall accumulate on the liquidation amount of the Preferred Securities, each at a rate of 0.25% per annum; or c. If (X) the Trust has not exchanged Exchange Preferred Securities for all Preferred Securities or the Company has not exchanged Exchange Company Guarantees or Exchange Securities for all Company Guarantees or all Securities validly tendered, in accordance with the terms of the Exchange Offer on or prior to the 30th day after the date on which the Exchange Offer Registration Statement was declared effective or (Y) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all Preferred Securities have been disposed of thereunder or otherwise cease to be registrable securities within the meaning of the Registration Rights Agreement), then additional interest shall accrue on the principal amount of Securities, and additional distributions shall accumulate on the liquidation amount of the Preferred Securities, each at a rate of 0.25% per annum commencing on (i) the 31st day after such effective date, in the case of (X) above, or (ii) the day such Shelf Registration Statement ceases to be effective in the case of (Y) above; provided, however, that neither the additional interest rate on the Securities, nor the additional distribution rate on the liquidation amount of the Preferred Securities, may exceed in the aggregate 0.25% per annum; provided, further, however, that (1) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause a. above), (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause b. above), or (3) upon the exchange of Exchange Preferred Securities, Exchange Company Guarantees and Exchange Notes for all Preferred Securities, Company Guarantees and Securities tendered (in the case of clause c.(X) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause c.(Y) above), additional interest on the Securities, and additional distributions on the liquidation amount of the Preferred Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue or accumulate, as the case may be. Any amounts of additional interest and additional distributions due pursuant to subsections a., b. or c. above will be payable in cash on the rele- vant record dates for the payment of interest and distributions pursuant to this Indenture and the Declaration respectively. Section 3.8. Persons Deemed Owners. Prior to the presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal (and premium, if any) of and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 3.9. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be destroyed by the Trustee and the Trustee shall deliver to the Company a certificate of such destruction. -31- Section 3.10. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months and, for any partial period, on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. Interest on the Securities shall accrue from the last Interest Payment Date or, or if no interest has been paid, from the Issue Date. Section 3.11. Right of Set-Off. Notwithstanding anything to the contrary in this Indenture, the Company shall have the right to set-off any payment it is otherwise required to make hereunder in respect of any Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Company Guarantee relating to such Security or under Section 5.8 of this Indenture. Section 3.12. Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States federal, state and local tax purposes it is intended that such Security constitutes indebtedness. Section 3.13. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE IV. SATISFACTION AND DISCHARGE Section 4.1. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to (i) any surviving rights of registration of transfer, substitution and exchange of Securities, (ii) rights hereunder of Holders to receive payments of principal of (and premium, if any) and interest on the Securities and other rights, duties and obligations of the Holders as beneficiaries hereof with respect to the amounts, if any, deposited with the Trustee pursuant to this Article IV and (iii) the rights and obligations of the Trustee hereunder), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either: (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or -32- (ii) will become due and payable at their Stated Maturity within one year of the date of deposit, and the Company, in the case of Clause (B) (i) or (B) (ii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount in the currency or currencies in which the Securities are payable sufficient (without reinvestment) to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities will not recognize gain or loss for United States federal income tax purposes as a result of the application of this Section 4.1 and will be subject to United States federal income tax, if any, on the same amount, in the same manner and at the same times as would have been the case if such satisfaction and discharge of the Indenture had not occurred; and (4) the application of this Section 4.1 shall not cause the Trustee to have a conflicting interest as defined in Section 6.8 hereof and for purposes of the Trust Indenture Act with respect to any securities of the Company; and (5) the funds deposited with the Trustee pursuant to Clause (1)(B) above shall not be deemed an "investment company" as defined in the 1940 Act, or such trust shall be qualified under the 1940 Act or exempt from regulation thereunder; and (6) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided in this subsection 4.1 for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article IV, the obligations of the Company to the Trustee under Section 6.7 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3, shall survive. Section 4.2. Application of Trust Money; Reinstatement. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 or money or Government Obligations deposited with the Trustee pursuant to Section 4.3, or received by the Trustee in respect of Government Obligations deposited with the Trustee pursuant to Section 4.3, shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which such money or Government Obligations have been deposited with or received by the Trustee; provided that such moneys need not be segregated from other funds held in trust except to the extent required by law. Money so held in trust shall not be subject to the provisions of Article XII. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 4.1 or 4.3 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Indenture, and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article IV until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 4.1 or 4.3; provided that if the Company makes any payment of principal of (and premium, if any) or interest on any Security following the reinstatement of its -33- obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent. Section 4.3. Satisfaction, Discharge and Defeasance of Securities. The Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Securities and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of such indebtedness, when (1) with respect to all Outstanding Securities, (A) the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire indebtedness on all Outstanding Securities for principal (and premium, if any) and interest to the Stated Maturity or any Redemption Date as contemplated by the penultimate paragraph of this Section 4.3, as the case may be; or (B) the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as obligations in trust for such purpose an amount of Government Obligations as will, in the written opinion of independent public accountants delivered to the Trustee, together with predetermined and certain income to accrue thereon, without consideration of any reinvestment thereof, be sufficient to pay and discharge when due the entire indebtedness on all Outstanding Securities for principal (and premium, if any) and interest to the Stated Maturity or any Redemption Date as contemplated by the penultimate paragraph of this Section 4.3, as the case may be; and (2) the Company has paid or caused to be paid all other sums payable with respect to the Outstanding Securities; and (3) the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities will not recognize gain or loss for United States federal income tax purposes as a result of the application of this Section 4.3 and will be subject to United States federal income tax, if any, on the same amount, in the same manner and at the same times as would have been the case if such satisfaction, discharge and defeasance of the Securities had not occurred; and (4) the Company has delivered to the Trustee an Officers' Certificate to the effect that the Securities, if then listed on any securities exchange, will not be delisted as a result of the deposit pursuant to Clause (1) above; and (5) the application of this Section 4.3 shall not cause the Trustee to have a conflicting interest as defined in Section 6.8 hereof and for purposes of the Trust Indenture Act with respect to any securities of the Company; and (6) at the time of the deposit pursuant to Clause (1) above: (A) no default in the payment of all or a portion of principal of (or premium, if any) or interest on any Senior Indebtedness of the Company shall have occurred and be continuing, and no Event of Default with respect to any such Senior Indebtedness shall have occurred and be continuing and shall have resulted in such Senior Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable and (B) no other Event of Default with respect to any Senior Indebtedness of the Company shall have occurred and be continuing permitting (after notice or the lapse of time, or both) the holders of such Senior Indebtedness (or a representative on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, or, in the case of either Clause (A) or Clause (B) above, each such Default or Event of Default shall have been cured or waived or shall have ceased to exist; and (7) no Event of Default or event which with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing on the date of such deposit; and -34- (8) the funds deposited with the Trustee pursuant to Clause (1) above shall not be deemed an investment company as defined in the 1940 Act or such trust shall be qualified under the 1940 Act or exempt from regulation thereunder; and (9) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness on all Outstanding Securities have been complied with. Any deposits with the Trustee referred to in Section 4.3(1) above shall be irrevocable and shall be made under the terms of an escrow trust agreement in form and substance reasonably satisfactory to the Trustee. If any Outstanding Securities are to be redeemed prior to their Stated Maturity, whether pursuant to any optional or mandatory redemption provisions, the applicable escrow trust agreement shall provide therefor and the Company shall make such arrangements as are satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. If the Securities are not to become due and payable at their Stated Maturity or upon call for redemption within one year of the date of deposit, then the Company shall give, not later than the date of such deposit, notice of such deposit to the Holders. Upon the satisfaction of the conditions set forth in this Section 4.3 with respect to all the Outstanding Securities, the terms and conditions of the Securities, including the terms and conditions with respect thereto set forth in this Indenture, shall no longer be binding upon, or applicable to, the Company; provided that the Company shall not be discharged from any payment obligations in respect of Securities which are deemed not to be Outstanding under clause (iii) of the definition thereof if such obligations continue to be valid obligations of the Company under applicable law. ARTICLE V. REMEDIES Section 5.1. Events of Default. "Event of Default" wherever used herein means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security, when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Security at its Maturity; or (3) default in the performance, or breach, in any material respect, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied; or (4) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Indebtedness or Guarantee now exists or is incurred after the Issue Date, if (A) such default results in the acceleration of such Indebtedness prior to its express maturity or shall constitute a default in the payment of such Indebtedness and -35- (B) the principal amount of any such Indebtedness that has been accelerated or not paid at maturity, when added to the aggregate principal amount of all other such Indebtedness, at such time, that has been accelerated or not paid at maturity, exceeds $10,000,000; or (5) the dissolution, winding up or termination of the Trust, except in connection with the distribution of Securities to the holders of Preferred Securities in liquidation of the Trust and in connection with such mergers, consolidations or amalgamations as are permitted by the Declaration; or (6) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action. A default under any other indebtedness of the Company or any of its Subsidiaries or joint ventures or the Trust would not constitute an Event of Default under the Securities. A deferral of payment of interest as provided in Article XIII shall not be deemed an Event of Default. Section 5.2. Acceleration of Maturity; Rescission and Annulment. As provided in and subject to the provisions of this Indenture, if an Event of Default with respect to the Securities at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate outstanding principal amount of the Outstanding Securities may declare the principal amount of and interest on all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that if the Trustee or such Holders fail to do so, the Preferred Trustee shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration such specified amount of and the accrued interest on all the Securities shall become immediately due and payable, provided that the payment of principal and interest on such Securities shall remain subordinated to the extent provided in Article XII. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum suffi- cient to pay: (A) all overdue installments of interest on the Securities, -36- (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. The Holders of a majority in aggregate outstanding principal amount of the Securities affected thereby may, on behalf of the Holders of all the Securities, waive any past default, except a default in the payment of principal, premium, if any, or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest, premium, if any, and principal due otherwise than by acceleration has been deposited with the Trustee) or a default in respect of a covenant or provision which under this Indenture cannot be modified or amended without the consent of the Holder of each Outstanding Security and, should the Holders of such Securities fail to annul such declaration and waive such default, the holders of a majority in aggregate liquidation amount of the Preferred Securities shall have such right. The Preferred Trustee, as the initial Holder of the Securities, has agreed under the Declaration not to waive an Event of Default with respect to the Securities without the consent of holders of a majority in aggregate liquidation amount of the Preferred Securities then outstanding. No such rescission shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, a record date shall be established for determining Holders of Outstanding Securities entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.2. Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (and premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest; and, in addition thereto, all amounts owing the Trustee under Section 6.7. -37- If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. Subject to Section 6.3 hereof, if an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, (a) the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect to the Securities and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the claims of the Holders and any predecessor to the Trustee under Section 6.7 and of the Holders allowed in any such judicial proceedings; and (ii) in particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.6; and (b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.6, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it and any predecessor Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. Section 5.5. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.7, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. -38- Section 5.6. Application of Money Collected. Any money or property collected or to be applied by the Trustee with respect to the Securities pursuant to this Article shall, subject to Article XII, be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any prede- cessor Trustee under Section 6.7; SECOND: To the extent provided in Article XII, to the holders of Senior Indebtedness of the Company in accordance with Article XII; THIRD: To the payment of the amounts then due and unpaid upon such Securities for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and FOURTH: The balance, if any, to the Person or Persons lawfully entitled thereto. Section 5.7. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) if the Preferred Trustee is not the Holder of the Securities, the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. The foregoing limitations shall not apply to a suit instituted by a Holder of a Security for enforcement of payment of the principal of and premium, it any, or interest on such Security on or after the respective due dates expressed in such Security. -39- Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest on such Security on the respective Stated Maturities expressed in such Security and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Except as set forth in the Declaration, the holders of Preferred Securities shall have no right to exercise directly any right or remedy available to the Holders of, or in respect of, the Securities; provided that if the Preferred Trustee or the Special Trustee (as defined in the Declaration) do not enforce such payment obligations, a holder of Preferred Securities will have the right to bring an action on behalf of the Trust to enforce the Trust's rights under the Securities and the Indenture. The Company and the Trustee acknowledge that pursuant to the Declaration, the Holders of Preferred Securities are entitled, in the circumstances and subject to the limitations set forth therein, to commence a direct action with respect to any Event of Default under this Indenture and the Securities. Section 5.9. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 5.10. Rights and Remedies Cumulative. Except as otherwise provided in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11. Delay or Omission Not Waiver. Except as otherwise provided in the last paragraph of Section 3.6, no delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders as the case may be. Section 5.12. Control by Holders. The Holders of a majority in aggregate principal amount of the Outstanding Securities shall have the right, subject to Section 6.3 hereof, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture, -40- (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability. Upon receipt by the Trustee of any written notice directing the time, method or place of conducting any such proceeding or exercising any such trust or power, a record date shall be established for determining Holders of Outstanding Securities entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided that, unless the Holders of a majority in principal amount of the Outstanding Securities shall have joined in such notice prior to the day which is 90 days after such record date, such notice shall automatically and without further action by any Holder be canceled and be of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new notice identical to a notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.12. Section 5.13. Waiver of Past Defaults. The Holders of not less than a majority in aggregate outstanding principal amount of the Outstanding Securities affected thereby may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences with respect to the Securities except a default: (1) in the payment of the principal of (or premium, if any) or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security. -41- Section 5.15. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI. THE TRUSTEE Section 6.1. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of Holders pursuant to Section 5.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. -42- Section 6.2. Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Securities Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided that except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders; and provided that in the case of any default of the character specified in Section 5.1(3), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or passage of time or both would be, an Event of Default. Section 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, Security or other evidence of indebtedness, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, Security or other evidence of indebtedness, or other paper or document, but the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. -43- Section 6.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in Securities endorsed thereon, except the Trustee's certificates of authentication, shall be taken as the statements of the Company and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, the value or condition of any Collateral or the priority or perfection of any security interest purportedly granted herein. The Trustee shall not be accountable for the use or application by the Company of the Securities or the proceeds thereof. Section 6.5. May Hold Securities. The Trustee, Collateral Agent, any Paying Agent, Securities Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Securities Registrar or such other agent. Section 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 6.7. Compensation and Reimbursement. The Company, as borrower, agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense (including the reasonable compensation and the reasonable expenses and disbursements of its agents and counsel) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Agreement. To secure the Company's payment obligations in this Section, the Company and the Holders agree that the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. Such lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(6) or (7) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any applicable United States Federal or State bankruptcy, insolvency or other similar law. -44- Section 6.8. Disqualification; Conflicting Interests. The Trustee shall be subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 301(b) of the Trust Indenture Act. Section 6.9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be (a) a corporation organized and doing business under the laws of the United States of America or of any State, Territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority, or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, in either case having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee. Section 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time with respect to the Securities by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, -45- then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities as their names and addresses appear in the Securities Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Section 6.11. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) of this Section. (c) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated, and in case any Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee or in the name of such successor Trustee, -46- and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Securities or in this Indenture that the certificate of the Trustee shall have. Section 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company or any other obligor upon the Securities, the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company or any such other obligor. Section 6.14. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer or partial redemption thereof, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof, or any Territory or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6 to all Holders of Securities. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: -47- This is one of the Securities referred to in the within mentioned Indenture. ----------------------------------- As Trustee By: __________________________________ As Authenticating Agent By: ___________________________________ Authorized Officer -48- ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 7.1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Securities Registrar. Section 7.2. Preservation of Information, Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights, privileges and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company, the Trustee and any agent of any of them shall be held accountable by reason of any disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act. Section 7.3. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act, at the times and in the manner provided pursuant thereto. (b) Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than May 15 in each calendar year, commencing with the first May 15 after the first issuance of Securities under this Indenture. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, and also with the Commission, and delivered to the Company. Section 7.4. Reports by Company. The Company shall file with the Trustee and with the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided in the Trust Indenture Act; provided that whether or not required by the rules and regulations of the Commission, so long as any Securities are Outstanding, the Company shall provide the Trustee and the Holders with (i) all annual financial information that would be required to be contained -49- in a filing with the Commission on Form 20-F as if the Company were required to file such Forms, and (ii) quarterly financial statements as of end for the period from the beginning of each year to the close of each quarterly period (other than the fourth quarter), together with comparable information for the corresponding periods of the preceding year, including, in each case, a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon from the Company's certified independent public accountants. (In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability and make such information and reports available to securities analysts and prospective investors upon request.) The Company shall also comply with the other provisions of Trust Indenture Act Section 314(a). ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 8.1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate or merge with or into any other Person (whether or not the Company is the Surviving Person) or convey, transfer, assign, sell, lease or otherwise dispose of, in one or more related transactions, all or substantially all of its properties and assets as an entirety to any Person, unless: (1) the Surviving Person shall be a corporation, organized and existing under the laws of the United States of America or any State thereof or the District of Columbia; (2) the Surviving Person (if other than the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities, the Indenture and the Security Documents; (3) at the time of, and immediately after giving effect to, such transaction, no Default or Event of Default, shall have occurred and be continuing; (4) the Surviving Person will have Consolidated Net Worth (immediately after the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; (5) at the time of such transaction and after giving pro forma effect thereto, the Surviving Person would be permitted to incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of Section 10.8; and (6) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance, transfer, assignment, sale, lease or disposition, and any such supplemental indenture complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with and that the security interests on the Collateral pursuant to the Security Documents are and will remain perfected; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1. Section 8.2. Successor Corporation Substituted. Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer, sale, assignment, lease or other disposition by the Company, in one or more transactions, of substantially all of its properties and assets as an entirety to any Person in accordance with Section 8.1, the Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Person had been named as the Company herein, and thereafter the Company shall be discharged from all obligations and covenants under the Indenture and the Securities. -50- Such Surviving Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such Surviving Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such Surviving Person thereafter shall cause to be signed and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, assignment, transfer, conveyance, lease, or other disposition such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX. SUPPLEMENTAL INDENTURES Section 9.1. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution of the Company, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or to surrender any right or power herein conferred upon the Company; or (3) to establish the form or terms of Securities as permitted by Section 2.1; or (4) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (5) to add any additional Events of Default; or (6) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (7) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (7) shall not materially adversely affect the interest of the Holders or, for so long as any of the Preferred Securities shall remain outstanding, the holders of such Preferred Securities; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or -51- (9) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. Section 9.2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution of the Company, and the Trustee may modify the Indenture or enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) extend the Stated Maturity of the principal of any Security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, or change the place of payment where, or the currency of payment of any principal of, or any premium or interest on any Security, or impair the right to institute suit for the enforcement of any such payment on or with respect to a Security (or, in the case of redemption, on or after the date fixed for redemption thereof); or (2) reduce the percentage in principal amount of Securities, the consent of whose Holders is required for any such modification or supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (3) modify any of the provisions of this Section, Section 5.13 or Section 10.17, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or (4) modify the provisions in this Indenture relating to the subordi- nation of Outstanding Securities in a manner adverse to the Holders; or (5) modify or amend this Indenture or the Security Documents, or take or fail to take any action, that would have the effect of impairing the Lien on the Collateral granted pursuant to the Security Documents or permitting any release of Collateral from such Lien except as expressly contemplated by this Indenture or the Security Documents. provided that so long as any of the Preferred Securities remains outstanding, no such amendment shall be made that adversely affects the holders of such Preferred Securities, and no termination of this Indenture shall occur, and no waiver of any Event of Default or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation preference of such Preferred Securities then outstanding unless and until the principal (and premium, if any) of the Securities and all accrued and, subject to Section 3.7, unpaid interest thereon have been paid in full; and provided further that, so long as any of the Preferred Securities remain outstanding, no amendment shall be made to Section 5.8 of this Indenture without the prior consent of the holders of each Preferred Security then outstanding unless and until the principal (and premium, if any) of the Securities and all accrued and (subject to Section 3.7) unpaid interest thereon have been paid in full. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. -52- Section 9.3. Execution of Supplemental Indentures. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. No such supplemental indenture shall directly or indirectly modify the provisions of Article XII, Sections 5.3, 5.6 or the Security Documents in any manner which might terminate or impair the rights of the Senior Indebtedness pursuant to such subordination provisions. Section 9.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.6. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE X. COVENANTS Section 10.1. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each of the Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of such Securities and this Indenture. Section 10.2. Maintenance of Office or Agency. The Company will maintain in Wilmington, Delaware an office or agency where Securities may be presented or surrendered for payment and an office or agency where Securities may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company initially appoints the Trustee, acting through its office or agency in Wilmington, Delaware, as its agent for said purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. -53- The Company may also from time to time designate one or more other offices or agencies in or outside Wilmington, Delaware, where the Securities may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 10.3. Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m. New York City time on each due date of the principal of (and premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal, premium, or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (4) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by the Company or any Paying Agent to the Trustee, the Company or such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all -54- liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 10.4. Existence. Subject to Article VIII and the other Sections of this Article X, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the existence, rights (charter and statutory) and franchises of the Company; provided that the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 10.5. Maintenance of Properties. Subject to Article VIII and the other Sections of this Article X, the Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Company in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. Section 10.6. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (b) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any of its Subsidiaries; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 10.7. Maintenance of Insurance. The Company shall, and shall cause its Subsidiaries to, keep at all times all of their properties which are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. The Company shall, and shall cause its Subsidiaries to, use the proceeds from any such insurance policy to repair, replace or otherwise restore the property to which such proceeds relate, except to the extent that a different use of such proceeds is, as determined by the Company, in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. -55- Section 10.8. Limitation on Incurrence of Indebtedness. (a) The Company shall not, and shall not permit any Subsidiary to, Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence (and after giving effect thereto), the Consolidated Coverage Ratio exceeds 2.5 to 1. (b) The foregoing limitations contained in paragraph (a) do not apply to the Incurrence of any of the following Indebtedness: (1) Indebtedness under the Credit Agreement; (2) Indebtedness owed to and held by a Wholly Owned Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock that results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Company; (3) the Securities; (4) Capital Lease Obligations and Indebtedness incurred, in each case, to provide all or a portion of the purchase price or cost of construction of an asset or, in the case of a sale/leaseback transaction, to finance the value of such asset owned by the Company or a Subsidiary, in an aggregate principal amount which, together with all other such Capital Lease Obligations and Indebtedness outstanding on the date of such Incurrence (other than Indebtedness permitted by paragraph (a) or clause (2) of this paragraph (b)), does not exceed $3,000,000; (5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3) or (4) of this paragraph (b); (6) Hedging Obligations permitted under the Credit Agreement as in effect on the Issue Date; (7) customer deposits and advance payments received from customers for goods purchased in the ordinary course of business; and (8) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company and its Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by paragraph (a) or clauses (1) through (7) of this paragraph (b)), does not exceed $5,000,000. (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Subsidiary to, Incur, directly or indirectly, any Indebtedness (i) that is subordinate or junior in ranking in right of payment to its Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness, or (ii) pursuant to paragraph (b) above if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. -56- Section 10.9. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, make any Restricted Payment if at the time the Company or such Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebt- edness pursuant to paragraph (a) of Section 10.8; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); and (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary), subsequent to the Issue Date, of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company upon such conversion or exchange). (b) The provisions of the foregoing paragraph (a) shall not prohibit: (1) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); provided that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 10.8; provided that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; or (3) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); provided further that such dividend shall be included in the calculation of the amount of Restricted Payments. Section 10.10. Limitation on Restrictions on Distributions from Subsidiaries. The Company shall not, and shall not permit any Subsidiary to, voluntarily create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary (a) to pay dividends or make any other distributions on its Capital Stock to the Company or any other Subsidiary or pay any Indebtedness owed to the Company or any other Subsidiary, (b) to pay any management fees or billing fees to the -57- Company or any other Subsidiary, (c) to make any loans or advances to the Company or any other Subsidiary or (d) transfer any of its property or assets to the Company or any other Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (ii) any encumbrance or restriction with respect to a Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Subsidiary on or prior to the date on which such Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Company) and outstanding on such date; (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or (ii) above or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) above or this clause (iii); provided that the encumbrances and restrictions with respect to such Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the Holders than encumbrances and restrictions with respect to such Subsidiary contained in such agreements; (iv) any such encumbrance or restriction consisting of customary non-assignment provisions in leases governing leasehold interests or in licensing agreements to the extent such provisions restrict the transfer of the lease or the property leased thereunder or the licensing agreement or the rights licensed thereunder; (v) in the case of clause (d) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; and (vi) any restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition. Section 10.11. Senior Subordinated Indebtedness; Liens. The Company shall not, and shall not permit any Subsidiary to, Incur: (1) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness; or (2) any Secured Indebtedness that is not Senior Indebtedness unless (A) contemporaneously therewith effective provision is made to secure the Securities equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien or (B) such Secured Indebtedness is permitted by clause (1), (4), (5) or (7) of paragraph (b) of Section 10.8. Section 10.12. Limitation on Affiliate Transactions. (a) The Company shall not, and shall not permit any Subsidiary to, enter into any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction"), other than reinsurance with an affiliate in the ordinary course of business, unless the terms thereof: (1) are no less favorable to the Company or such Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; -58- (2) if such Affiliate Transaction involves an amount in excess of $1,000,000, (i) are set forth in writing and (ii) have been approved by a majority of the members of the Board of Directors of the Company or such Subsidiary having no personal stake in such Affiliate Transaction; and (3) if such Affiliate Transaction involves an amount in excess of $2,500,000, have been determined by a nationally recognized investment banking firm to be fair from a financial standpoint to the Company and its Subsidiaries. (b) The provisions of paragraph (a) above shall not prohibit: (1) any Restricted Payment permitted to be paid pursuant to Section 10.9; (2) transactions or payments pursuant to any employee arrangements or employee or director benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business of the Company or such Subsidiary; and (3) any Affiliate Transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. Section 10.13. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, consummate any Asset Disposition unless: (1) the Company or such Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors of the Company or such Subsidiary as the case may be, of the shares and assets subject to such Asset Disposition and at least 75% of the consideration thereof received by the Company or such Subsidiary is in the form of cash, cash equivalents or Marketable Securities; and (2) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any Senior Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within eighteen months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company elects, to acquire Additional Assets within eighteen months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; and (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the Holders of the Securities to purchase Securities pursuant to and subject to the conditions contained in the Indenture; provided that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or such Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this paragraph, the Company and the Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $5,000,000. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Subsidiary and the release of the Company or such Subsidiary from all liability -59- on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Subsidiary from the transferee that are promptly converted by the Company or such Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of the Securities pursuant to clause (a)(2)(C) above, the Company will be required to purchase Securities tendered pursuant to an offer by the Company for the Securities at a purchase price of 101% of their principal amount (without premium) plus accrued but unpaid interest, in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. The Company shall not be required to make such an offer to purchase Securities pursuant to this covenant if the Net Available Cash available therefor is less than $5,000,000 (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Disposition). (c) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. Section 10.14. Change of Control. (a) Upon the occurrence of a Change of Control Triggering Event, each holder of Preferred Securities shall have the right to require that the Trust exchange all or any part of the Preferred Securities for Securities having an aggregate principal amount equal to the aggregate liquidation amount of the Securities to be exchanged. The Company shall immediately redeem any Securities so exchanged at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. (b) Within 30 days following a Change of Control Triggering Event, the Company shall mail a notice to each holder of Preferred Securities with a copy to the Trustee stating: (1) that a Change of Control Triggering Event has occurred and that such holder has the right to require the Trust to exchange such holder's Preferred Securities for Securities; (2) that the Company shall immediately redeem any Securities so exchanged at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (3) the circumstances and relevant facts regarding such Change of Control Triggering Event (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); and (4) the instructions determined by the Company, consistent with the covenant described hereunder, that a Holder must follow in order to have its Securities redeemed. (c) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this covenant by virtue thereof. Section 10.15. Statement as to Compliance and Default. (a) The Company shall deliver to the Trustee, within 95 days after the end of each of their respective calendar years ending after the date hereof, an Officers' Certificate covering the preceding calendar year, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance, observance or fulfillment of or compliance with any of the terms, provisions, covenants and conditions of this Indenture and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. -60- (b) The Company shall deliver to the Trustee, as soon as possible and in any event within 10 days after the Company becomes aware of the occurrence of an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers' Certificate setting forth the details of such Event of Default or default, and the action which the Company proposes to take with respect thereto. Section 10.16. Ownership of the Trust. The Company shall continue (i) to directly or indirectly maintain 100% ownership of the Common Securities of the Trust; provided that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities and (ii) to use its reasonable efforts to cause the Trust (x) to remain a statutory business trust, except in connection with the distribution of Securities to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (y) to otherwise continue to be classified for United States Federal income tax purposes as a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. Section 10.17. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 8.1 and Sections 10.4 to 10.16, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect. Section 10.18. Payment of Expenses. In connection with the offering, sale and issuance of the Securities to the Trust and in connection with the sale of the Trust Securities by the Trust, the Company, in its capacity as borrower with respect to the Securities, shall: (a) pay all costs and expenses relating to the offering, sale and issuance of the Securities, including commissions to the initial purchasers payable pursuant to the Purchase Agreement, fees and expenses in connection with the Exchange Offer or other action to be taken pursuant to the Registration Rights Agreement and compensation of the Trustee in accordance with the provisions of Section 6.7; (b) pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the offering, sale and issuance of the Trust Securities (including commissions to the initial purchasers in connection therewith), the fees and expenses of the Preferred Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing and disposition of Trust assets; (c) be primarily and fully liable for any indemnification obliga- tions arising with respect to the Declaration; (d) pay any and all taxes, duties, assessments or governmental charges of whatever nature (other than United States withholding taxes attributable to the Trust or its assets) imposed on the Trust by the United States or any other taxing authority including and all liabilities, costs and expenses with respect to such taxes of the Trust -61- (collectively "Taxes and Expenses") so that the net amounts received and retained by the Trust and the Preferred Trustee after paying such Taxes and Expenses will be equal to the amounts the Trust and the Preferred Trustee would have received had no such Taxes and Expenses been incurred by or imposed upon the Trust; and (e) pay all other fees, expenses, debts and obligations (other than the Trust Securities) related to the Trust. The foregoing obligations of the Company are for the benefit of, and shall be enforceable by, any person to whom any such debts, obligations, costs, expenses and taxes are owed (each, a "Creditor") whether or not such Creditor has received notice thereof. Any such Creditor may enforce such obligations of the Company directly against the Company, and the Company irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other person before proceeding against the Company. The Company shall execute such additional agreements as may be necessary or desirable to give full effect to the foregoing. ARTICLE XI. REDEMPTION OF SECURITIES Section 11.1. Applicability of This Article. Redemption of Securities as permitted or required by any provision of this Indenture shall be made in accordance with such provision and this Article. Each Security shall be subject to partial redemption only in the amount of $1,000, or integral multiples thereof. Section 11.2. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities, the Company shall, not less than 30 nor more than 60 days prior to the date fixed for redemption (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and of the principal amount of Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing compliance with such restriction. Section 11.3. Selection of Securities to be Redeemed. If less than all the Securities to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. The Trustee shall promptly notify the Company in writing of the Securities selected for partial redemption and the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Securities selected for redemption. -62- Section 11.4. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not later than the thirtieth day, and not earlier than the sixtieth day, prior to the date fixed for redemption, to each Holder of Securities to be redeemed, at the address of such Holder as it appears in the Securities Register. With respect to the Securities to be redeemed, each notice of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed; (d) that on the Redemption Date, the Redemption Price at which such Securities are to be redeemed will become due and payable upon each such Security or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date; and (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price at which such Securities are to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall not be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 11.5. Deposit of Redemption Price. Prior to 10:00 a.m. New York City time on the Redemption Date specified in the notice of redemption given as provided in Section 11.4, the Company will deposit with the Trustee or with one or more Paying Agents an amount of money sufficient to redeem on the Redemption Date all the Securities so called for redemption at the applicable Redemption Price. Section 11.6. Payment of Securities Called for Redemption. If any notice of redemption has been given as provided in Section 11.4, the Securities or portion of Securities with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price. On presentation and surrender of such Securities at a place of payment in said notice specified, the said Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price. Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Security so presented and having the same Issue Date, Stated Maturity and terms. If a Global Security is so surrendered, such new Security will also be a new Global Security. -63- If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and premium, if any, on such Security shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 11.7. Company's Right of Redemption. (a) The Company may, at its option, redeem the Securities after their date of issuance in whole at any time or in part from time to time after August 15, 2007, subject to the provisions of this clause (a) and the other provisions of this Article XI. The Redemption Prices (expressed as a percentage of principal amount) for any Security so redeemed pursuant to this clause (a) shall be as set forth below plus any accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) if redeemed during the twelve month period beginning on August 15 of the years indicated below: Percentage of Principal Year Amount - ---- ------- 2007............................................................. 104.750% 2008............................................................. 103.167% 2009............................................................. 101.583% 2010 and thereafter.............................................. 100.000% (b) If a Tax Event or an Investment Company Event in respect of the Trust shall occur and be continuing, the Company shall cause the trustees of the Trust to dissolve and liquidate the Trust and, after satisfaction of liabilities to creditors of the Trust cause Securities to be distributed to the holders of the Trust Securities in liquidation of the Trust or, in the event of a Tax Event only, may cause the Securities to be redeemed, in each case, subject to and in accordance with the provisions of the Declaration and subject to Article XI of the Indenture, within 90 days following the occurrence of such Tax Event or Investment Company Event. Any redemption of the Securities as a result of a Tax Event shall be in whole at 100% of the principal amount thereof, plus accrued and unpaid interest, to the Redemption Date. ARTICLE XII. SUBORDINATION OF SECURITIES Section 12.1. Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to Article IV), the payment of the principal of (including any payments on redemption or repurchase), premium, if any and interest on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all amounts then due and payable in respect of all Senior Indebtedness of the Company whether outstanding on the date the securities are originally issued or thereafter incurred. Section 12.2. Payment Over of Proceeds Upon Dissolution, Etc. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or its property (each such event, if any, herein sometimes referred to as a "Proceeding"), the holders of Senior Indebtedness of the Company shall be entitled to receive payment in full of principal of (and premium, if any) and interest, if any, on such Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner -64- satisfactory to the holders of Senior Indebtedness, before the Holders of the Securities are entitled to receive or retain any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company (including the Securities) subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a "Senior Subordinated Payment"), on account of principal of (or premium, if any) or interest on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary, and to that end the holders of Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Senior Subordinated Payment, which may be payable or deliverable in respect of the Securities in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Senior Subordinated Payment, before all Senior Indebtedness is paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article VIII shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article VIII. Section 12.3. Prior Payment to Senior Indebtedness Upon Acceleration of Securities. In the event that, upon the occurrence of an Event of Default, any Securities are declared due and payable before their Stated Maturity, then (a) the Company or the Trustee, at the direction of the Company, shall promptly notify the holders of Senior Indebtedness of the Company or the representative of such holders of the acceleration, and (b) in such event, if any Senior Indebtedness is outstanding, the Company may not pay the Securities until five Business Days after the representative of all issues of Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Securities only if payment is otherwise permitted hereunder at that time. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 12.2 would be applicable. -65- Section 12.4. No Payment When Specified Senior Indebtedness in Default. (a) The Company may not pay principal of, or premium (if any) or interest on, the Securities, and may not repurchase, redeem or otherwise retire any Securities (collectively "pay the Notes") if (i) any Specified Senior Indebtedness of the Company is not paid when due or (ii) any other default on Specified Senior Indebtedness of the Company occurs and the maturity of such Specified Senior Indebtedness is accelerated in accordance with its terms, unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Specified Senior Indebtedness has been paid in full. However, the Company may pay the Securities without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from a representative of the Specified Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. (b) During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding paragraph (a)) with respect to any Specified Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes to the Holders for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the representative of the holders of such Specified Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the representative of the holders of such Specified Senior Indebtedness, (ii) because the default giving rise to such Blockage Notice is no longer continuing, as certified to the Trustee by the representative of the holders of such Specified Senior Indebtedness, or (iii) because such Specified Senior Indebtedness has been repaid in full, as certified to the Trustee by the representative of the holders of such Specified Senior Indebtedness). (c) Notwithstanding the preceding paragraph (b), unless the holders of such Specified Senior Indebtedness or the representative of such holders have accelerated the maturity of such Specified Senior Indebtedness, the Company may resume payments on the Securities after the end of such Payment Blockage Period. The Securities shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Specified Senior Indebtedness during such period. (d) In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 12.2 would be applicable. Section 12.5. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 12.2 or under the conditions described in Sections 12.3 and 12.4, from making payments at any time of principal of (and premium, if any) or interest on the Securities, or (b) the application by the Trustee of any money or Government Obligations deposited with it hereunder in accordance with the provisions of Section 4.3 to the payment of or on account of the principal of (and premium, if any) or interest on the Securities or the retention of such payment by the Holders, if, at the time of such payment or application, as the case may be, by the Company or the Trustee, as the case may be, the Company or the Trustee, as the case may be, did not have knowledge that such payment would have been prohibited by the provisions of this Article. -66- Section 12.6. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness of the Company, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness of the Company, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Indebtedness of the Company to substantially the same extent as the Securities are subordinated to the Senior Indebtedness and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Indebtedness) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness of the Company until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation or assignment, no payments or distributions to the holders of the Senior Indebtedness of the Company of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. Section 12.7. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as between the Company and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than their rights in relation to the holders of Senior Indebtedness of the Company; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture including, without limitation, filing and voting claims in any Proceeding, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder and subject to the terms of the Intercreditor Agreement. Section 12.8. Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article and appoints the Trustee his or her attorney-in-fact for any and all such purposes. Section 12.9. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. -67- Section 12.10. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee, agent or representative therefor (whether or not the facts contained in such notice are true); provided that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Section 12.11. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Article VI, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. Section 12.12. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness of the Company shall be entitled by virtue of this Article or otherwise. Section 12.13. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness of the Company which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness of the Company, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Section 12.14. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee. -68- Section 12.15. Certain Conversions or Exchanges Deemed Payment. For the purposes of this Article only, (a) the issuance and delivery of junior securities upon conversion or exchange of Securities shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Securities or on account of the purchase or other acquisition of Securities, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion or exchange of a Security shall be deemed to constitute payment on account of the principal of such security. For the purposes of this Section, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior Indebtedness of the Company which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. ARTICLE XIII. EXTENSION OF INTEREST PAYMENT PERIOD Section 13.1. Extension of Interest Payment Period. (a) Unless as Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of the Securities, to defer the payment of interest at any time or from time to time for a period not exceeding 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (the "Extension Period"), during which Extension Period no interest shall be due and payable; provided that no Extension Period may extend beyond the Stated Maturity. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 13.1, will bear interest thereon at 9 1/2% compounded semi-annually for each semi-annual period of the Extension Period ("Compounded Interest"). At the end of the Extension Period, the Company shall pay all interest accrued and unpaid on the Securities, including any Compounded Interest that shall be payable to the holders of the Securities in whose names the Securities are registered in the Security Register on the first record date after the end of the Extension Period. Such deferment of payments of interest shall not be deemed an Event of Default. (b) During any such Extension Period, the Company shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's Capital Stock, (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in right of payment to the Securities or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary if such guarantee ranks pari passu with or junior in right of payment to the Securities (other than (a) dividends or distributions in shares of or options, warrants or rights to subscribe for or purchase Capital Stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Company Guarantee, (d) as a result of a reclassification of the Company's Capital Stock or the exchange or conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, (e) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the security being converted or exchanged, and (f) purchases or issuances of Capital Stock under any of the Company's stock option, stock purchase, stock loan or other benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans, in each case as now existing or hereafter established or amended). (c) Before the termination of any Extension Period, the Company may defer payments of interest by further extending such period, provided that such period, together with all such previous and further extensions within such Extension Period, shall not exceed 10 consecutive semi-annual periods, including the first such semi-annual period during such Extension Period, or extend beyond the Maturity Date of the Securities. Upon the termination of any Extension Period and the payment of all Compounded Interest then due, the Company may elect to commence -69- a new Extension Period, subject to the foregoing requirements. No interest shall be due and payable during an Extension Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extension Period. Section 13.2. Notice of Extension. (a) The Company must give the Trustee and the Preferred Trustee notice of its election of any Extension Period (or an extension thereof) at least five Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date the Trustee is required to give notice to any securities exchange or to holders of Trust Securities of the record date or the date such distributions on the Trust Securities are payable, but in any event not less than five Business Days prior to such record date. The Trustee shall give notice of the Company's election to begin or extend a new Extension Period to the Holders of the Trust Securities. (b) The semi-annual period in which any notice is given pursuant to paragraph (a) of this Section 13.2 shall be counted as one of the ten semi-annual periods permitted in the maximum Extension Period permitted under Section 13.1. There is no limitation on the number of times that the Company may elect to begin an Extension Period. [rest of page intentionally left blank] -70- Wilmington Trust Company hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -71- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. SYMONS INTERNATIONAL GROUP, INC., As Issuer By:_/s/ Alan G. Symons_______________ Name: Alan G. Symons Title: Chief Executive Officer By:_/s/ Gary P. Hutchcraft___________ Name: Gary P. Hutchcraft Title: Vice President WILMINGTON TRUST COMPANY, As Trustee By:_Emmett R. Harmon_________________ Name: Emmett R. Harmon Title: Vice President -72- STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK ) On the day of August, 1997, before me personally came _________________________________, to me known, who, being by me duly sworn, did depose and say that [he -- she] is ___________________________ of Symons International Group, Inc. ------------------------------ -73- STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK ) On the day of August, 1997, before me personally came ________________________________, to me known, who, being by me duly sworn, did depose and say that [he -- she] is _________________________ of [Bank], one of the corporations described in and which executed the foregoing instrument; that [he -- she] knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that [he -- she] signed [his -- her] name thereto by like authority. ______________________________n -74- EX-4 3 FORM OF CERTIFICATE OF EXCHANGE NOTES Exhibit 4.2 Form of Certificate of Exchange Notes Form of Certificate of Exchange Notes (in substantially the form of Section 2.2 to Exhibit 4.1) EX-4 4 CERTIFICATE OF TRUST Exhibit 4.3 DECLARATION OF TRUST OF SIG CAPITAL TRUST I This Declaration of Trust, dated as of August 4, 1997 (this "Declaration of Trust"), among Symons International Group, Inc. as sponsor (the "Sponsor"), Wilmington Trust Company, a Delaware banking corporation, as trustee, and Alan G. Symons, as trustee (jointly, the "Trustees"). The Sponsor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "SIG Capital Trust I" in which name the Trustees, or the Sponsor to the extent provided herein, may engage in the transactions contemplated hereby, make and execute contracts, and sue and be sued. 2. The Sponsor hereby assigns, transfers conveys and sets over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of such amount in trust from the Sponsor, which amount shall constitute the initial trust estate. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del.C.ss.3801, et seq. (the "Business Trust Act"), and that this document constitutes the governing intrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certifi- cate of trust with the Delaware Secretary of State in accor- dance with the provisions of the Business Trust Act. 3. The Sponsor and the Trustees will enter into an amended and restated Declaration of Trust, satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance of the Capital Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Declaration of Trust, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery of any licenses, consents or approvals required by applicable law or otherwise. 4. The Sponsor and the Trustees hereby authorize and direct the Sponsor, as the sponsor of the Trust, (i) to prepare one or more offering memoranda in preliminary and final form relating to the offering and sale of Capital Securities of the Trust in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act"), and such other forms or filings as may be required by the 1993 Act, the Securities Exchange Act of 1934, as amended, or the Trust Indenture Act of 1939, as amended, in each case relating to the Capital Securities of the Trust; (ii) to file and execute on behalf of the Trust, such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents that shall be necessary or desirable to register or establish the exemption from registration of the Capital Securities of the Trust under 1 the securities or "Blue Sky" laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem necessary or desirable; (iii) to execute and file an application, and all other applications, statements, certificates, agreements and other instruments that shall be necessary or desirable, to the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market and, if and at such time as determined by the Sponsor, to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing or quotation of the Capital Securities of the Trust; (iv) to execute and deliver letters or documents to, or instruments for filing with, a depository relating to the Capital Securities of the Trust; and (v) to execute, deliver and perform on behalf of the Trust one or more purchase agreements, dealer manager agreements, escrow agreements and other related agreement providing for or relating to the sale of the Capital Securities of the Trust. 5. This Declaration of Trust may be executed in one or more counterparts. 6. The number of Trustees initially shall be two (2) and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor which may increase or decrease the number of Trustees; provided, however, that to the extent required by the Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware, or if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Sponsor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty (30) days' prior notice to the Sponsor. 7. This Declaration of Trust shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws of principles). IN WITNESS WHEREOF, the parties hereto have caused this Declaration of Trust to be duly executed as of the day and year first above written. SYMONS INTERNATIONAL GROUP, INC., as Sponsor By:_______________________________ Name: Title: 2 WILMINGTON TRUST COMPANY, as trustee and not in its individual capacity By: /s/ Emmett R. Harmon Name: Emmett R. Harmon Title: Vice President ______________________________________ ALAN G. SYMONS, as trustee and not in his individual capacity 3 IN WITNESS WHEREOF, the parties hereto have caused this Declaration of Trust to be duly executed as of the day and year first above written. SYMONS INTERNATIONAL GROUP, INC., as Sponsor By:_______________________________ Name: Title: WILMINGTON TRUST COMPANY, as trustee and not in its individual capacity By:_______________________________ Name: Title: /s/ Alan G. Symons ALAN G. SYMONS, as trustee and not in his individual capacity 3 IN WITNESS WHEREOF, the parties hereto have caused this Declaration of Trust to be duly executed as of the day and year first above written. SYMONS INTERNATIONAL GROUP, INC., as Sponsor By: /s/ Alan G. Symons Name: ALAN G. SYMONS Title: CHIEF EXECUTIVE OFFICER WILMINGTON TRUST COMPANY, as trustee and not in its individual capacity By:_______________________________ Name: Title: /s/ Alan G. Symons ALAN G. SYMONS, as trustee and not in his individual capacity 3 EX-4 5 AMENDED AND RESTATED DECLARATION OF TRUST Exhibit 4.4 AMENDED AND RESTATED DECLARATION OF TRUST SIG CAPITAL TRUST I Dated as of August 12, 1997 1 TABLE OF CONTENTS ARTICLE I Defined Terms.......... 1 Section 1.1. Definitions.................................................. 1 ARTICLE II ESTABLISHMENT OF THE TRUST........... 10 Section 2.1. Name......................................................... 10 Section 2.2. Office of the Delaware Trustee; Principal Place of Business.. 10 Section 2.3. Initial Contribution of Trust Property; Organizational Expenses..................................................... 11 Section 2.4. Issuance of the Preferred Securities......................... 11 Section 2.5. Issuance of the Common Securities; Subscription and Purchase of the Notes................................................. 11 Section 2.6. Purposes and Functions of the Trust.......................... 11 Section 2.7. Authorization to Enter into Certain Transactions............. 12 Section 2.8. Assets of Trust.............................................. 15 Section 2.9. Title to Trust Property...................................... 15 ARTICLE III PAYMENT ACCOUNT......... 15 Section 3.1. Payment Account....................................... 15 ARTICLE IV DISTRIBUTIONS; REDEMPTION.... 16 Section 4.1. Distributions......................................... 16 Section 4.2. Redemption............................................ 17 Section 4.3. Subordination of Common Securities.................... 19 Section 4.4. Payment Procedures.................................... 19 Section 4.5. Tax Returns and Reports............................... 19 Section 4.6. Payment of Taxes, Duties, Etc. of Trust............... 19 Section 4.7. Payments under Indenture.............................. 20 i ARTICLE V TRUST SECURITIES CERTIFICATES.. 20 Section 5.1. Initial Ownership..................................... 20 Section 5.2. General Provisions Regarding Trust Securities......... 20 Section 5.3. Execution and Authentication.......................... 20 Section 5.4. Form and Dating....................................... 21 Section 5.5. Transfer of Trust Securities.......................... 23 Section 5.6. Transfer Procedures and Restrictions.................. 23 Section 5.7. Temporary Securities.................................. 30 Section 5.8. Securities Register and Securities Registrar.......... 30 Section 5.9. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.......................................... 31 Section 5.10. Persons Deemed Securityholders........................ 31 Section 5.11. Access to List of Securityholders' Names and Addresses............................................. 31 Section 5.12. Maintenance of Office or Agency....................... 31 Section 5.13. Appointment of Paying Agent........................... 32 Section 5.14. Ownership of Common Securities by Sponsor............. 32 Section 5.15. Rights of Securityholders............................. 33 ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING... 35 Section 6.1. Limitations on Voting Rights.......................... 35 Section 6.2. Notice of Meetings.................................... 37 Section 6.3. Meetings of Preferred Securities Securityholders...... 38 Section 6.4. Voting Rights......................................... 38 Section 6.5. Proxies, etc.......................................... 38 Section 6.6. Securityholder Action by Written Consent.............. 39 Section 6.7. Record Date for Voting and Other Purposes............. 39 Section 6.8. Acts of Securityholders............................... 39 Section 6.9. Inspection of Records................................. 40 ARTICLE VII REPRESENTATIONS AND WARRANTIES......... 40 Section 7.1. Representations and Warranties of the Bank, the Preferred Trustee and the Delaware Trustee............ 40 Section 7.2. Representations and Warranties of Sponsor............. 42 ii ARTICLE VIII THE TRUSTEES................... 42 Section 8.1. Certain Duties and Responsibilities................... 42 Section 8.2. Certain Notices....................................... 43 Section 8.3. Certain Rights of Preferred Trustee................... 44 Section 8.4. Not Responsible for Recitals or Issuance of Securities............................................ 46 Section 8.5. May Hold Securities................................... 46 Section 8.6. Compensation; Indemnity; Fees......................... 46 Section 8.7. Corporate Preferred Trustee Required; Eligibility of Trustees.............................................. 47 Section 8.8. Conflicting Interests................................. 48 Section 8.9. Co-Trustees and Separate Trustee...................... 48 Section 8.10. Resignation and Removal; Appointment of Successor..... 49 Section 8.11. Acceptance of Appointment by Successor................ 50 Section 8.12. Merger, Conversion, Consolidation or Succession to Business.............................................. 51 Section 8.13. Preferential Collection of Claims Against Sponsor or Trust................................................. 51 Section 8.14. Reports by Preferred Trustee.......................... 52 Section 8.15. Reports to the Preferred Trustee...................... 53 Section 8.16. Evidence of Compliance with Conditions Precedent...... 53 Section 8.17. Number of Trustees.................................... 53 Section 8.18. Delegation of Power................................... 53 ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER......... 54 Section 9.1. Dissolution Upon Expiration Date...................... 54 Section 9.2. Early Dissolution..................................... 54 Section 9.3. Termination........................................... 55 Section 9.4. Liquidation........................................... 55 Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Trust.......................................... 57 iii ARTICLE X MISCELLANEOUS PROVISIONS..... 58 Section 10.1. Limitation of Rights of Securityholders............... 58 Section 10.2. Amendment............................................. 58 Section 10.3. Separability.......................................... 60 Section 10.4. Governing Law......................................... 60 Section 10.5. Payments Due on Non-Business Day...................... 60 Section 10.6. Successors............................................ 60 Section 10.7. Headings.............................................. 61 Section 10.8. Reports, Notices and Demands.......................... 61 Section 10.9. Agreement Not to Petition............................. 61 Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act................................................... 62 Section 10.11. Acceptance of Terms of Declaration, Company Guarantee and Indenture......................................... 63 Exhibit A - Certificate of Trust of SIG Capital Trust I Exhibit B - Certificate of Depository Agreement Exhibit C - Certificate Evidencing Common Securities of SIG Capital Trust I Exhibit D - Certificate Evidencing Preferred Securities of SIG Capital Trust I; Form of Assignment iv SIG CAPITAL TRUST I Certain Sections of this Amended and Restated Declaration of Trust Relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Indenture Trust Agreement Act Section Section - --------------- --------------- (ss.)310 (a)(1)............................................8.7 (a)(2)............................................8.7 (a)(3)............................................8.9 (a)(4)............................................2.7(a)(ii) (b)...............................................8.8 (ss.)311 (a)...............................................8.13 (b)...............................................8.13 (ss.)312 (a)...............................................5.7 (b)...............................................5.7 (c)...............................................5.7 (ss.)313 (a)...............................................8.14(a) (a)(4)............................................8.14(b) (b)...............................................8.14(b) (c)...............................................10.8 (d)...............................................8.14(c) (ss.)314 (a)...............................................8.15 (b)...............................................Not Applicable (c)(1)............................................8.16 (c)(2)............................................8.16 (c)(3)............................................Not Applicable (d)...............................................Not Applicable (e)...............................................1.1, 8.16 (ss.)315 (a)...............................................8.1(a), 8.3(a) (b)...............................................8.2, 10.8 (c)...............................................8.1(a) (d)...............................................8.1, 8.3 (e)...............................................Not Applicable (ss.)316 (a)...............................................Not Applicable (a)(1)(A).........................................Not Applicable (a)(1)(B).........................................Not Applicable (a)(2)............................................Not Applicable (b)...............................................5.14 (c)...............................................6.7 (ss.)317 (a)(1)............................................Not Applicable (a)(2)............................................Not Applicable (b)...............................................5.9 (ss.)318 (a)...............................................10.10 - ------------- Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Amended and Restated Declaration of Trust. i AMENDED AND RESTATED DECLARATION OF TRUST OF SIG CAPITAL TRUST I AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of August 12, 1997, by the Trustees (as defined herein), the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial ownership interests in the assets of the Trust to be issued pursuant to this Declaration; WHEREAS, the Trustees and the Sponsor wish to continue SIG Capital Trust I (the "Trust"), a business trust created under the Delaware Business Trust Act pursuant to the original Declaration of Trust of the Trust, dated as of August 4, 1997 (the "Original Declaration"), and a Certificate of Trust of the Trust, which was filed with the Secretary of State of the State of Delaware on August 4, 1997; WHEREAS, the purposes of the Trust shall be to provide for, among other things, (i) the issuance of the Common Securities by the Trust to the Sponsor, (ii) the issuance of sale of the Preferred Securities by the Trust pursuant to the Purchase Agreement, (iii) the acquisition by the Trust from the Sponsor of all of the right, title and interest in the Notes and (iv) the appointment of the Trustees; WHEREAS, all of the parties hereto, by this Declaration, amend and restate each and every term and provision of the Original Declaration; NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Delaware Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial ownership interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I Defined Terms Section 1.1. Definitions. For all purposes of this Declaration, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; 1 (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Declaration; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Declaration as a whole and not to any particular Article, Section or other subdivision. "Accredited Investor Global Preferred Security" has the meaning set forth in Section 5.6(b). "Act" has the meaning specified in Section 6.8. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, provided, however, that an Affiliate of the Sponsor shall not be deemed to include the Trust. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bank" means the Preferred Trustee in its separate corporate capacity and not in its capacity as Preferred Trustee. "Bankruptcy Event" means, with respect to any Person, under the relevant jurisdiction: (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (b) the institution by such Person of proceedings to be adjudicated bankrupt or insolvent, or the consent by it to the institution or bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by such Person in furtherance of any such action. "Bankruptcy Laws" has the meaning specified in Section 10.9. 2 "Board Resolution" means a copy of a resolution certified by the Secretary, or an Assistant Secretary of the Sponsor to have been duly adopted by the Sponsor's Board of Directors or such committee of the Board of Directors or officers of the Sponsor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification and delivered to the Trustees. "Book-Entry Preferred Securities Certificates" means a beneficial interest in the Preferred Securities Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.4(b). "Business Day" means any day other than a day on which banking institutions in The City of New York or Wilmington, Delaware, are authorized or required by law to close. "Certificate Depository Agreement" means the agreement among the Trust, the Sponsor and DTC, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Securities Certificates, substantially in the form attached as Exhibit B, as the same may be amended and supplemented from time to time. "Change of Control Triggering Event" means the occurrence of a Change of Control Event (as defined in the Indenture). "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. DTC will be the Initial Clearing Agent. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" has the meaning specified in the Purchase Agreement, which data is also the date of execution and delivery of this Declaration. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities" has the meaning specified in Section 5.2. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Common Securities Company Guarantee" means the guarantee agreement dated as of August 12, 1997 of the Sponsor in respect of the Common Securities. 3 "Company Guarantees" means the Common Securities Company Guarantee and the Preferred Securities Company Guarantee. "Company Trustee" means each of Alan G. Symons, Douglas H. Symons and Gary P. Hutchcraft, solely in such Person's capacity as Company Trustee of the Trust and not in such Person's individual capacity, or such Company Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Corporate Trust Office" means the principal office of the Preferred Trustee located at 1100 North Market Street, Rodney Square North, Wilmington, Delaware. "Declaration" means this Amended and Restated Declaration, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Declaration and any such modification, amendment or supplement the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Declaration and any such modification, amendment or supplement, respectively. "Declaration Event of Default" means a Note Event of Default or a default by the Sponsor under the Guarantee Agreement. "Definitive Preferred Securities" shall have the meaning set forth in Section 5.4(c). "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code 12 Del. C. ss.3801, et seq., as it may be amended from time to time. "Delaware Trustee" means Wilmington Trust Company, a Delaware banking corporation, solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Distribution Date" has the meaning specified in Section 4.1(a). "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 4.1. "DTC" means The Depository Trust Company, which is the initial Clearing Agency. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the exchange offer (including any private exchange offer) contemplated by Section 2(a) of the Registration Rights Agreement. "Expiration Date" has the meaning specified in Section 9.1. 4 "Global Preferred Security" means the Restricted Global Preferred Securities, the Regulation S Global Preferred Securities, the Accredited Investor Global Preferred Securities and the Unrestricted Global Preferred Securities. "Holder" has the meaning specified under the definition of "Securityholder." "Indenture" means the Senior Subordinated Indenture, dated as of August 12, 1997, among the Sponsor and the Indenture Trustee, as trustee, as amended or supplemented from time to time. "Indenture Trustee" means Wilmington Trust Company, a Delaware banking corporation, and any successor thereto. "Investment Company Event" means the receipt by the Sponsor of an Opinion of Counsel, rendered by a law firm having an independent tax and securities practice experienced in such matters, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or will be considered an investment company which is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under this Declaration. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Notes to be contemporaneously redeemed in accordance with the Indenture the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (b) with respect to a distribution of Notes to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust Securities of the Holder to whom such Notes are distributed. "Liquidation Amount" means the stated amount of $1,000.00 per Trust Security. "Liquidation Date" means the date on which Notes are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 9.4(a). "Liquidation Distribution" has the meaning specified in Section 9.4(d). "1940 Act" means the Investment Company Act of 1940, as amended. "Note Event of Default" means an "Event of Default" as defined in the Indenture. "Note Redemption Date" means, with respect to any Notes to be redeemed under the Indenture, the date fixed for redemption under the Indenture. 5 "Note Tax Event" means a "Tax Event" as defined in the Indenture. "Notes" means the aggregate principal amount of the Sponsor's 9 1/2% Senior Subordinated Notes, issued pursuant to the Indenture. "Offering Memorandum" has the meaning specified in Section 2.7(a). "Officers' Certificate" means a certificate signed by (a) the Chairman and Chief Executive Officer, President or Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary or (b) any two members of the Board of Directors of the Sponsor, and delivered to the appropriate Trustee. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificates; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust or the Sponsor, as the case may be, but, other than in connection with the issuance of the Trust Securities, not an employee of any thereof, and who shall be reasonably acceptable to the Preferred Trustee. "Outstanding", when used with respect to Trust Securities means, as of the date of determination, all Trust Securities theretofore executed and delivered under this Declaration, except: (a) Trust Securities theretofore canceled by the Trust or delivered to the Trust for cancellation; (b) Trust Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Preferred Trustee or any Paying Agent for the Holders of such Trust Securities; provided, that if such Trust Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Declaration; and (c) Preferred Securities which have been paid or in exchange for or in lieu of which other Preferred Securities have been executed and delivered pursuant to Sections 5.4, 5.5 6 or 5.6; provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Preferred Securities owned by the Sponsor, any Trustee or any Affiliate of the Sponsor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities that such Trustee knows to be so owned shall be so disregarded and (b) the foregoing shall not apply at any time when all of the outstanding Preferred Securities are owned by the Sponsor, one or more of the Trustees and/or any such Affiliate. Preferred Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Company Trustees the pledgee's right so to act with respect to such Preferred Securities and that the pledgee is not the Sponsor or any Affiliate of the Sponsor. "Owner" means each Person who is the beneficial owner of a Global Certificate (see Exhibit B for definition) as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency). "Participants" has the meaning set forth in Section 5.4(b). "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.13 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Preferred Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Notes will be held and from which the Preferred Trustee shall make payments to the Securityholders in accordance with Sections 4.1 and 4.2. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization, or government or any agency, instrumentality or political subdivision thereof, or any other entity of whatever nature. "Preferred Security Beneficial Owner" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Securities" has the meaning specified in Section 5.2(a). "Preferred Securities Certificate" means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit D. 7 "Preferred Securities Company Guarantee" means the guarantee agreement dated as of August 12, 1997 of the Sponsor in respect of the Preferred Securities. "Preferred Trustee" means Wilmington Trust Company, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, solely in its capacity as Preferred Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor Preferred Trustee appointed as herein provided. "Purchase Agreement" means the Purchase Agreement dated August 7, 1997, for the offering and sale of Preferred Securities among the Trust, the Sponsor and the initial purchasers named therein. "QIBs" shall mean qualified institutional buyers as defined in Rule 144A. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Declaration; provided, that each Note Redemption Date and the stated maturity of the Notes shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Redemption Price (as defined in the Indenture) for the concurrent redemption of a Like Amount of Notes, allocated on a pro rata basis, plus accrued and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, paid by the Sponsor upon the concurrent redemption of a Like Amount of Notes, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Closing Date, by and among Symons International Group, Inc., the Trust and the Initial Purchasers named therein, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S under the Securities Act, as such regulation may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Regulation S Global Preferred Security" has the meaning set forth in Section 5.4(a). "Relevant Trustee" shall have the meaning specified in Section 8.10. "Restricted Definitive Preferred Security" means Definitive Preferred Securities required by Section 5.4(a) to contain the Restricted Securities Legend. "Restricted Global Preferred Security" means Restricted Global Preferred Securities required by Section 5.6(g) to contain the Restricted Securities Legend. 8 "Restricted Preferred Security" means a Preferred Security required by Section 5.6(g) to contain a Restricted Securities Legend. "Restricted Securities Legend" has the meaning set forth in Section 5.6(g). "Rule 144" means Rule 144 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Rule 144A" means Rule 144A under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 5.8. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Trust Securities is registered in the Securities Register; any such Person being a beneficial owner within the meaning of the Delaware Business Trust Act; provided, however, that in determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Declaration, then for the purpose of any such determination, so long as Definitive Preferred Securities Certificates have not been issued, the term Securityholders or Holders as used herein shall refer to the Owners. "Sponsor" means Symons International Group, Inc., a corporation organized under the laws of the State of Indiana, including any successors or assigns. "Tax Event" means that the Sponsor shall have obtained an Opinion of Counsel of independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to or change (including any announced proposed change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after the date of issuance of the Preferred Securities), which amendment or change is effective or which proposed change, interpretation or pronouncement is announced on or after the date of issuance of the Preferred Securities under this Declaration, there is more than an insubstantial risk that (i) the Trust is, or will be, subject to United States federal income tax with respect to interest received or accrued on the Notes, (ii) interest payable to the Trust on the Notes is not or will not be deductible for United States federal income tax purposes or (iii) the Trust is or will be subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges of whatever nature imposed by the United States or any other taxing authority. "Trust" means SIG Capital Trust I, the Delaware business trust created and continued hereby. 9 "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Notes, (b) any cash on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Preferred Trustee pursuant to the terms of this Declaration. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Preferred Trustee, the Delaware Trustee and the Company Trustees. "Unrestricted Global Preferred Securities" means those Global Preferred Securities not required to contain a Restricted Securities Legend. 10 ARTICLE II ESTABLISHMENT OF THE TRUST Section 2.1. Name. The Trust created hereby shall be known as "SIG Capital Trust I," as such name may be modified from time to time by the Company Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. Section 2.2. Office of the Delaware Trustee; Principal Place of Business. The address of the Delaware Trustee in State of Delaware is c/o Wilmington Trust Company, 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Sponsor. The principal executive office of the Trust is c/o Symons International Group, Inc., 4720 Kingsway Drive, Indianapolis, Indiana 46205. Section 2.3. Initial Contribution of Trust Property; Organizational Expenses. The Preferred Trustee acknowledges receipt in trust from the Sponsor of the sum of $10, which constituted the initial Trust Property. Pursuant to the Indenture, the Sponsor, as borrower, shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Sponsor shall make no claim upon the Trust Property for the payment of such expenses. Section 2.4. Issuance of the Preferred Securities. The Sponsor, on behalf of the Trust, executed and delivered the Purchase Agreement. Contemporaneously with the execution and delivery of this Declaration, a Company Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Initial Purchasers named in the Purchase Agreement Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of 135,000 Preferred Securities having an aggregate Liquidation Amount of $135,000,000, against receipt of such aggregate purchase price of such Preferred Securities of $135,000,000, which amount the Company Trustee shall promptly deliver to the Preferred Trustee. Section 2.5. Issuance of the Common Securities; Subscription and Purchase of the Notes. Contemporaneously with the execution and delivery of this Declaration, a Company Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Sponsor Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of 4,176 Common Securities having an aggregate Liquidation Amount of $4,176,000 against payment by the Sponsor of such amount. Contemporaneously therewith, a Company 11 Trustee, on behalf of the Trust, shall subscribe to and purchase from the Sponsor Notes, registered in the name of the Trust and having an aggregate principal amount equal to $139,176,000, and, in satisfaction of the purchase price for such Notes, a Company Trustee and the Preferred Trustee, on behalf of the Trust, shall deliver to the Sponsor the sum of $139,176,000. Section 2.6. Purposes and Functions of the Trust. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Notes, and (b) to engage in only those other activities necessary, convenient or incidental thereto. The Sponsor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Preferred Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Trust and the Securityholders. The Company Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Preferred Trustee or the Company Trustees set forth herein. Notwithstanding anything herein to the contrary, the Delaware Trustee shall be one of the Trustees of the Trust for the sole and exclusive purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. Section 2.7. Authorization to Enter into Certain Transactions. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Declaration. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Declaration, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Company Trustee shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Registra- tion Rights Agreement, the Certificate Depository Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration of the Preferred Securities under the Securities Act and under state securities or blue sky laws, and the qualification of this Declaration as a trust indenture under the Trust Indenture Act; (D) assisting in the preparation and execution, if necessary, of an offering memorandum (the "Offering Memorandum") in preliminary and final form, in relation 12 to the offering and sale of Preferred Securities to QIBs in reliance on Rule 144A under the Securities Act, to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and outside the United States to non-U.S. Persons in offshore transactions in reliance on Regulation S under the Securities Act; (E) assisting in the registration of the Preferred Securities under the Exchange Act in accordance with the terms of the Registration Rights Agreement and in connection with the Exchange Offer and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing as well as in one or more applications to exempt the Trust from the periodic reporting requirements of the Exchange Act; (F) the sending of notices (other than notices of default) and other information regarding the Trust Securityholders in accordance with this Declaration; (G) the appointment of a Paying Agent, authenticating agent and Securities Registrar in accordance with this Declaration; (H) registering transfer of the Trust Securities in accordance with this Declaration; (I) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (J) unless otherwise required by the Trust Indenture Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Company Trustees) any documents that the Company Trustees have the power to execute pursuant to this Declaration; and (K) the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Preferred Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Notes; (C) the collection of interest, principal and any other payments made in respect of the Notes in the Payment Account; (D) the distribution of amounts owed to the Securityholders in respect of the Trust Securities; 13 (E) the exercise of all of the rights, powers and privileges of a holder of the Notes; (F) the sending of the notices of de- fault and other information regarding the Trust Securities and the Notes to the Securityholders in accordance with this Declaration; (G) the distribution of the Trust Property in accordance with the terms of this Declaration; (H) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) after a Declaration Event of Default, the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Security- holder); and (J) except as otherwise provided in this Section 2.7(a)(ii), the Preferred Trustee shall have none of the duties, liabilities, powers or the authority of the Company Trustees set forth in Section 2.7(a)(i). (b) So long as this Declaration remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Declaration, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify for United States federal income tax purposes as a grantor trust or another entity which is not subject to United States federal income tax purposes as held and derived directly by holders of interests in the entity, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Company Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Sponsor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Sponsor in furtherance of the following prior to the date of this Declaration are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement under the Securities Act on the appropriate form in relation to the Preferred Securities, including any amendments thereto. 14 (ii) the preparation and execution of the Offering Memorandum in preliminary and final form, in relation to the offering and sale of Preferred Securities to QIBs in reliance on Rule 144A under the Securities Act, to institutional "accredited investors" (as defined in Rule 501 (a)(1), (2), (3) or (7) under the Securities Act) and outside the United States to non-U.S. Persons in offshore transactions in reliance on Regulation S under the Securities Act. (iii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Purchase Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Company Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act, or taxed as a corporation for United States federal income tax purposes and so that the Notes will be treated as indebtedness of the Sponsor for United States federal income tax purposes. In this connection, the Sponsor and the Company Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Declaration, that each of the Sponsor and the Company Trustees determines in their discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the Holders of Preferred Securities. Section 2.8. Assets of Trust. The assets of the Trust shall consist of the Trust Property. Section 2.9. Title to Trust Property. Legal title to all Trust Property shall be vested at all times in the Preferred Trustee (in its capacity as such) and shall be held and administered by the Preferred Trustee for the benefit of the Trust and the Securityholders in accordance with this Declaration. 15 ARTICLE III PAYMENT ACCOUNT Section 3.1. Payment Account. (a) On or prior to the Closing Date, the Preferred Trustee shall establish the Payment Account. The Preferred Trustee and any agent of the Preferred Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making withdrawals from the Payment Account in accordance with this Declaration. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Preferred Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Preferred Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Notes. Amounts held in the Payment Account shall not be invested by the Preferred Trustee pending distribution thereof. ARTICLE IV DISTRIBUTIONS; REDEMPTION Section 4.1. Distributions. (a) Distributions on the Trust Securities shall be cumulative. Distributions shall accrue from August 15, 1997, and shall be payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 1998, when and if the Trust has funds available for payment. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 4.1(a), a "Distribution Date"). (b) The Trust Securities represent undivided beneficial ownership interests in the Trust Property. Distributions on the Trust Securities shall be payable at a rate of 9 1/2% per annum of the Liquidation Amount of the Trust Securities. Distributions in arrears for more than one semi-annual period (and interest thereon) will accrue interest (compounded semi-annually) at the same rate. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. 16 (c) Distributions on the Trust Securities shall be made by the Preferred Trustee from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then legally available in the Payment Account for the payment of such Distributions. (d) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date 15 days prior to the relevant Distribution Date. (e) Upon the occurrence of any event specified in Section 2(e) of the Registration Rights Agreement, additional interest will accrue on the principal amount of the Senior Subordinated Notes, and, as a result, on the liquidation amount of Preferred Securities, in the amounts set forth in and otherwise in accordance with Section 3.7 of the Indenture. Section 4.2. Redemption. (a) On each Note Redemption Date and on the stated maturity of the Notes, the Trust will be required to redeem a Like Amount of Trust Securities at the Redemption Price. The Trust Securities shall not be redeemed unless all accrued and unpaid Distributions have been paid on all Trust Securities for all semi-annual distribution periods terminating on or prior to the Redemption Date. (b) Notice of redemption shall be given by the Preferred Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Security Register. All notices of redemption shall be irrevocable and shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the total Liquidation Amount of the particular Trust Securities to be redeemed; and (v) that on the Redemption Date that the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that distributions thereon will cease to accrue on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Notes. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on 17 each Redemption Date only to the extent that the Trust has funds then legally available in the Payment Account for the payment of such Redemption Price. (d) If the Preferred Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 4.2(c), the Preferred Trustee will, with respect to the Preferred Securities that are in book-entry-only form, irrevocably deposit with the Clearing Agency for the Preferred Securities funds sufficient to pay the applicable Redemption Price to the holders thereof. With respect to the Preferred Securities that are no longer in book-entry-only form, the Preferred Trustee, subject to Section 4.2(c), will irrevocably deposit with the Payment Agent funds sufficient to pay the applicable Redemption Price to the Holders thereof upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except for the right of such Securityholders to receive the Redemption Price and any Distributions payable on or prior to the Redemption Date, but without interest on the Redemption Price. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Sponsor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accrue, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price (other than for purposes of calculating any premium). (e) Payment of the Redemption Price on the Trust Securities shall be made to the record holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one day prior to the relevant Redemption Date; provided, however, that with respect to the Preferred Securities that are not in book-entry-only form, the relevant record date shall be the date 15 days prior to the relevant Redemption Date. In the event that any date on which payment of the Redemption Price on the Preferred Securities is not a Business Day, payment of the Redemption Price shall be made in accordance with Section 4.1(d) above. (f) Subject to Section 4.3(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be redeemed on a pro rata basis (based on Liquidation Amounts) not more than 60 days prior to the Redemption Date by the Preferred Trustee from the Outstanding Preferred Securities not previously called for redemption. The Preferred Trustee shall promptly 18 notify the Security Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Declaration, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities that has been or is to be redeemed. (g) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Sponsor or its subsidiaries may at any time and from time to time purchase Outstanding Preferred Securities by tender, in the open market or by private agreement. Section 4.3. Subordination of Common Securities. Payment of Distributions on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(f), pro rata among the Common Securities and the Preferred Securities based on the respective Liquidation Amounts of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date a Declaration Event of Default shall have occurred and be continuing, no payment of any Distribution on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of accumulated and unpaid Distributions on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities, shall have been made or provided for, and all funds available to the Preferred Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price of, Preferred Securities then due and payable. 19 Section 4.4. Payment Procedures. Payments of Distributions in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Preferred Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable distribution dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Preferred Trustee and the Common Security Securityholder. Section 4.5. Tax Returns and Reports. The Company Trustees shall prepare (or cause to be prepared), at the expense of the Sponsoras issuer of the Notes, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Company Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required to be provided on such form. The Company Trustees shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. Section 4.6. Payment of Taxes, Duties, Etc. of Trust. Pursuant to Section 10.18 of the Indenture, the Sponsor, in its capacity as issuer of the Notes, has agreed to pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. Section 4.7. Payments under Indenture. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder (and any Owner with respect thereto) has directly received pursuant to Section 5.12 of the Indenture. ARTICLE V TRUST SECURITIES CERTIFICATES Section 5.1. Initial Ownership. Upon the creation of the Trust and the contribution by the Sponsor pursuant to Section 2.3 and until the issuance of the Trust Securities, and at any time during which no trust Securities are outstanding, the Sponsor shall be the sole beneficial owner of the Trust. Section 5.2. General Provisions Regarding Trust Securities. 20 The Company Trustees shall, on behalf of the Trust, issue one class of preferred securities representing undivided beneficial interests in the assets of the Trust, which class may be divided into no more than two series (the "Preferred Securities"), and one class of common securities representing undivided beneficial interests in the assets of the Trust, which class may be divided into no more than two series (the "Common Securities"). The Trust is hereby authorized to issue Preferred Securities in accordance with and as contemplated by the Registration Rights Agreement. The Trust shall issue no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. The consideration received by the Trust for the issuance of the Trust Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. Upon issuance of the Trust Securities as provided in this Declaration, the Trust Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. Section 5.3. Execution and Authentication. The Trust Securities shall be signed on behalf of the Trust by a Company Trustee. In case any Company Trustee of the Trust who shall have signed any of the Trust Securities shall cease to be such Company Trustee before the Trust Securities so signed shall have been delivered by the Trust, such Trust Securities nevertheless may be delivered as though the Person who signed such Trust Securities had not ceased to be such Company Trustee; and any Trust Securities may be signed on behalf of the Trust by such Person who, at the actual date of execution of such Trust Security, shall be the Company Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such Person was not such a Company Trustee. One Company Trustee shall sign the Preferred Securities for the Trust by manual or facsimile signature. Unless otherwise determined by the Trust, such signature shall, in the case of the Common Securities, be a manual signature. A Preferred Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Preferred Trustee. The signature shall be conclusive evidence that the Preferred Security has been authenticated under this Declaration. Upon written order of the Trust signed by one Company Trustee, the Preferred Trustee shall authenticate the Preferred Securities for original issue. The aggregate number of Preferred Securities outstanding at any time shall not exceed 130,000, except as provided in Section 5.8. The Preferred Trustee may appoint an authenticating agent acceptable to the Trust to authenticate Preferred Securities. An authenticating agent may authenticate Preferred Securities whenever the Preferred Trustee may do so. Each reference in this Declaration to authentication 21 by the Preferred Trustee includes authentication by such agent. An authenticating agent has the same rights as the Preferred Trustee to deal with the Sponsor or an Affiliate. Section 5.4. Form and Dating. The Preferred Securities and the Preferred Trustee's certificate of authentication shall be substantially in the form of Exhibit D, and the Common Securities shall be substantially in the form of Exhibit C, each of which being hereby incorporated in and expressly made a part of this Declaration. Certificates representing the Trust Securities may be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Company Trustees, as evidenced by their execution thereof. The Trust Securities may have letters, CUSIP or other numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the the Company Trustees). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit D to the Preferred Trustee in writing. Each Preferred Security shall be dated the date of its authentication. The forms of Trust Securities set forth in Exhibits C and D are part of the terms of this Declaration and to the extent applicable, the Preferred Trustee, the Company Trustees and the Sponsor, by their execution and delivery of the Declaration, expressly agree to be bound thereby. (a) Global Securities. Trust Securities offered and sold to QIBs in reliance on Rule 144A, offered and sold outside the United States to non-U.S. Persons in offshore transactions in reliance on Regulation S or offered and sold to "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7)) who did not purchase Preferred Securities in reliance on Regulation S, as provided in the Purchase Agreement, shall be issued in the form of one or more permanent Global Securities in definitive, fully registered form without Distribution coupons with the appropriate global legends and Restricted Securities Legend set forth in Exhibit D hereto (respectively, a "Restricted Global Preferred Security," a "Regulation S Preferred Security" and an "Accredited Investor Global Preferred Security,"), which shall be deposited on behalf of the purchasers of the Preferred Securities represented thereby with the Preferred Trustee, at its Wilmington, Delaware office, as custodian for the Clearing Agency, and registered in the name of the Clearing Agency or a nominee of the Clearing Agency, duly executed by the Trust and authenticated by the Preferred Trustee as herein provided. The number of Preferred Securities represented by the Restricted Global Preferred Security, the Regulation S Global Preferred Security and the Accredited Investor Global Preferred Security may from time to time be increased or decreased by adjustments made on the records of the Preferred Trustee and the Clearing Agency or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 5.4(b) shall apply only to the Restricted Global Preferred Securities, the Regulation S Global Preferred Securities, and the Accredited Investor Global Preferred Securities and such other Preferred Securities in global form as may be authorized by the Trust to be deposited with or on behalf of the Clearing Agency. A Company Trustee on behalf of the Trust shall execute and the Preferred Trustee shall, in accordance with this Section 5.4 authenticate and make available for delivery initially one or more Restricted Global Preferred Securities, one or more Regulation S Global Preferred 22 Securities and one or more Accredited Investor Global Preferred Securities that (i) shall be registered in the name of Cede & Co. or other nominee of such Clearing Agency and (ii) shall be delivered by the Preferred Trustee to such Clearing Agency or pursuant to such Clearing Agency's written instructions or held by the Preferred Trustee as custodian for the Clearing Agency. Members of, or participants in, the Clearing Agency ("Participants") shall have no rights under this Declaration with respect to any Restricted Global Preferred Security, any Regulation S Global Preferred Security or any Accredited Investor Global Preferred Security held on their behalf by the Clearing Agency or by the Preferred Trustee as the custodian of the Clearing Agency or under such Restricted Global Preferred Security, such Regulations S Preferred Security or such Accredited Investor Global Preferred Security, and the Clearing Agency may be treated by the Trust, the Preferred Trustee and by agents of the Trust or the Preferred Trustee as the absolute owner of such Restricted Global Preferred Security, such Regulation S Global Preferred Security or such Accredited Investor Global Preferred Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Trust, the Preferred Trustee or any agent of the Trust or the Preferred Trustee from giving effect to any written certification, proxy or other authorization furnished by the Clearing Agency or impair, as between the Clearing Agency and its Participants, the operations or customary practices of such Clearing Agency governing the exercise of the rights of a holder of beneficial interest in any Restricted Global Preferred Security, any Regulation S Global Preferred Security or any Accredited Investor Global Preferred Security. (c) Definitive Preferred Securities. Except as provided in Section 5.6, owners of a beneficial interest in a Restricted Global Preferred Security, a Regulation S Global Preferred Security or an Accredited Investor Global Preferred Security will not be entitled to receive physical delivery of certificated Preferred Securities ("Definitive Preferred Securities"). Definitive Preferred Securities will bear the Restricted Securities Legend set forth on Exhibit D unless removed in accordance with this Section 5.4. or Section 5.6. Section 5.5. Transfer of Trust Securities. (a) Trust Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Trust Securities. To the fullest extent permitted by law, any transfer or purported transfer of any Trust Security not made in accordance with this Declaration shall be null and void. (b) Subject to the transfer requirements provided in this Article IV, Preferred Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration. Any transfer or purported transfer of any Preferred Security not made in accordance with this Declaration shall be null and void. (c) Subject to Section 9.5 and except as provided in Article VIII of the Indenture, to the fullest extent permitted by law, the Sponsor may not transfer the Common Securities. (d) The Company Trustees shall provide for the registration of Securities and of the transfer of Securities, which will be effected without charge but only upon payments (with 23 indemnity as the Company Trustees may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Trust Securities, the Company Trustees shall cause one or more new Trust Securities to be issued in the name of the designated transferee or transferees. Every Trust Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Company Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Trust Security surrendered for registration of transfer shall be canceled by the Company Trustees. A transferee of a Trust Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon receipt by such transferee of a Trust Security. By acceptance of a Trust Security, each transferee shall be deemed to have expressly assumed and agreed to the terms of, and shall be bound by, this Declaration. Section 5.6. Transfer Procedures and Restrictions. General. If Preferred Securities are issued upon the transfer, exchange or replacement of Preferred Securities bearing the Restricted Securities Legend in Exhibit D hereto, or if a request is made to remove the Restricted Securities Legend on Preferred Securities, the Preferred Securities so issued shall bear the Restricted Securities Legend, or the Restricted Securities Legend shall not be removed, as the case may be, unless there is delivered to the Trust and the Preferred Trustee such satisfactory evidence, which shall include an Opinion of Counsel licensed to practice law in the State of New York, as may be reasonably required by the Sponsor and the Preferred Trustee, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof are made pursuant to an exception from the registration requirements of the Securities Act or, with respect to Restricted Securities, that such Trust Securities are not "restricted" within the meaning of Rule 144. Upon provision of such satisfactory evidence, the Preferred Trustee, at the written direction of a Company Trustee on behalf of the Trust, shall authenticate and deliver Preferred Securities that do not bear the legend. (a) Transfer and Exchange of Definitive Preferred Securities. When Definitive Preferred Securities are presented to the Securities Registrar: (i) to register the transfer of such Definitive Preferred Securities or (ii) to exchange such Definitive Preferred Securities which became mutilated, defaced, stolen or lost, for an equal number of Definitive Preferred Securities, the Securities Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Preferred Securities are surrendered for transfer or exchange: (x) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Trust and the Securities Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (y) in the case of Definitive Preferred Securities that are Restricted Definitive Preferred Securities: 24 (A) if such Restricted Preferred Securities are being delivered to the Securities Registrar by a Holder for registration in the name of such Holder without transfer, a certification from such Holder to that effect; or (B) if such Restricted Preferred Securities are being transferred: (x) a certification from the transferor in a form substantially similar to that attached hereto as the "Assignment" in Exhibit D, and (y) if the Trust or Securities Registrar so requested, evidence reasonably satisfactory to them as to the compliance with the restrictions set forth with the Restricted Securities Legend. (b) Restrictions on Transfer of a Definitive Preferred Security for a Beneficial Interest in a Global Preferred Security. A Definitive Preferred Security may not be exchanged for a beneficial interest in a Global Preferred Security except upon satisfaction of the requirements set forth below. Upon receipt by the Preferred Trustee of a Definitive Preferred Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Preferred Trustee, together with: (i) if such Definitive Preferred Security is a Restricted Preferred Security, a written certificate (in a form substantially similar to that attached hereto as the "Assignment" in Exhibit D); provided, however, that such Definitive Preferred Security may only be exchanged for any interest in a Regulation S Global Security where such Definitive Preferred Security is being transferred pursuant to Regulation S or Rule 144 (if available); and (ii) whether or not such Definitive Preferred Security is a Restricted Preferred Security, written instructions directing the Preferred Trustee to make, or to direct the Clearing Agency to make, an adjustment on its books and records with respect to the appropriate Global Preferred Security to reflect an increase in the number of the Preferred Securities represented by such Global Preferred Security, then the Preferred Trustee shall cause such Definitive Preferred Security and cause, or direct the Clearing Agency to cause, the aggregate number of Preferred Securities represented by the appropriate Global Preferred Security to be increased accordingly. If no Global Securities are then outstanding, a Company Trustee shall cause the Trust to issue and the Preferred Trustee shall authenticate, upon written order of any Company Trustee, an appropriate number of Preferred Securities in global form. (c) Transfer and Exchange of Global Preferred Securities. Subject to Section 5.6(d), the transfer and exchange of Global Preferred Securities or beneficial interests therein shall be effected through the Clearing Agency in accordance with this Declaration (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Clearing Agency therefor. (d) Transfer of a Beneficial Interest in a Global Preferred Security for a Definitive Preferred Security. Any Person having a beneficial interest in a Global Preferred Security may upon request, but only upon 20 days prior notice to the Preferred Trustee, and if accompanied by the information specified below, exchange such beneficial interest for a Definitive Preferred Security representing the same number of Preferred Securities. Upon receipt by the Preferred Trustee from the Clearing Agency or its nominee on behalf of any Person having a beneficial interest in a Global Preferred Security of written instructions or such other form of 25 instructions as is customary for the Clearing Agency or the Person designated by the Clearing Agency as having such a beneficial interest in a Restricted Preferred Security and a certification from the transferor (in a form substantially similar to that attached hereto as the "Assignment" in Exhibit D), which may be submitted by facsimile, then the Preferred Trustee will cause the aggregate number of Preferred Securities represented by Global Preferred Securities to be reduced on its books and records and, following such reduction, a Company Trustee on behalf of the Trust will execute and the Preferred Trustee will authenticate and make available for delivery to the transferee a Definitive Preferred Security. Definitive Preferred Securities issued in exchange for a beneficial interest in a Global Preferred Security pursuant to this Section 5.6(d) shall be registered in such names and in such authorized denominations as the Clearing Agency pursuant to instruction from its Participants or indirect participants or otherwise, shall instruct the Preferred Trustee in writing. The Preferred Trustee shall deliver such Preferred Securities to the Person in whose names such Preferred Securities are so registered in accordance with the instructions of the Clearing Agency. (e) Restrictions on Transfer and Exchange of Global Preferred Securities. Notwithstanding any other provisions in the Declaration (other than the provisions set forth in Section 5.6(f)), a Global Preferred Security may not be transferred as a whole except by the Clearing Agency to a nominee of the Clearing Agency or another nominee of the Clearing Agency or by the Clearing Agency or a nominee of such successor Clearing Agency. (i) Beneficial interests in the Accredited Investor Global Preferred Security may be, and prior to the expiration of the restricted period, as contemplated by Regulation S, beneficial interests in the Regulation S Global Preferred Security may be exchanged for beneficial interests in the Restricted Global Preferred Security only if such exchange occurs in connection with a transfer of the Preferred Securities pursuant to Rule 144A and the transferor first delivers to the Trustee a written certificate (in a form substantially similar to that attached hereto as the "Assignment" in Exhibit D) to the effect that the Preferred Securities are being transferred to a Person who the transferor reasonably believes is a QIB, purchasing for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A and in accordance with all applicable securities laws of the states of the United States and other jurisdictions. (ii) Beneficial interests in the Restricted Global Preferred Security may be, and prior to the expiration of the restricted period, as contemplated by Regulation S, beneficial interests in the Regulation S Global Preferred Security may be, exchanged for beneficial interests in the Accredited Investor Global Preferred Security only if such exchange occurs in connection with a transfer of the Preferred Securities to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is acquiring the Preferred Security for its own account, or for the account of such institutional accredited investor, for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. (iii) Beneficial interests in the Restricted Global Preferred Security or in the Accredited Investor Global Preferred Security may be transferred to a Person who takes delivery in the form of an interest in the Regulation S Global Preferred Security, whether before 26 or after the expiration of such restricted period, as contemplated by Regulation S, only if the transferor first delivers to the Preferred Trustee a written certificate (in a form substantially similar to that attached hereto as the "Assignment" in Exhibit D) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulations S or Rule 144 (if available) and that, if such transfer occurs prior to the expirations of such restricted period, the interest transferred will be held immediately thereafter through Euroclear or CEDEL. (f) Authentication of Definitive Preferred Securities. If at any time: (i) there occurs a Declaration Event of Default which is continuing, or (ii) a Company Trustee on behalf of the Trust, in its sole discretion, notifies the Preferred Trustee in writing that it elects to cause the issuance of Definitive Preferred Securities under this Declaration, then a Company Trustee on behalf of the Trust will execute, and the Preferred Trustee, upon receipt of a written order of the Trust signed by one Company Trustee requesting authentication and delivery of Definitive Preferred Securities to the Persons designated by the Trust, will authenticate and make available for delivery Definitive Preferred Securities, equal in number to the number of Preferred Securities represented by Global Preferred Securities, in exchange for such Global Preferred Securities. (g) Legend. (i) Except as permitted by the following paragraph (ii), each Preferred Security Certificate evidencing the Global Preferred Securities and the Definitive Preferred Securities (and all Preferred Securities issued in exchange therefor or substitution thereof, except in the Exchange Offer) shall bear a legend (the "Restricted Securities Legend") in substantially the following form: THE PREFERRED SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS PREFERRED SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THE PREFERRED SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS PREFERRED SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY 27 "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS PREFERRED SECURITY (OR ANY PREDECESSOR OF THIS PREFERRED SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS PREFERRED SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE OF RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-UNITED STATES PERSONS THAT OCCUR OUTSIDE THE UNITED SATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS PREFERRED SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER, (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO CLAUSE (E) TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED AUGUST 7, 1997. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS PREFERRED SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. In the case of the Regulation S Global Preferred Security THIS PREFERRED SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED 28 OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE. (ii) Upon any sale or transfer of a Restricted Preferred Security (including any Restricted Preferred Security represented by a Global Preferred Security) pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 of the Securities Act: (A) in the case of any Restricted Preferred Security that is a Definitive Preferred Security, the Securities Registrar shall permit the Holder thereof to exchange such Restricted Preferred Security for a Definitive Preferred Security that does not bear the Restricted Securities Legend and rescind any restriction on the transfer of such Restricted Preferred Security; and (B) in the case of any Restricted Preferred Security that is represented by a Global Preferred Security, the Securities Registrar shall permit the Holder of such Global Preferred Security to exchange such Global Preferred Security for another Global Preferred Security that does not bear the Restricted Securities Legend. (h) Cancellation or Adjustment of Global Preferred Security. At such time as all beneficial interests in a Global Preferred Security have either been exchanged for Definitive Preferred Securities to the extent permitted by this Declaration or redeemed, repurchased or canceled in accordance with the terms of this Declaration, such Global Preferred Security shall be returned to the Clearing Agency for cancellation or retained and canceled by the Preferred Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Preferred Security is exchanged for Definitive Preferred Securities, Preferred Securities represented by such Global Preferred Security shall be reduced and an adjustment shall be made on the books and records of the Preferred Trustee (if it is then the custodian for such Global Preferred Security) with respect to such Global Preferred Security, by the Preferred Trustee, to reflect such reduction. (i) No Obligations of the Preferred Trustee. The Preferred Trustee shall have no responsibility or obligation to any beneficial owner of a Global Preferred Security, a Participant in the Clearing Agency or other Person with respect to the accuracy of the records of the Clearing Agency or its nominee or of any Participant thereof, with respect of any ownership interest in the Preferred Securities or with respect to the delivery of any Participant, beneficial owner or other Person (other than the Clearing Agency) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Preferred Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Preferred Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Clearing Agency or its nominee in the case of a Global Preferred Security). The rights of beneficial owners in any Global Preferred Security shall be exercised only through the Clearing Agency subject to the applicable rules and procedures of the Clearing Agency. The Preferred Trustee may conclusively rely and shall be fully protected in relying upon information 29 furnished by the Clearing Agency or any agent thereof with respect to its Participants and any beneficial owners. The Preferred Trustee and Securities Registrar shall have no obligation or duty to monitor, determine or inquire as to compliance with any restriction on transfer imposed under this Declaration or under applicable law with respect to any transfer of any interest on any Preferred Security (including any transfers between or among Clearing Agency Participants or beneficial owners on any Global Preferred Security) other than to require delivery of such certificates and other documentation or evidence as are required by, and to do so if and when expressly required by law, the terms of this Declaration, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (j) Minimum Transfers. Preferred Securities may only be transferred in minimum blocks of $100,000 aggregate Liquidation Amount until such Preferred Securities are registered pursuant to an effective registration statement filed under the Securities Act or are "unrestricted" pursuant to Rule 144 under the Securities Act. Section 5.7. Temporary Securities. (a) Until definitive Trust Securities are ready for delivery, a Company Trustee on behalf of the Trust may prepare and, in the case of the Preferred Securities, the Preferred Trustee shall authenticate temporary Securities (the "Temporary Securities"). Temporary Securities shall be substantially in the form of definitive Trust Securities but may have variations that the Trust considers appropriate for temporary Trust Securities. Without unreasonably delay, a Company Trustee on behalf of the Trust shall prepare, and in the case of the Preferred Securities, the Preferred Trustee shall authenticate definitive Securities in exchange for Temporary Securities. (b) A Global Preferred Security deposited with the Clearing Agency or with the Preferred Trustee as custodian for the Clearing Agency pursuant to Section 5.4 shall be transferred to the beneficial owners thereof in the form of certificated Preferred Securities only if such transfer complies with Section 5.6 and (i) the Clearing Agency notifies the Company that it is unwilling or unable to continue as Clearing Agency for such Global Preferred Security or if at any time such Clearing Agency ceases to be a "clearing agency" registered under the Exchange Act and a clearing agency is not appointed by the Sponsor within 90 days of such notice, (ii) a Declaration Event of Default has occurred and is continuing or (iii) the Trust at its sole discretion elects to cause the issuance of certificated Preferred Securities. (c) Any Global Preferred Security that is transferable to the beneficial owners thereof in the form of certificated Preferred Securities pursuant to this Section 5.7 shall be surrendered by the Clearing Agency to the Preferred Trustee located in Wilmington, Delaware, to be so transferred, in whole or from time to time in part, without charge, and the Preferred Trustee shall authenticate and make available for delivery, upon such transfer of each portion of such Global Preferred Security, an equal aggregate Liquidation Amount of Securities of authorized denominations in the form of certificated Preferred Securities. Any portion of Global Preferred Security also transferred pursuant to this Section shall be registered in such names as the Clearing Agency shall direct. Any Preferred Security in the form of certificated Preferred Security also 30 delivered in exchange for an interest in the Restricted Global Preferred Security shall, except as otherwise provided by Sections 5.4 and 5.5, bear the Restricted Securities Legend set forth in Exhibit D hereto. (d) Subject to the provisions of Section 5.7(c), the Holder of a Global Preferred Security may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which such Holder is entitled to take under this Declaration or the Trust Securities. (e) In the event of the occurrence of any of the events specified in Section 5.7(b), the Trust will promptly make available to the Preferred Trustee a reasonable supply of certificated Preferred Securities in fully registered form without Distribution coupons. Section 5.8. Securities Register and Securities Registrar. The Sponsor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (the "Securities Register") in which the registrar designated by the Sponsor (the "Securities Registrar"), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Preferred Securities Certificates and Common Securities Certificates (subject to Section 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Preferred Trustee shall be the initial Securities Registrar. Section 5.9. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Company Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Company Trustees, or any one of them, on behalf of the Trust, shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section, the Company Trustees or the Securities Registrar may require the payment of a sum sufficient to pay any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. Section 5.10. Persons Deemed Securityholders. The Company Trustees or the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving distributions and for all other purposes 31 whatsoever, and neither the Company Trustees nor the Securities Registrar shall be bound by any notice to the contrary. Section 5.11. Access to List of Securityholders' Names and Addresses. Each Holder of a Trust Securities Certificate, and each Owner shall be deemed to have agreed not to hold the Sponsor, the Preferred Trustee, the Delaware Trustee or the Company Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. Section 5.12. Maintenance of Office or Agency. The Company Trustees shall maintain an office or offices or agency or agencies where Preferred Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities Certificates may be served. The Company Trustees initially designate Wilmington Trust Company, 1100 North Market Street, Rodney Square North, Wilmington, Delaware, Attention: Corporate Trust Administration, as its principal corporate trust office for such purposes. The Company Trustees shall give prompt written notice to the Sponsor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. Section 5.13. Appointment of Paying Agent. The Paying Agent shall make distributions to Securityholders from the Payment Account and shall report the amounts of such distributions to the Preferred Trustee and the Company Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the distributions referred to above. The Company Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Declaration in any material respect. The Paying Agent shall initially be the Bank, and any co-paying agent chosen by the Bank, and acceptable to the Company Trustees and the Sponsor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Company Trustees, the Preferred Trustee and the Sponsor. In the event that the Bank shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Company Trustees shall appoint a successor that is acceptable to the Preferred Trustee and the Sponsor to act as Paying Agent (which shall be a bank or trust company). The Company Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Company Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Preferred Trustee, and upon removal of a Paying Agent such Paying Agent shall return all funds in its possession to the Preferred Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank also in its role as Paying Agent, for so long as the Bank shall act as Paying Agent and, to the extent applicable, to any other Paying Agent appointed 32 hereunder. Any reference in this Declaration to the Paying Agent shall include any co-paying agent unless the context requires otherwise. Section 5.14. Ownership of Common Securities by Sponsor. On the Closing Date, the Sponsor shall acquire and retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Sponsor into another Person, or any conveyance, transfer or lease by the Sponsor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Company Trustees shall cause each Common Securities Certificate issued to the Sponsor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN THE DECLARATION." Section 5.15. Rights of Securityholders. (a) The legal title to the Trust Property is vested exclusively in the Preferred Trustee (in its capacity as such) in accordance with Section 2.9, and the Securityholders shall not have any right or title therein other than the undivided beneficial ownership interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein, in this Declaration and in the Delaware Business Trust Act. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be fully paid and nonassessable by the Trust. The Holders of the Trust Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware without giving effect to principles of conflict of laws. (b) For so long as any Preferred Securities remain Outstanding, if, upon a Declaration Event of Default, the Indenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Notes fail to declare the principal of all of the Notes to be immediately due and payable, the Preferred Trustee shall have such right by a notice in writing to the Sponsor and the Indenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Notes shall become immediately due and payable, provided, that the payment of principal and interest on such Notes shall remain subordinated to the extent provided in the Indenture. At any time after such a declaration of acceleration with respect to the Notes has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as provided in the Indenture, the Holders of a majority in Liquidation Amount of the Preferred Securities, by written notice to the Preferred Trustee, the Sponsor and the Indenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Sponsor has paid or deposited with the Indenture Trustee a sum sufficient to pay: 33 (A) all overdue installments of interest on all of the Notes, (B) the principal of (and premium, if any, on) any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, and (C) all sums paid or advanced by the Indenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, the Preferred Trustee and the Delaware Trustee, their agents and counsel; and (ii) any Note Event of Default, other than the non-payment of the principal of the Notes which has become due solely by such acceleration, has been cured or waived as provided in Section 5.13 of the Indenture. In the case of any Declaration Event of Default, the Holder of Common Securities will be deemed to have waived any such Declaration Event of Default under this Declaration until all such Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Declaration Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Trustees shall act solely on behalf of the Holders of Preferred Securities and not the Holder of the Common Securities, and only the Holders of Preferred Securities will have the right to direct the Trustees to act on their behalf. The Holders of a majority in aggregate Liquidation Amount of the Preferred Securities may, on behalf of the Holders of all the Preferred Securities, waive any past default under the Indenture, except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Indenture Trustee) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Note. No such rescission shall affect any subsequent default or impair any right consequent thereon. The Preferred Trustee shall not, as the initial holder of the Notes, for so long as it holds such Notes, waive any Note Event of Default without the consent of Holders of a majority in aggregate Liquidation Amount of Preferred Securities then Outstanding. A waiver of a Note Event of Default will constitute a waiver of the corresponding Declaration Event of Default. Upon receipt by the Preferred Trustee of written notice declaring such rescission and annulment by Holders of Preferred Securities all or part of which is represented by Book- Entry Preferred Securities Certificates, a record date shall be established for determining Holders of Outstanding Preferred Securities entitled to join in such notice, which record date shall be at the close of business on the day the Preferred Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of rescission and annulment shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such 34 record date, such notice of declaration of rescission and annulment shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of rescission and annulment that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.15(c). (c) For so long as any Preferred Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Declaration and the Indenture, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest on or principal of the Notes on the date such interest or principal is otherwise payable (or in the case of redemption, the redemption date), then the Holders of at least 25% in Liquidation Amount of the Outstanding Preferred Securities shall have the right to appoint a trustee (the "Special Trustee") to act on behalf of all Holders of Preferred Securities. The Special Trustee so appointed shall represent the Holders of all Outstanding Preferred Securities unless Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities appoint an alternative Special Trustee, in which case the Special Trustee appointed in accordance with the preceding sentence shall resign as Special Trustee. At no time can there be more than one Special Trustee acting on behalf of the Holders of Preferred Securities. To the fullest extent permitted by law, the Special Trustee shall have the right to directly institute a proceeding against the Sponsor (a "Trustee Action") for enforcement of payment to Holders of Preferred Securities of the principal of or interest on the Notes having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such Holders. In connection with any such Trustee Action, the rights of the Holder of the Common Securities will be subrogated to the rights of any Holder of Preferred Securities to the extent of any payment made by the Sponsor to such Holder of Preferred Securities as a result of such Trustee Action. Except as set forth in Sections 5.15(b) and (c), the Holders of Preferred Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Notes; provided, however, that if the Preferred Trustee or the Special Trustee do not enforce such payment obligations, a Holder of Preferred Securities will, to the fullest extent permitted by law, have the right to bring an action on behalf of the Trust to enforce the Trust's rights under the Notes and the Indenture. (d) Upon the occurrence of a Change of Control Triggering Event, each Holder of Preferred Securities shall have the right to require that the Trust exchange Preferred Securities for Notes having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities to be exchanged. The Sponsor shall immediately redeem any Preferred Securities so exchanged at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. 35 ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING Section 6.1. Limitations on Voting Rights. (a) Except as provided in this Section, in Sections 5.15, 8.10 and 10.2 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) Subject to the requirement of the Preferred Trustee obtaining an Opinion of Counsel in certain circumstances set forth in the last sentence of this paragraph, Holders of a majority in Liquidation Amount of all Outstanding Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Preferred Trustee (or Special Trustee, if appointed), or direct the exercise of any trust or power conferred upon the Preferred Trustee under this Declaration including the right to direct the Preferred Trustee, as holder of the Notes, to (i) exercise the remedies available under the Indenture with respect to the Notes, (ii) waive any past Event of Default that is waiveable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Notes shall be due and payable or (iv) consent to any amendment, modification, or termination of the Indenture or the Notes where such consent shall be required; provided, however, that, where a consent or action under the Indenture would require the consent or act of the holders of more than a majority of the aggregate principal amount of Notes affected thereby, only Holders of the percentage of the Liquidation Amount of all Outstanding Preferred Securities which is at least equal to the percentage required under the Indenture may direct the Preferred Trustee to give such consent or take such action. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities, except by a subsequent vote of the Holders of Preferred Securities. If the Preferred Trustee or the Special Trustee fails to enforce its rights under the Notes to receive interest or principal on the Notes on the date such interest or principal is otherwise payable (or in the case of redemption, the redemption date), a Holder of Preferred Securities may, to the fullest extent permitted by law, institute a legal proceeding on behalf of the Trust against the Sponsor to enforce the Trust's rights under the Notes without first instituting any legal proceeding against the Preferred Trustee or any other Person. Holders of Preferred Securities shall not be able to exercise directly any other remedies available to the holder of the Notes unless the Preferred Trustee or the Indenture Trustee, acting for the benefit of the Preferred Trustee, fail to do so. In such event, Holders of at least 25% in Liquidation Amount of all Outstanding Preferred Securities shall, to the fullest extent permitted by law, have a right to institute such proceedings. The Preferred Trustee shall notify all Holders of Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Notes. Such notice shall state that such Event of Default also constitutes a Declaration Event of Default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Preferred Trustee shall not take any of the actions described in clause (i), (ii) or (iii) above unless the Preferred Trustee has obtained an Opinion of Counsel rendered by a law firm having a tax and securities practice to the effect that, as a result of such action, the Trust will not fail to be 36 classified as a grantor trust for United States federal income tax purposes or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. (c) In the event the consent of the Preferred Trustee, as the holder of the Notes, is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Preferred Trustee shall request the direction of the Holders of Preferred Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a majority in Liquidation Amount of all Outstanding Preferred Securities; provided, however, that, where a consent under the Indenture would require the consent of the holders of more than a majority of the aggregate principal amount of the Notes, the Preferred Trustee may only give such consent at the direction of the Holders of at least the same proportion in Liquidation Amount of all Outstanding Preferred Securities. The Preferred Trustee shall not take any such action in accordance with the directions of the Holders of Preferred Securities unless the Preferred Trustee has obtained an Opinion of Counsel rendered by a law firm having an independent tax and securities practice experienced in such matters to the effect that, as a result of such action, the Trust will not fail to be classified as a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. (d) If any proposed amendment to the Declaration pursuant to Section 10.2 provides for, or the Trustees or the Sponsor otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Declaration, then the Holders of the Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Trust Securities affected thereby; provided, that if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority in Liquidation Amount of such class of Trust Securities. (e) Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described herein, any of the Preferred Securities that are owned at such time by the Sponsor or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Sponsor, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Preferred Securities were not Outstanding. (f) Holders of Preferred Securities have no rights to appoint or remove, or increase or decrease the number of, the Trustees, who may be appointed, removed or replaced, increased or decreased solely by the Sponsor as the indirect or direct Holder of all of the Common 37 Securities. No vote or consent of the Holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or distribute Notes in accordance with the Declaration. Section 6.2. Notice of Meetings. Notice of all meetings at which the Preferred Securities Securityholders are entitled to vote, or of all matters upon which action by written consent of the Preferred Securities Securityholders is to be taken, shall be given by the Preferred Trustee pursuant to Section 10.8 to each Preferred Securities Securityholder of record, at his registered address, at least 15 days and not more the 90 days before the meeting. Each such notice shall include a statement setting forth the following information: (i) the date, place and purpose of such meeting or the date by which such action is to be taken and the purpose thereof; (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. No vote or consent of the Holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or distribute Notes in accordance with this Declaration. Any adjourned meeting may be held as adjourned without further notice. Section 6.3. Meetings of Preferred Securities Securityholders. Any required approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Trust Securities or pursuant to written consent. No annual meeting of Securityholders is required to be held. The Company Trustees, however, shall call a meeting of Securityholders to vote on any matter upon the written request of the Preferred Securities Securityholders of record of 25% of the Preferred Securities (based upon their Liquidation Amount) and the Company Trustees or the Preferred Trustee may, at any time in their discretion, call a meeting of Preferred Securities Securityholders to vote on any matters as to which Preferred Securities Securityholders are entitled to vote. Preferred Securities Securityholders of record of 50% of the Outstanding Preferred Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. If a quorum is present at a meeting, an affirmative vote by the Preferred Securities Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their Liquidation Amount) held by the Preferred Securities Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Declaration requires a greater number of affirmative votes. Section 6.4. Voting Rights. Securityholders shall be entitled to one vote for each $1,000.00 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. 38 Section 6.5. Proxies, etc. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided, that no proxy shall be voted at any meeting unless it shall have been placed on file with the Company Trustees, or with such other officer or agent of the Trust as the Company Trustees may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Preferred Trustee, proxies may be solicited in the name of the Preferred Trustee or one or more officers of the Preferred Trustee. Only Securityholders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. Section 6.6. Securityholder Action by Written Consent. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding a majority of all Outstanding Trust Securities (based upon their Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Declaration) shall consent to the action in writing. Section 6.7. Record Date for Voting and Other Purposes. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any distribution of the Trust Securities in respect of which a record date is not otherwise provided for in this Declaration, or for the purpose of any other action, the Company Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of a distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. Section 6.8. Acts of Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Declaration to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to a Company Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient 39 for any purpose of this Declaration and (subject to Section 8.1) conclusive in favor of the Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. If any dispute shall arise between the Securityholders and the Company Trustees or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Preferred Trustee shall be conclusive with respect to such matter. Section 6.9. Inspection of Records. Upon reasonable notice to the Company Trustees and the Preferred Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. 40 ARTICLE VII REPRESENTATIONS AND WARRANTIES Section 7.1. Representations and Warranties of the Bank, the Preferred Trustee and the Delaware Trustee. The Preferred Trustee and the Delaware Trustee, each severally on behalf of and only as to itself, hereby represents and warrants for the benefit of the Sponsor, the Company Trustees and the Securityholders that: (a) the Preferred Trustee is a Delaware banking corpor- ation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Preferred Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Declaration and has taken all necessary action to authorize the execution, delivery and performance by it of this Declaration; (c) the Delaware Trustee is a Delaware banking corpor- ation duly organized, validly existing and in good standing in the State of Delaware; (d) the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Declaration and has taken all necessary action to authorize the execution, delivery and performance by it of this Declaration; (e) this Declaration has been duly authorized, executed and delivered by the Preferred Trustee and the Delaware Trustee and constitutes the valid and legally binding agreement of each of the Preferred Trustee and the Delaware Trustee enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (f) the execution, delivery and performance of this Declaration by the Preferred Trustee and the Delaware Trustee has been duly authorized by all necessary corporate or other action on the part of the Preferred Trustee and the Delaware Trustee and does not require any approval of stockholders, of the Preferred Trustee or the Delaware Trustee and such execution, delivery and performance will not (i) violate the Charter or By-Laws of the Preferred Trustee or the Delaware Trustee, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties including in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Preferred Trustee or the Delaware Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking, trust or general powers of the Preferred Trustee or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Preferred Trustee or the Delaware Trustee; 41 (g) neither the authorization, execution or delivery by the Preferred Trustee or the Delaware Trustee of this Declaration nor the consummation of any of the transactions by the Preferred Trustee or the Delaware Trustee (as appropriate in context) contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to (i) any governmental authority or agency under any existing federal or Delaware law governing the banking, trust or general powers of the Preferred Trustee, (ii) with respect to any governmental authority or agency under any existing federal or Delaware law governing the banking, trust or general powers of the Delaware Trustee (in each case, other than (a) the qualification of this Declaration, the Indenture and the Company Guarantee under the Trust Indenture Act, and (b) the filing of the Certificate of Trust as required under the Delaware Business Trust Act); and (h) there are no proceedings pending or, to the best of each of the Preferred Trustee's and the Delaware Trustee's knowledge, threatened against or affecting the Preferred Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Preferred Trustee or the Delaware Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Declaration. Section 7.2. Representations and Warranties of Sponsor. The Sponsor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued at each Time of Delivery on behalf of the Trust have been duly authorized and will have been duly and validly executed, issued and delivered by the Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Declaration and the Securityholders will be, as of each such date, entitled to the benefits of this Declaration; and (b) there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Preferred Trustee or the Delaware Trustee, as the case may be, of this Declaration. ARTICLE VIII THE TRUSTEES Section 8.1. Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustees shall be as provided by this Declaration and no implied covenants shall be read into this Declaration. Notwithstanding the foregoing, no provision of this Declaration shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not 42 reasonably assured to it. Whether or not therein expressly so provided, every provision of this Declaration relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. The Delaware Trustee shall have no liability under this Declaration except for its gross negligence or willful misconduct. To the extent that, at law or in equity, a Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of the Trustees otherwise existing at law or in equity, are agreed by the Sponsor and the Securityholders to replace such other duties and liabilities of the Trustees. (b) All payments made by the Preferred Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Preferred Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Declaration or, in the case of the Preferred Trustee, in the Trust Indenture Act. (c) No provision of this Declaration shall be construed to relieve the Preferred Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Preferred Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Preferred Trustee, unless it shall be proved that the Preferred Trustee was negligent in ascertaining or failing to ascertain the pertinent facts; (ii) the Preferred Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Trustee, or exercising any trust or power conferred upon the Preferred Trustee under this Declaration; (iii) the Preferred Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Notes and the Payment Account shall be to deal with such Trust Property in a similar manner as the Preferred Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Preferred Trustee under this Declaration and the Trust Indenture Act; (iv) the Preferred Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Sponsor; and money held by the Preferred Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Preferred Trustee pursuant to Section 3.1 and except to the extent otherwise required by law; and 43 (v) the Preferred Trustee shall not be respon- sible for monitoring the compliance by the Company Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Preferred Trustee be liable for the default or misconduct of the Company Trustees or the Sponsor. Section 8.2. Certain Notices. Within five Business Days after the occurrence of any Declaration Event of Default actually known to an officer in the Corporate Trust Administration office of the Preferred Trustee, the Preferred Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such Declaration Event of Default to the Securityholders, the Company Trustees, the Delaware Trustee and the Sponsor, unless such Declaration Event of Default shall have been cured or waived. Within ninety days after the receipt of notice of the Sponsor's exercise of its right to defer the payment of interest on the Notes pursuant to the Indenture, the Company Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such exercise to the Securityholders, the Delaware Trustee and the Preferred Trustee, unless such exercise shall have been revoked. Section 8.3. Certain Rights of Preferred Trustee. Subject to the provisions of Section 8.1: (a) the Preferred Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificates, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) If (i) in performing its duties under this Declaration the Preferred Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Declaration the Preferred Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Preferred Trustee is unsure of the application of any provision of this Declaration, then, except as to any matter as to which the Preferred Securities Securityholders are entitled to vote under the terms of this Declaration, the Preferred Trustee shall deliver a notice to the Sponsor requesting written instructions of the Sponsor as to the course of action to be taken and the Preferred Trustee shall take such action, or refrain from taking such action, as the Preferred Trustee shall be instructed in writing to take, or to refrain from taking, by the Sponsor; provided, however, that if the Preferred Trustee does not receive such instructions of the Sponsor within ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than five Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Declaration as it shall deem advisable and in the best interests of the Securityholders, in which event the Preferred Trustee shall have no liability except for its own bad faith, negligence or wilful misconduct; 44 (c) any direction or act of the Sponsor or the Company Trustees contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Declaration, the Preferred Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Preferred Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Company Trustees; (e) the Preferred Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or re-registration thereof; (f) the Preferred Trustee may consult with counsel (which counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Preferred Trustee shall have the right at any time to seek instruction concerning the administration of this Declaration from any court of competent jurisdiction; (g) the Preferred Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any of the Securityholders pursuant to this Declaration, unless such Securityholders shall have offered to the Preferred Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Preferred Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders; (i) the Preferred Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided, that the Preferred Trustee shall be responsible for its own negligence or recklessness with respect to the selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Declaration the Preferred Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Preferred Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Preferred Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in action in accordance with such instructions; and 45 (k) except as otherwise expressly provided by this Declaration, the Preferred Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration. No provision of this Declaration shall be deemed to impose any duty or obligation on the Preferred Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Preferred Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Trustee shall be construed to be a duty. Section 8.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Sponsor of the proceeds of the Notes. Section 8.5. May Hold Securities. Except as provided in the definition of the term "Outstanding" in Article I, any Trustee or any other agent of any Trustee of the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 8.8 and 8.13, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. Section 8.6. Compensation; Indemnity; Fees. Pursuant to Section 10.18 of the Indenture, the Sponsor, in its capacity as issuer of the Notes, agrees: (a) to pay the Trustee from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Declaration (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence (or, in the case of the Delaware Trustee, gross negligence) or bad faith; (c) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee, and (iv) any employee or agent of the Trust or its Affiliates (referred to herein as an "Indemnified Person") from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation, dissolution, winding-up or termination 46 of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of its negligence (or, in the case of the Delaware Trustee and its related Indemnified Persons, gross negligence) or willful misconduct with respect to such acts or omissions; and (d) to the fullest extent permitted by applicable law, to advance expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of (i) a written affirmation by or on behalf of the Indemnified Person of its or his good faith belief that it or he has met the standard of conduct set forth in this Section 8.6 and (ii) an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in the preceding subsection. The provisions of this Section 8.6 shall survive the termination of this Declaration and of the Trust. No Trustee may claim any lien or charge on any Trust Property as a result of any amount due pursuant to this Section 8.6. The Sponsor and any Trustee (subject to Section 8.8) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Sponsor, nor any Trustee, shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Sponsor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. Section 8.7. Corporate Preferred Trustee Required; Eligibility of Trustees. (a) There shall at all times be a Preferred Trustee hereunder with respect to the Trust Securities. The Preferred Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Preferred Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the 47 provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) There shall at all times be one or more Company Trustees hereunder with respect to the Trust Securities. Each Company Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. Section 8.8. Conflicting Interests. If the Preferred Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Preferred Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Declaration. Section 8.9. Co-Trustees and Separate Trustee. Unless a Declaration Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Sponsor and the Company Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Company Trustees, the Sponsor shall for such purpose join with the Company Trustees in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Preferred Trustee either to act as co-trustee, jointly with the Preferred Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Sponsor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Declaration Event of Default has occurred and is continuing, the Preferred Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Sponsor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Sponsor. 48 Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (a) The Trust Securities shall be executed and delivered and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (b) The rights, powers, duties, and obligations hereby conferred or imposed upon the Preferred Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Preferred Trustee or by the Preferred Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Preferred Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (c) The Preferred Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Sponsor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Declaration Event of Default has occurred and is continuing, the Preferred Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Sponsor. Upon the written request of the Preferred Trustee, the Sponsor shall join with the Preferred Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section. (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Preferred Trustee or any other trustee hereunder. (e) The Preferred Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (f) Any Act of Holders delivered to the Preferred Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. Section 8.10. Resignation and Removal; Appointment of Successor. No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time by giving written notice thereof to the Securityholders, the Sponsor and the other Trustees. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of 49 resignation, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. Unless a Declaration Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securities Securityholder. If a Declaration Event of Default shall have occurred and be continuing, the Preferred Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). A Company Trustee may be removed by the Common Securities Securityholder at any time. If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Declaration Event of Default shall have occurred and be continuing, the Common Securities Securityholder, by Act of the Common Securities Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Preferred Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Preferred Trustee or the Delaware Trustee, as the case may be, at a time when a Declaration Event of Default shall have occurred and be continuing, the Preferred Securities Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of Section 8.11. If a Company Trustee shall resign, be removed or become incapable of acting as Company Trustee, at a time when a Declaration Event of Default shall have occurred and be continuing, the Common Securities Securityholder by Act of the Common Securities Securityholder delivered to the Company Trustee shall promptly appoint a successor Company Trustee or Company Trustees and such successor Company Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee shall have been so appointed by the Common Securities Securityholder or the Preferred Securities Securityholders or if one has been appointed but has not accepted the appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee. The Preferred Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 10.8 and shall give notice to the Sponsor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Preferred Trustee. Notwithstanding the foregoing or any other provision of this Declaration, in the event any Company Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Sponsor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Company Trustees if there are at least two of them or (b) otherwise by the Sponsor (with the successor in each case being a 50 Person who satisfies the eligibility requirement for Company Trustees or Delaware Trustee, as the case may be, set forth in Section 8.7). Section 8.11. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and (b) shall add to or change any of the provisions of this Declaration as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor relevant Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article. Section 8.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Preferred Trustee or the Delaware Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any Person succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 8.13. Preferential Collection of Claims Against Sponsor or Trust. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Trust Securities or the property of the Trust or of such other obligor or their creditors, the Preferred Trustee (irrespective of whether any Distributions on the Trust Securities shall then be due and payable as therein expressed or by declaration or 51 otherwise and irrespective of whether the Preferred Trustee shall have made any demand on the Trust for the payment of any past due Distribution) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Trust Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Preferred Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Preferred Trustee, its agent and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Preferred Trustee and, in the event the Preferred Trustee shall consent to the making of such payments directly to the Holders, to pay to the Preferred Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Preferred Trustee, its agents and counsel, and any other amounts due to the Preferred Trustee. Nothing herein contained shall be deemed to authorize the Preferred Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or compensation affecting the Trust Securities or the rights of any Holder thereof or to authorize the Preferred Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 8.14. Reports by Preferred Trustee. (a) Not later than April 15 of each year commencing with April 15, 1998, the Preferred Trustee shall transmit to all Securityholders in accordance with Section 10.8, and to the Sponsor, a brief report dated as of the preceding December 31 with respect to: (i) its eligibility under Section 8.7 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; (ii) a statement that the Preferred Trustee has complied with all of its obligations under this Declaration during the twelve-month period (or, in the case of the initial report, the period since the Closing Date) ending with the preceding December 31 or, if the Preferred Trustee has not complied in any material respect with such obligations, a description of such noncompliance; and (iii) any change in the property and funds in its possession as Preferred Trustee since the date of its last report and any action taken by the Preferred Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities. 52 (b) In addition the Preferred Trustee shall transmit to Securityholders such reports concerning the Preferred Trustee and its actions under this Declaration as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Preferred Trustee with the Commission and with the Sponsor. Section 8.15. Reports to the Preferred Trustee. The Sponsor and the Company Trustees on behalf of the Trust shall provide to the Preferred Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Section 8.16. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Company Trustees on behalf of the Trust shall provide to the Preferred Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. Section 8.17. Number of Trustees. (a) The number of Trustees shall be five, provided, that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Company Trustees. The Preferred Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Company Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul, dissolve or terminate the Trust. Whenever a vacancy in the number of Company Trustees shall occur, until such vacancy is filled by the appointment of a Company Trustee in accordance with Section 8.10, the Company Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Company Trustees and shall discharge all the duties imposed upon the Company Trustees by this Declaration. Section 8.18. Delegation of Power. (a) Any Company Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of 53 executing any documents contemplated in Section 2.7(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) The Company Trustees shall have power to delegate from time to time to such of their number or to the Sponsor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Company Trustees or otherwise as the Company Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Declaration, as set forth herein. ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER Section 9.1. Dissolution Upon Expiration Date. Unless earlier dissolved, the Trust shall automatically dissolve on August 15, 2047 (the "Expiration Date"), following the distribution of the Trust Property in accordance with Section 9.4. Section 9.2. Early Dissolution. The first to occur of any of the following events is an "Early Termination Event" and will cause a dissolution of the Trust: (a) the occurrence of a Bankruptcy Event in respect of, or the liquidation of, the Sponsor (or, in the case of a transfer pursuant to Section 5.14 hereof, the Holder of Common Securities); (b) the filing of a certificate of dissolution or its equivalent with respect to the Sponsor (or, in the case of a transfer pursuant to Section 5.14 hereof, the Holder of Common Securities); or the revocation of the charter or its equivalent of the Sponsor (or, in the case of a transfer pursuant to Section 5.14 hereof, the Holder of Common Securities) and the expiration of 90 days after the date of revocation without a reinstatement thereof; (c) the entry of a decree of judicial dissolution of the Sponsor (or, in the case of a transfer pursuant to Section 5.14 hereof, the Holder of Common Securities) or the Trust by a court of competent jurisdiction; (d) all of the Trust Securities shall have been called for redemption and the Redemption Price shall have been paid to the Holders in accordance with this Declaration; (e) the distribution of all the Trust Property; (f) the written direction to the Preferred Trustee from the Sponsor at any time (which direction is optional and wholly within the discretion of the Sponsor) to dissolve the Trust and distribute Notes to Securityholders in exchange for the Preferred Securities; 54 (g) the redemption of all of the Preferred Securities in connection with the redemption of all of the Notes; (h) subject to Section 9.4(e), the occurrence of a Tax Event; and (i) the occurrence of an Investment Company Event. Section 9.3. Termination. The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Preferred Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Securities pursuant to Section 4.2, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Company Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders. Section 9.4. Liquidation. (a) If an Early Termination Event specified in Section 9.2 (with the exception of clauses (d) and (g)) occurs or upon the Expiration Date, the Trust shall be liquidated by the Preferred Trustee and the Company Trustees as expeditiously as such Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Notes, subject to Section 9.4(d). Notice of liquidation shall be given by the Preferred Trustee by first-class mail, postage prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Notes; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Notes, or if Section 9.4(d) applies receive a Liquidation Distribution, as the Company Trustees or the Preferred Trustee shall deem appropriate. (b) Except where Section 9.2(d), 9.2(g) or 9.4(d) applies, in order to affect the liquidation of the Trust and distribution of the Notes to Securityholders, the Preferred Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Notes in exchange for the Outstanding Trust Securities Certificates. 55 (c) Except where Section 9.2(d), 9.2(g) or 9.4(d) applies, after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Notes will be issued to Holders of Trust Securities Certificates, upon surrender of such certificates to the Company Trustees or their agent for exchange, (iii) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Notes, accruing interest at the rate provided for in the Notes from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Notes) and (iv) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Notes upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Notes in the manner provided herein is determined by the Preferred Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound-up and terminated, by the Preferred Trustee in such manner as the Preferred Trustee determines. In such event, on the date of the winding-up and termination of the Trust, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such winding-up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Declaration Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities. (e) If the Early Termination Event specified in Section 9.2(h) occurs, the Trust shall be liquidated within 90 days following the occurrence of such Tax Event as provided in this Section 9.4; provided, however, that such liquidation and distribution shall be conditioned on (i) the Trustees' receipt of an Opinion of Counsel of an independent tax counsel experienced in such matters ( a "No Recognition Opinion") which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the Holders of the Preferred Securities will not recognize any income, gain or loss for United States federal income tax purposes as a result of such liquidation and distribution of Notes, and (ii) the Sponsor being unable to avoid such Tax Event within such 90-day period by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on the Trust, the Sponsor or the Holders of the Preferred Securities and will involve no material cost. If (i) the Sponsor has received an Opinion of Counsel (a "Redemption Tax Opinion") of an independent tax counsel or advisors experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Sponsor would be precluded from deducting the interest on the Notes for United States federal income tax purposes, even after the Notes were distributed to the Holders of the Preferred Securities upon liquidation of the Trust as provided above, or (ii) the Trustees 56 shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion, the Sponsor has the right to redeem the Notes in whole, in which case all the Preferred Securities and Common Securities will be entitled to receive the Liquidation Distribution; provided, however, that, if at the time there is available to the Company or the Trust the opportunity to eliminate, within such ninety-day period, the Tax Event by taking some ministerial action or pursuing some other reasonable measure that will not have an adverse effect on the Trust, the Company or the Holders of the Preferred Securities and will involve no material cost, the Trust or the Company will pursue such measure in lieu of redemption. Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Trust. The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person , except pursuant to this Section 9.5 or Section 9.4. At the request of the Sponsor, with the consent of the Company Trustees and without the consent of the Holders of Preferred Securities, the Preferred Trustee or the Delaware Trustee, the Trust may consolidate, amalgamate, merge with or into, 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 of the United States of America; provided, that (i) if the Trust is not the survivor, such successor entity either (a) expressly assumes all of the obligations of the Trust under the Trust Securities or (b) substitutes for the Trust Securities other securities having substantially the same terms as the Trust Securities (the "Successor Securities") as long as the Successor Securities rank the same as the Trust Securities with respect to Distributions and payments upon liquidation, redemption and otherwise, (ii) the Sponsor expressly appoints a trustee of the successor entity that possesses the same powers and duties as the Preferred Trustee as the holder of the Notes, (iii) the Preferred Securities or any 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, (iv) such merger, 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, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) the Sponsor has provided a guarantee to the holders of the Successor Securities with respect to such successor entity having substantially the same terms as the Company Guarantee, and (viii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an Opinion of Counsel rendered by a law firm having a tax and securities practice experienced in such matters to the effect that (x) such successor entity will be treated as a grantor trust for United States federal income tax purposes or otherwise as an entity that is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity, (y) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Sponsor nor such successor entity will be required to register as an investment company under the 1940 Act and (z) such merger, consolidation, amalgamation or replacement, conveyance, transfer or lease, will not adversely affect the rights, preferences, privileges and limited liability of the Preferred Securities in any material respect, and (ix) the Company Trustees shall have 57 furnished the Preferred Trustee and the Delaware Trustee at least five Business Days' prior written notice of the consummation of such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease; provided, however, that the failure to provide such notice shall not affect the validity of any such transaction. Notwithstanding the foregoing, the Trust shall not, except with the consent of Holders of 100% in Liquidation Amount of the Trust Securities, consolidate, amalgamate, merge with or into, be replaced by, convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into or replace it, if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. ARTICLE X MISCELLANEOUS PROVISIONS Section 10.1. Limitation of Rights of Securityholders. The death, incapacity, bankruptcy, dissolution or termination of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Declaration, nor dissolve, terminate or annul the Trust, nor entitle the legal representatives or heirs or successors of such Person or any Securityholder for such Person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. Section 10.2. Amendment. (a) This Declaration may be amended from time to time by the Trustees and the Sponsor, without the consent of any Securityholders, (i) to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Declaration, which shall not be inconsistent with the other provisions of this Declaration, or (ii) to modify, eliminate or add to any provisions of this Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust or other entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity at all times that any Trust Securities are Outstanding or to ensure that the Trust will not be required to register as an investment company under the 1940 Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any Securityholder, and any such amendments of this Declaration shall become effective when notice thereof is given to the Securityholders. 58 (b) If any proposed amendment provides for, or the Trustees or the Sponsor otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to this Declaration or otherwise or (ii) the dissolution, winding-up or termination of the Trust other than pursuant to the terms of this Declaration, then the Securityholders voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority (based upon Liquidation Amounts) of the Trust Securities affected thereby; provided, that if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a majority (based on Liquidation Amounts) of such class of Trust Securities; provided, further, that no amendment or modification may be made to this Declaration if such amendment or modification would (x) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust or another entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interest in the entity, (y) reduce or otherwise adversely affect the powers of the Trustees or (z) cause the Trust to be deemed an investment company which is required to be registered under the 1940 Act. (c) Except as provided in Section 10.2(b) and 10.2(d) hereof, any provision of this Declaration may be amended by the Trustees and the Sponsor with (i) the consent of Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust's status for United States federal income tax purposes as a grantor trust or other entity which is not subject to United States federal income tax at the entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity, or cause the Trust to be deemed an investment company which is required to register under the 1940 Act. (d) In addition to and notwithstanding any other provision in this Declaration, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this Declaration may not be amended to (i) 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 (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this paragraph (c) of this Section 10.2 may not be amended. (e) Notwithstanding any other provisions of this Declaration, no Trustee shall enter into or consent to any amendment to this Declaration which would cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the 1940 Act or fail or cease to be classified for purposes of United States federal income taxation as other than a grantor trust or another entity which is not subject to United States federal income tax at the 59 entity level and the assets and income of which are treated for United States federal income tax purposes as held and derived directly by holders of interests in the entity. (f) Notwithstanding anything in this Declaration to the contrary, without the consent of the Sponsor, this Declaration may not be amended in a manner which imposes any additional obligation on the Sponsor. (g) In the event that any amendment to this Declaration is made, the Company Trustees shall promptly provide to the Sponsor a copy of such amendment. (h) Neither the Preferred Trustee nor the Delaware Trustee shall be required to amend this Declaration in any manner which affects its own rights, duties or immunities under this Declaration. The Preferred Trustee and the Delaware Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Declaration is in compliance with this Declaration. Section 10.3. Separability. In case any provision in this Declaration or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.4. Governing Law. This Declaration and the rights and obligations of each of the Securityholders, the Trust and the Trustees with respect to this Declaration and the Trust Securities shall be construed in accordance with and governed by the laws of the State of Delaware without giving effect to principles of conflict of laws. Section 10.5. Payments Due on Non-Business Day. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day that is a Business Day (except as otherwise provided in Sections 4.1(a) and (e) and 4.2(d) and (e)), with the same force and effect as though made on the date fixed for such payment, and no interest shall accrue thereon for the period after such date. Section 10.6. Successors. This Declaration shall be binding upon and shall inure to the benefit of any successor to the Sponsor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Sponsor that is permitted under Article VIII of the Indenture and pursuant to which the assignee agrees in writing to perform the Sponsor's obligations hereunder, the Sponsor shall not assign its obligations hereunder. 60 Section 10.7. Headings. The Article and Section headings are for convenience only and shall not affect the construction of this Declaration. Section 10.8. Reports, Notices and Demands. Any report, notice, demand or other communication which by any provision of this Declaration is required or permitted to be given or served to or upon any Securityholder or the Sponsor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Sponsor, to Symons International Group, Inc., 4720 Kingsway Drive, Indianapolis, Indiana 46205, Attn: Chief Executive Officer, facsimile no.: (317) 259-6395. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Declaration is required or permitted to be given or served to or upon the Trust, the Preferred Trustee, the Delaware Trustee or the Company Trustees shall be given in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed (until another address is published by the Trust) as follows: (a) with respect to the Preferred Trustee and the Delaware Trustee to Wilmington Trust Company, 1100 North Market Street, Rodney Square North, Wilmington, Delaware, Attention: Corporate Trust Administration; and (b) with respect to the Company Trustees, to them at the address above for notices to the Sponsor, marked "Attention Company Trustees of SIG Capital Trust I." Such notice, demand or other communication to or upon the Trust or the Preferred Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Preferred Trustee. Section 10.9. Agreement Not to Petition. Each of the Trustees and the Sponsor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Sponsor takes action in violation of this Section 10.9, the Preferred Trustee agrees, for the benefit of Securityholders, that at the expense of the Sponsor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Sponsor against the Trust or the commencement of such action and raise the defense that the Sponsor has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as counsel for the Trustee or the Trust may assert. The provisions of this Section 10.9 shall survive the termination of this Declaration. 61 Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Preferred Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Declaration by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Declaration modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Declaration as so modified or excluded, as the case may be. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 10.11. Acceptance of Terms of Declaration, Company Guarantee and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS DECLARATION AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE COMPANY GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS DECLARATION SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. 62 SYMONS INTERNATIONAL GROUP, INC., an Indiana corporation By:__/s/ Alan G. Symons__________________ Name: Alan G. Symons Title: Chief Executive Officer WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Preferred Trustee By:__/s/ Emmett Harmon___________________ Name: Emmett Harmon Title: Vice President WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Delaware Trustee By:__/s/ Emmett Harmon__________________ Name: Emmett Harmon Title: Vice President __/s/ Alan G. Symons_____________________ Alan G. Symons, as Company Trustee __/s/ Douglas H. Symons__________________ Douglas H. Symons, as Company Trustee __/s/ Gary P. Hutchcraft________________ Gary P. Hutchcraft, as Company Trustee 63 EXHIBIT A CERTIFICATE OF TRUST OF SIG CAPITAL TRUST I, Trustee This Certificate of Trust of SIG Capital Trust I (the "Trust"), dated as of August 4, 1997, is being duly executed and filed by Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as trustee, and Alan G. Symons, not in his individual capacity but solely as to form a business trust under the Delaware Business Trust Act (12 Del. C. ss. 3801 et seq.) 1. Name. The name of the business trust formed hereby is SIG Capital Trust I. 2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust Company, 1100 North Market Street, Rodney Square North, Wilmington, New Castle County, Delaware 19890-0001. 3. Effective Date. This Certificate of Trust shall be effective upon filing. IN WITNESS WHEREOF, the undersigned, being the only trustees of the Trust, have executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as trustee By:_______________________________________ Name: Title: ------------------------------------------ Alan G. Symons, not in his individual capacity but solely as trustee 1 EXHIBIT B The Depository Trust Company 55 Water Street, 49th Floor New York, New York 10041-0099 Attention: Matt Whaley General Counsel's Office Re: SIG Capital Trust I 9 1/2% Trust Preferred Securities Ladies and Gentlemen: The purpose of this letter is to set forth certain matters relating to the issuance and deposit with The Depository Trust Company ("DTC") of the SIG Capital Trust I 9 1/2% Preferred Securities (the "Preferred Securities"), of SIG Capital Trust I, a Delaware business trust (the "Trust"), created pursuant to a Declaration of Trust dated as of August 4, 1997 of SIG Capital Trust I (the "Declaration"). the payment of distributions on the Preferred Securities, to the extent the Trust has funds legally available for the payment thereof are guaranteed by Symons International Group, Inc. (the "Company") to the extent set forth in a Guarantee Agreement dated August 12, 1997 by the Company with respect to the Preferred Securities. The Company and the Trust propose to sell the Preferred Securities to certain Initial Purchasers (the "Initial Purchasers") pursuant to a Purchase Agreement dated August 7, 1997 by and among the Initial Purchasers, the Trust and Symons International Group, Inc., and the Initial Purchasers wish to take delivery of the Preferred Securities through DTC. Wilmington Trust Company, the Preferred Trustee under the Declaration, is acting as transfer agent and registrar with respect to the Preferred Securities (the "Transfer Agent and Registrar"). To induce DTC to accept the Preferred Securities as eligible for deposit at DTC, and to act in accordance with DTC's rules with respect to the Preferred Securities, the Trust, the Transfer Agent and Registrar and DTC agree among each other as follows: 1. Prior to the closing of the sale of the Preferred Securities to the Initial Purchasers, which is expected to occur on or about August 12, 1997, there shall be deposited with DTC one or more global certificates (individually and collectively, the "Global Certificate") registered in the name of DTC's Preferred Securities nominee, Cede & Co., representing an aggregate of 130,000 Preferred Securities and bearing the following legend: This Preferred Security is a Global Certificate within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depository") or a nominee of the Depository. This Preferred Security is exchangeable for Preferred Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Declaration and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by the Depository to a nominee of 1 the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Preferred Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York) to SIG Capital Trust I or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. 2. The Declaration provides for the voting by the holders of the Preferred Securities under certain limited circumstances. The Trust shall establish a record date for such purposes and shall, to the extent possible, give DTC notice of such record date not less than 15 calendar days in advance of such record date. 3. In the event of a stock split, conversion, recapitalization, reorganization or any other similar transaction resulting in the cancellation of all or any part of the Preferred Securities outstanding, the Trust or the Transfer Agent and Registrar shall send DTC a notice of such event at least 5 business days prior to the effective date of such event. 4. In the event of a distribution on, or an offering or issuance of rights with respect to, the Preferred Securities outstanding, the Trust or the Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount of and conditions, if any, applicable to the payment of any such distribution or any such offering or issuance of rights; (b) any applicable expiration or deadline date, or any date by which any action on the part of the holders of Preferred Securities is required; and (c) the date any required notice is to be mailed by or on behalf of the Trust to holders of Preferred Securities or published by or on behalf of the Trust (whether by mail or publication, the "Publication Date"). Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before the Publication Date. The Trust or the Transfer Agent and Registrar will forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission of multiple CUSIP numbers (if applicable) that includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be not less than 30 calendar days nor more than 60 calendar days prior to the payment of any such distribution or any such offering or issuance of rights with respect to the Preferred Securities. After establishing the amount of payment to be made on the Preferred Securities, the Trust or the Transfer Agent and Registrar will notify DTC's Dividend Department of such payment 5 business days prior to payment date. Notices to DTC's Dividend Department by telecopy shall be sent to (212) 709-1723. Such notices by mail or by any other means shall be sent to: 2 Manager, Announcements Dividend Department The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 The Trust or the Transfer Agent and Registrar shall confirm DTC's receipt of such telecopy by telephoning the Dividend Department at (212) 709-1270. 5. In the event of a redemption by the Trust of the Preferred Securities, notice specifying the terms of the redemption and the Publication Date of such notice shall be sent by the Trust or the Transfer Agent and Registrar to DTC not less than 30 calendar days prior to such event by a secure means in the manner set forth in paragraph 4. Such redemption notice shall be sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190, and receipt of such notice shall be confirmed by telephoning (516) 227-4070. Notice by mail or by any other means shall be sent to: Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, New York 11530-4719 6. In the event of any invitation to tender the Preferred Securities, notice specifying the terms of the tender and the Publication Date of such notice shall be sent by the Trust or the Transfer Agent and Registrar to DTC by a secure means and in a timely manner as described in paragraph 4. Notices to DTC pursuant to this paragraph and notices of other corporate actions (including mandatory tenders, exchanges and capital changes) shall be sent, unless notification to another department is expressly provided for herein, by telecopy to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094 and receipt of such notice shall be confirmed by telephoning (212) 709-6884, or by mail or any other means to: Manager, Reorganization Department Reorganization Window The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 7. All notices and payment advices sent to DTC shall contain the CUSIP number or numbers of the Preferred Securities and the accompanying designation of the Preferred Securities, which, as of the date of this letter, is "SIG Capital Trust I 9 1/2% Trust Preferred Securities". 8. Distribution payments or other cash payments with respect to the Preferred Securities evidenced by the Global Certificate shall be received by Cede & Co., as nominee of DTC, or its registered assigns in next day funds on each payment date (or in accordance with existing arrangements between the Trust or the Transfer Agent and Registrar and DTC). Such payments shall be made payable to the order of Cede & Co., and shall be addressed as follows: 3 NDFS Redemption Department The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 9. DTC may by prior written notice direct the Trust and the Transfer Agent and Registrar to use any other telecopy number or address of DTC as the number or address to which notices or payments may be sent. 10. In the event of a conversion, redemption, or any other similar transaction (e.g., tender made and accepted in response to the Trust's or the Transfer Agent and Registrar's invitation) necessitating a reduction in the aggregate number of Preferred Securities outstanding evidenced by Global Certificates, DTC, in its discretion: (a) may request the Trust or the Transfer Agent and Registrar to issue and countersign a new Global Certificate; or (b) may make an appropriate notation on the Global Certificate indicating the date and amount of such reduction. 11. DTC may discontinue its services as a securities depositary with respect to the Preferred Securities at any time by giving at least 90 days' prior written notice to the Trust and the Transfer Agent and Registrar (at which time DTC will confirm with the Trust or the Transfer Agent and Registrar the aggregate number of Preferred Securities deposited with it) and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust may determine to make alternative arrangements for book-entry settlement for the Preferred Securities, make available one or more separate global certificates evidencing Preferred Securities to any Owner having Preferred Securities credited to its DTC account, or issue definitive Preferred Securities to the beneficial holders thereof, and in any such case, DTC agrees to cooperate fully with the Trust and the Transfer Agent and Registrar, and to return the Global Certificate, duly endorsed for transfer as directed by the Trust or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Trust or the Transfer Agent and Registrar. 12. In the event that the Trust determines that beneficial owners of Preferred Securities shall be able to obtain definitive Preferred Securities, the Trust or the Transfer Agent and Registrar shall notify DTC of the availability of certificates. In such event, the Trust or the Transfer Agent and Registrar shall issue, transfer and exchange certificates in appropriate amounts, as required by DTC and others, and DTC agrees to cooperate fully with the Trust and the Transfer Agent and Registrar and to return the Global Certificate, duly endorsed for transfer as directed by the Trust or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Trust or the Transfer Agent and Registrar. 13. This letter may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Nothing herein shall be deemed to require the Transfer Agent and Registrar to advance funds on behalf of SIG Capital Trust I. 4 Very truly yours, SIG CAPITAL TRUST I (as Trust) By:_______________________________________________ ____________________________, Company Trustee WILMINGTON TRUST COMPANY, a Delaware banking association (As Transfer Agent and Registrar and not in its individual capacity) By: ______________________________________________ Name:_____________________________________________ Title:____________________________________________ WILMINGTON TRUST COMPANY, a Delaware banking association (As Preferred Trustee and not in its individual capacity) By: ______________________________________________ Name:_____________________________________________ Title:____________________________________________ RECEIVED AND ACCEPTED: THE DEPOSITORY TRUST COMPANY By: _________________________________ Authorized Officer 5 EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN THE DECLARATION FORM OF COMMON SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] THE COMMON SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS COMMON SECURITY (OR ANY PREDECESSOR OF THIS COMMON SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS COMMON SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE OF RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-UNITED STATES PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO CLAUSE (E) TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED AUGUST 7, 1997. SUCH HOLDER FURTHER AGREES THAT 1 IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. Certificate Number Number of Common Securities C-1 Certificate Evidencing Common Securities of SIG Capital Trust I 9 1/2% Common Securities (liquidation amount $1,000.00 per Common Security) SIG Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that Symons International Group, Inc. (the "Holder") is the registered owner of four thousand one hundred and seventy-six (4,176) common securities of the Trust representing beneficial ownership interest in the Trust and designated the 9 1/2% Common Securities (liquidation amount $1,000.00 per Common Security)(the "Common Securities"). Except as provided in Section 5.5 of the Declaration (as defined below) the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of SIG Capital Trust I dated as of August 12, 1997, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth therein. The Trust will furnish a copy of the Declaration to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Company Trustees of the Trust has executed this certificate this 12th day of August, 1997. SIG CAPITAL TRUST I By: ______________________________________________ Name: Title: Company Trustee 2 FORM OF REVERSE OF SECURITY Distributions payable on each Common Security will be fixed at a rate per annum of 9 1/2% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Common Security, such rate being the rate of interest payable on the Notes to be held by the Preferred Trustee. Distributions in arrears for more than one semi-annual period will bear interest thereon compounded semi-annually at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions," as used herein, includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Notes held by the Preferred Trustee and to the extent the Preferred Trustee has funds on hand legally available therefor. Distributions on the Common Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid from August 15, 1997 and will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 1998, except as otherwise described below and in the Declaration. Distributions will be computed on the basis of a 360-day year constituting twelve 30- day months and, for any period of less than a full calendar month, the number of days elapsed in such month. As long as no Event of Default has occurred and is continuing under the Indenture, the issuer of the Note ("Note Issuer") has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Notes for a period not exceeding 10 consecutive calendar semi-annual periods (each an "Extension Period"), provided that no Extension Period shall extend beyond the Maturity Date of the Notes. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semi-annual Distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law, but not at a rate exceeding the rate of interest then accruing on the Notes) at the Coupon Rate compounded semi-annually during any such Extension Period. Prior to the termination of any such Extension Period, the Note Issuer may further defer payments of interest by further extending such Extension Period, provided that such Extension Periods, together with all such previous and further extensions within such Extension Period may not exceed 10 consecutive semi-annual periods, including the first semi-annual period during such Extension Period, or extend beyond the Maturity Date of the Notes. Payments of Distributions that have accumulated during any Extension Period will be payable to Holders as they appear on the books and records of the Trust on the record date for the first scheduled Distribution payment date following the expiration of such Extension Period. Upon the expiration of any Extension Period and the payment of all amounts then due, the Note Issuer may commence a new Extension Period, subject to the above requirements. Capitalized terms used herein and not otherwise defined are used as defined in the Declaration. The Company Trustees shall, at the direction of the Sponsor, at any time dissolve and liquidate the Trust and, after satisfaction of liabilities to creditors of the Trust, cause the Notes to be distributed to the holders of the Securities in liquidation of the Trust or simultaneously with any redemption of the Notes, cause a Like Amount of the Securities to be redeemed by the Trust. The Common Securities shall be redeemable as provided in the Declaration. 3 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert assignee's social security or tax identification number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ agent to transfer this Common Securities Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:_______________________ Signature:_____________________________________________________________________ (Sign exactly as your name appears on the other side of this Common Securities Certificate) ________________________________________________________________________________ The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17 Ad-15. 4 [Include the following if the Common Security bears a Restricted Securities Legend] In connection with any transfer of any of the Common Securities evidenced by this certificate, the undersigned confirms that such Common Securities are being: Check one box below (1) exchanged for the undersigned's own account without transfer; or (2) transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) transferred to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act of 1933, as amended, that is acquiring the Preferred Securities for its own account, or for the account of such an institutional "accredited investor," for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act of 1933, as amended; or (4) transferred pursuant to another available exemption from the registration Requirements of the Securities Act of 1933, as amended; or (5) transferred pursuant to an effective registration statement. unless one of the boxes is checked, the Securities Registrar will refuse to register any of the Common Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3), (4) or (5) is checked, the Securities Registrar may require, prior to registering any such transfer of the Common Securities such legal opinions, certifications and other information as the trust has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, such as the exemption provided by Rule 144 under such Act; provided, further, that (i) if box (2) is checked, the transferee must also certify that it is a qualified institutional buyer as defined in Rule 144A or (ii) if box (4) is checked, the transferee must also provide to the Securities Registrar a Transferee Letter of Representation in the form attached to the Offering Memorandum dated August 7, 1997. Date: ____________________ Signature:__________________________________________________________________ (Sign exactly as your name appears on the other side of this Common Security) 5 EXHIBIT D FORM OF PREFERRED SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] [IF THIS GLOBAL SECURITY IS A GLOBAL PREFERRED SECURITY INSERT: THIS PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING AGENCY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.] [IF THIS GLOBAL SECURITY IS A RESTRICTED GLOBAL SECURITY INSERT: UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] THE PREFERRED SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS PREFERRED SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS PREFERRED SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS PREFERRED SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS PREFERRED SECURITY (OR ANY 1 PREDECESSOR OF THIS PREFERRED SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS PREFERRED SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NONUNITED STATES PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS PREFERRED SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO CLAUSE (E) TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED AUGUST 7, 1997. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS PREFERRED SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. [IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY, INSERT: THIS PREFERRED SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.] 2 Certificate Number Number of Preferred Securities CUSIP NO. Certificate Evidencing Preferred Securities of SIG Capital Trust I 9 1/2% Trust Preferred Securities (liquidation amount $1,000.00 per Preferred Security) SIG Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that _______ (the "Holder") is the registered owner of ___( ) preferred securities of the Trust representing an undivided beneficial ownership interest in the assets of the Trust and designated the SIG Capital Trust I 9 1/2% Trust Preferred Securities (liquidation amount $1,000.00 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in the Declaration (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provision of, the Amended and Restated Declaration of Trust of SIG Capital Trust I dated as of August 12, 1997, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of Preferred Securities as set forth therein. The Holder including the designation of the terms of Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by Symons International Group, Inc., an Indiana corporation, and Wilmington Trust Company, as guarantee trustee, dated as of August 12, 1997, (the "Company Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Declaration and the Company Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. 3 IN WITNESS WHEREOF, one of the Company Trustees of the Trust has executed this certificate this 12th day of August, 1997. SIG CAPITAL TRUST I By:______________________________________________ Name: Title: Company Trustee PREFERRED TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Preferred Securities referred to in the within-mentioned Declaration. Dated WILMINGTON TRUST COMPANY, as Preferred Trustee By:______________________________________________ Authorized Signatory 4 FORM OF REVERSE SECURITY Distributions payable on each Preferred Security will be fixed at a rate per annum of 9 1/2% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Preferred Security, such rate being the rate of interest payable on the Notes to be held by the Preferred Trustee. Distributions in arrears for more than one semi-annual period will bear interest thereon compounded semi-annually at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions," as used herein, includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Notes held by the Preferred Trustee and to the extent that the payments are made in respect of the Notes held by the Preferred Trustee and to the extent the Preferred Trustee has funds on hand legally available therefor. Distributions on the Preferred Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid from August 15, 1997 and will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 1998, except as otherwise described below and in the Declaration. Distributions will be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period of less than a full calendar month, the number of days elapsed in such month. As long as no Event of Default has occurred and is continuing under the Indenture, the issuer of the Note ("Note Issuer") has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Notes for a period not exceeding 10 consecutive calendar semi-annual periods (each an "Extension Period"), provided that no Extension Period shall extend beyond the Maturity Date of the Notes. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semi-annual Distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law, but not at a rate exceeding the rate of interest then accruing on the Notes) at the Coupon Rate compounded semi-annually during any such Extension Period. Prior to the termination of any such Extension Period, the Note Issuer may further defer payments of interest by further extending such Extension Period; provided that such Extension Periods, together with all such previous and further extensions within such Extension Period may not exceed 10 consecutive semi-annual periods, including the first semi-annual period during such Extension Period, or extend beyond the Maturity Date of the Notes. Payments of Distributions that have accumulated during any Extension Period will be payable to Holders as they appear on the books and records of the Trust on the record date for the first scheduled Distribution payment date following the expiration of such Extension Period. Upon the expiration of any Extension Period and the payment of all amounts then due, the Note Issuer may commence a new Extension Period, subject to the above requirements. Capitalized terms used herein and not otherwise defined are used as defined in the Declaration. The Company Trustees shall, at the direction of the Sponsor, at any time dissolve and liquidate the Trust and, after satisfaction of liabilities to creditors of the Trust, cause the Notes to be distributed to the holders of the Securities in liquidation of the Trust or simultaneously with any redemption of the Notes, cause a Like Amount of the Securities to be redeemed by the Trust. The Preferred Securities shall be redeemable as provided in the Declaration. 5 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert assignee's social security or tax identification number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ agent to transfer this Preferred Securities Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:_______________________ Signature:_____________________________________________________________________ (Sign exactly as your name appears on the other side of this Preferred Securities Certificate) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17 Ad-15. 6 [Include the following if the Preferred Security bears a Restricted Securities Legend] In connection with any transfer of any of the Preferred Securities evidenced by this certificate, the undersigned confirms that such Preferred Securities are being: Check one box below (1) exchanged for the undersigned's own account without transfer, or (2) transferred pursuant to and in compliance with Rule 144A under the Securities Act Of 1933, as amended; or (3) transferred to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act of 1933, as amended, that is acquiring the Preferred Securities for its own account, or for the account of such an institutional "accredited investor," for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act of 1933, as amended; or (4) transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended; or (5) transferred pursuant to an effective registration statement. unless one of the boxes is checked, the Securities Registrar will refuse to register any of the Preferred Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3), (4) or (5) is checked, the Securities Registrar may require, prior to registering any such transfer of the Preferred Securities such legal opinions, certifications and other information as the trust has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, such as the exemption provided by Rule 144 under such Act; provided, further, that (i) if box (2) is checked, the transferee must also certify that it is a qualified institutional buyer as defined in Rule 144A or (ii) if box (4) is checked, the transferee must also provide to the Securities Registrar a Transferee Letter of Representation in the form attached to the Offering Memorandum dated August 7, 1997. Date:___________________ Signature:______________________________________________________________________ (Sign exactly as your name appears on the other side of this Preferred Security) 7 EX-4 6 FORM OF EXCHANGE PREFERRED SECURITY CERTIFICATE Exhibit 4.5 FORM OF PREFERRED SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] [IF THIS GLOBAL SECURITY IS A GLOBAL PREFERRED SECURITY INSERT: THIS PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING AGENCY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.] [IF THIS GLOBAL SECURITY IS A RESTRICTED GLOBAL SECURITY INSERT: UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] THE PREFERRED SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS PREFERRED SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS PREFERRED SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS PREFERRED SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS PREFERRED SECURITY (OR ANY PREDECESSOR OF THIS PREFERRED SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS PREFERRED SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-UNITED STATES PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS PREFERRED SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO CLAUSE (E) TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED AUGUST 7, 1997. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS PREFERRED SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. [IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY, INSERT: THIS PREFERRED SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.] Certificate Number Number of Preferred Securities CUSIP NO. Certificate Evidencing Preferred Securities of SIG Capital Trust I 9 1/2% Trust Preferred Securities (liquidation amount $1,000.00 per Preferred Security) SIG Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that _______ (the "Holder") is the registered owner of ___( ) preferred securities of the Trust representing an undivided beneficial ownership interest in the assets of the Trust and designated the SIG Capital Trust I 9 1/2% Trust Preferred Securities (liquidation amount $1,000.00 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in the Declaration (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provision of, the Amended and Restated Declaration of Trust of SIG Capital Trust I dated as of August 12, 1997, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of Preferred Securities as set forth therein. The Holder including the designation of the terms of Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by Symons International Group, Inc., an Indiana corporation, and Wilmington Trust Company, as guarantee trustee, dated as of August 12, 1997, (the "Company Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Declaration and the Company Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Company Trustees of the Trust has executed this certificate this 12th day of August, 1997. SIG CAPITAL TRUST I By: _____________________________________________ Name: Title: Company Trustee PREFERRED TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Preferred Securities referred to in the within-mentioned Declaration. Dated:__________________ WILMINGTON TRUST COMPANY, as Preferred Trustee By:______________________________________________ Authorized Signatory EX-4 7 EXCHANGE GUARANTEE AGREEMENT Exhibit 4.6 ================================================================================ EXCHANGE GUARANTEE AGREEMENT between Symons International Group, Inc. (as Exchange Guarantor) and Wilmington Trust Company (as Trustee) dated as of ____________, 1997 ================================================================================ CROSS REFERENCE TABLE* Section of Section of Trust Indenture Act Exchange Guarantee of 1939, as Amended Agreement 310(a).......................................................4.1(a) 310(b).......................................................4.1(c), 2.B 310(c).......................................................Inapplicable 311(a).......................................................2.2(b) 311(b).......................................................2.2(b) 311(c).......................................................Inapplicable 312(a).......................................................2.2(a) 312(b).......................................................2.2(b) 313..........................................................2.3 314(a).......................................................2.4 314(b).......................................................Inapplicable 314(c).......................................................2.5 314(d).......................................................Inapplicable 314(e).......................................................1.1, 2.5, 3.2 314(f).......................................................2.1, 3.2 315(a).......................................................3.1(d) 315(b).......................................................2.7 315(c).......................................................3.1 315(d).......................................................3.1(d) 316(a).......................................................1.1, 2.6, 5.4 316(b).......................................................5.3 316(c).......................................................8.2 317(a).......................................................Inapplicable 317(b).......................................................Inapplicable 318(a).......................................................2.1(b) 318(b).......................................................2.1 318(c).......................................................2.1(a) - -------- * This Cross-Reference Table does not constitute part of the Exchange Guarantee Agreement and shall not affect the interpretation of any of its terms or provisions. TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS....................................... 2 SECTION 1.1. Definitions.................................................. 2 ARTICLE II. TRUST INDENTURE ACT............................. 4 SECTION 2.1. Trust Indenture Act; Application............................. 4 SECTION 2.2. List of Holders.............................................. 4 SECTION 2.3. Reports by the Exchange Guarantee Trustee.................... 5 SECTION 2.4. Periodic Reports to the Exchange Guarantee Trustee........... 5 SECTION 2.5. Evidence of Compliance with Condition Precedent.............. 5 SECTION 2.6. Events of Default; Waiver.................................... 5 SECTION 2.7. Event of Default; Notice..................................... 5 SECTION 2.8. Conflicting Interests........................................ 6 ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE EXCHANGE GUARANTEE TRUSTEE............................................ 6 SECTION 3.1. Powers and Duties of the Exchange Guarantee Trustee.......... 6 SECTION 3.2. Certain Rights of Exchange Guarantee Trustee................. 8 SECTION 3.3. Indemnity.................................................... 9 ARTICLE IV. EXCHANGE GUARANTEE TRUSTEE...................... 10 SECTION 4.1. Exchange Guarantee Trustee; Eligibility...................... 10 SECTION 4.2. Appointment, Removal and Resignation of the Exchange Guarantee Trustee........................................... 10 ARTICLE V. GUARANTEE........................................ 11 SECTION 5.1. Exchange Guarantee........................................... 11 SECTION 5.2. Waiver of Notice and Demand.................................. 11 SECTION 5.3. Obligations Not Affected..................................... 11 SECTION 5.4. Rights of Holders............................................ 12 SECTION 5.5. Guarantee of Payment......................................... 13 SECTION 5.6. Subrogation.................................................. 13 SECTION 5.7. Independent Obligations...................................... 13 ARTICLE VI. SUBORDINATION................................... 13 SECTION 6.1. Subordination................................................ 13 ARTICLE VII. TERMINATION.................................... 15 SECTION 7.1. Termination.................................................. 15 i ARTICLE VIII. MISCELLANEOUS................................. 15 SECTION 8.1. Successors and Assigns....................................... 15 SECTION 8.2. Amendments................................................... 15 SECTION 8.3. Notices...................................................... 16 SECTION 8.4. Benefit...................................................... 17 SECTION 8.5. Interpretation............................................... 17 SECTION 8.6. Governing Law................................................ 17 ii EXCHANGE GUARANTEE AGREEMENT This EXCHANGE GUARANTEE AGREEMENT, dated as of ____________, 1997, is executed and delivered by Symons International Group, Inc., a corporation organized under the laws of the State of Indiana ("Exchange Guarantor"), having its principal office at 4720 Kingsway Drive, Indianapolis, Indiana, 46205, and Wilmington Trust Company, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as trustee (the "Exchange Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Exchange Preferred Securities (as defined herein) of SIG Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to the terms of an Amended and Restated Declaration of Trust dated as of August 12, 1997 (the "Declaration"), among the trustees of Issuer, the Exchange Guarantor, as sponsor, and the holders from time to time of undisclosed beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof 35,000 Exchange Preferred Securities having an aggregate liquidation amount of $135,000,000, such Exchange Preferred Securitiesbeing designated as 9 1/2% Exchange Preferred Securities (and being herein referred to as the "Exchange Preferred Securities") in connection with the consummation of the Exchange Offer (as defined in the Declaration); WHEREAS, as incentive for the Holders of Preferred Securities issued on August 12, 1997 to exchange the Preferred Securities for Exchange Preferred Securities in the Exchange Offer, the Exchange Guarantor desires irrevocably and unconditionally to guarantee, to the extent set forth herein, payment to the Holders of the Exchange Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the exchange by each Holder of Exchange Preferred Securities, which exchange the Exchange Guarantor hereby shall benefit the Exchange Guarantor, the Exchange Guarantor executes and delivers this Exchange Guarantee Agreement for the benefit of the Holders from time to time of the Exchange Preferred Securities. ARTICLE I. DEFINITIONS SECTION 1.1. Definitions. As used in this Exchange Guarantee Agreement, the terms set forth below shall, unless the context otherwise requires, have the following meanings. Capitalized or otherwise defined terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Declaration as in effect on the date hereof. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct common control with such specified Person; provided, however, that an Affiliate of the Exchange Guarantor shall not be deemed to include the Issuer. For the purposes of this defini- tion, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Common Security" means an undivided beneficial interest in the assets of the Issuer, having a Liquidation Amount (as defined in the Declaration) of $1,000 and having the rights provided therefor in the Declaration, including the right to receive Distributions and a Liquidation Distribution as provided therein. "Event of Default" means a default by the Exchange Guarantor on any of its payment obligations under this Exchange Guarantee Agreement. "Exchange Guarantee Trustee" means Wilmington Trust Company, until a Successor Exchange Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Exchange Guarantee Agreement and thereafter means each such Successor Exchange Guarantee Trustee. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Exchange Preferred Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accumulated and unpaid Distributions required to be paid on the Exchange Preferred Securities, to the extent the Issuer has funds legally available therefor, (ii) the Redemption Price with respect to the Exchange Preferred Securities called for redemption, to the extent the Issuer has funds legally available therefor and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of the Issuer (unless the Exchange Notes are distributed to the Holders of the Exchange Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Exchange Preferred Securities to the date of payment, to the extent the Issuer has funds legally available therefor and (b) the amount of cash assets of the Issuer remaining legally available for distribution to Holders of the Exchange Preferred Securities upon liquidation of the Issuer. "Holder" means any holder, as registered on the books and records of the Issuer, of any Exchange Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Exchange Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, "Holder" shall not include the Exchange Guarantor, any Trustee, or any Affiliate of the Exchange Guarantor or of any Trustee. "Indenture" means the Senior Subordinated Indenture dated as of August 12, 1997, among the Exchange Guarantor and Wilmington Trust Company, as trustee. "List of Holders" has the meaning specified in Section 2.2(a). 2 "Majority in liquidation amount of the Securities" means, except as provided by the Trust Indenture Act, a vote by the Holder(s), voting separately as a class, of more than 50% of the liquidation amount of all then outstanding Exchange Preferred Securities issued by the Issuer. "Officers' Certificate" means a certificate signed by (a) the Chairman and Chief Executive Officer, President or Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, or (b) any two members of the Board of Directors of the Company, and delivered to the appropriate Trustee. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Exchange Guarantee Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each officer, such condition or covenant has been complied with. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization, or government or any agency, instrumentality or political subdivision thereof, or any other entity of whatever nature. "Responsible Officer" means, with respect to the Exchange Guarantee Trustee, any Senior Vice President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any other officer of the Corporate Trust Department of the above-designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Senior Indebtedness" has the meaning specified in the Indenture. "Successor Exchange Guarantee Trustee" means a successor Exchange Guarantee Trustee possessing the qualifications to act as Exchange Guarantee Trustee under Section 4.1. 3 "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. ARTICLE II. TRUST INDENTURE ACT SECTION 2.1. Trust Indenture Act; Application. (a) This Exchange Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Exchange Guarantee Agreement and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Exchange Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2. List of Holders. (a) The Exchange Guarantor shall furnish or cause to be furnished to the Exchange Guarantee Trustee (a) semiannually, on or before February 15 and August 15 of each year, a list, in such form as the Exchange Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of a date not more than 15 days prior to the delivery thereof, and (b) at such other times as the Exchange Guarantee Trustee may request in writing, within 30 days after the receipt by the Exchange Guarantor of any such request, a List of Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Exchange Guarantor and is not identical to a previously supplied list of Holders or has not otherwise been received by the Exchange Guarantee Trustee in its capacity as such. The Exchange Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Exchange Guarantee Trustee shall comply with its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3. Reports by the Exchange Guarantee Trustee. Not later than April 30 of each year, commencing April 30, 1998, the Exchange Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Exchange Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. Periodic Reports to the Exchange Guarantee Trustee. 4 The Exchange Guarantor shall provide to the Exchange Guarantee Trustee, the Securities and Exchange Commission and the Holders such documents, reports and information, if any, as required by Section 314 of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act, in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5. Evidence of Compliance with Condition Precedent. The Exchange Guarantor shall provide to the Exchange Guarantee Trustee such evidence of compliance with such conditions precedent, if any, provided for in this Exchange Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c) (1) may be given in the form of an Officers' Certificate. SECTION 2.6. Events of Default; Waiver. The Holders of a Majority in liquidation amount of the Securities may, by vote, on behalf of the Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Exchange Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent therefrom. SECTION 2.7. Event of Default; Notice. (a) The Exchange Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default known to the Exchange Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, except in the case of a default in the payment of a Guarantee Payment, the Exchange Guarantee Trustee shall be protected in withholding such notice if and so long as the Board of Directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Exchange Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Exchange Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Exchange Guarantee Trustee shall have received written notice, or a Responsible Officer charged with the administration of the Declaration shall have obtained written notice, of such Event of Default. SECTION 2.8. Conflicting Interests. 5 The Declaration shall be deemed to be specifically described in this Exchange Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE EXCHANGE GUARANTEE TRUSTEE SECTION 3.1. Powers and Duties of the Exchange Guarantee Trustee. (a) This Exchange Guarantee Agreement shall be held by the Exchange Guarantee Trustee for the benefit of the Holders, and the Exchange Guarantee Trustee shall not transfer this Exchange Guarantee Agreement to any Person except a Holder exercising his or her rights pursuant to Section 5.4 (iv) or to a Successor Exchange Guarantee Trustee on acceptance by such Successor Exchange Guarantee Trustee of its appointment to act as Successor Exchange Guarantee Trustee. The right, title and interest of the Exchange Guarantee Trustee shall automatically vest in any Successor Exchange Guarantee Trustee, upon acceptance by such Successor Exchange Guarantee Trustee of its appointment hereunder, and such vesting and cessation of title shall be effective whether conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Exchange Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Exchange Guarantee Trustee shall enforce this Exchange Guarantee Agreement for the benefit of the Holders. (c) The Exchange Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Exchange Guarantee Agreement, and no implied covenants shall be read into this Exchange Guarantee Agreement against the Exchange Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Exchange Guarantee Trustee shall exercise such of the rights and powers vested in it by this Exchange Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstance in the conduct of his or her own affairs. (d) No provision of this Exchange Guarantee Agreement shall be construed to relieve the Exchange Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Exchange Guarantee Trustee shall be determined solely by the express provisions of this Exchange Guarantee Agreement, and the Exchange Guarantee Trustee shall not be liable 6 except for the performance of such duties and obligations as are specifically set forth in this Exchange Guarantee Agreement; and (B) in the absence of bad faith on the part of the Exchange Guarantee Trustee, the Exchange Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Exchange Guarantee Trustee and conforming to the requirements of this Exchange Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof or of the Trust Indenture Act are specifically required to be furnished to the Exchange Guarantee Trustee, the Exchange Guarantee Trustee shall be under a duty to examine the same to determine whether they conform to the requirements of this Exchange Guarantee Agreement; (ii) the Exchange Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Exchange Guarantee Trustee, unless it shall be proved that the Exchange Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Exchange Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Exchange Guarantee Trustee, or exercising any trust or power conferred upon the Exchange Guarantee Trustee under this Exchange Guarantee Agreement; and (iv) no provision of this Exchange Guarantee Agreement shall require the Exchange Guarantee Trustee to expend or risk his own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Exchange Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Exchange Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.2. Certain Rights of Exchange Guarantee Trustee. (a) Subject to the provisions of Section 3.1: (i) The Exchange Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, or other evidence of indebtedness or other paper or document 7 reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) any direction or act of the Exchange Guarantor contemplated by this Exchange Guarantee Agreement shall be sufficiently evidenced by an Officers' Certificate unless otherwise prescribed herein. (iii) Whenever, in the administration of this Exchange Guarantee Agreement, the Exchange Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting to take any action hereunder, the Exchange Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request from the Exchange Guarantee Trustee, shall be promptly delivered by the Exchange Guarantor. (iv) The Exchange Guarantee Trustee may consult with legal counsel, and the written advice or opinion of such legal counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or opinion. Such legal counsel may be legal counsel to the Exchange Guarantor or any of its Affiliates and may be one of its employees. The Exchange Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Exchange Guarantee Agreement from any court of competent jurisdiction. (v) The Exchange Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Exchange Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Exchange Guarantee Trustee such adequate security and indemnity as would satisfy a reasonable person in the position of the Exchange Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Exchange Guarantee Trustee; provided that, nothing contained in this Section 3.2(a) (v) shall be taken to relieve the Exchange Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Exchange Guarantee Agreement. (vi) The Exchange Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Exchange Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. 8 (vii) The Exchange Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, and the Exchange Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. (viii) Whenever in the administration of this Exchange Guarantee Agreement the Exchange Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or take any other action hereunder, the Exchange Guarantee Trustee (A) may request instructions from the Holders, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in acting in accordance with such instructions. (b) No provision of this Exchange Guarantee Agreement shall be deemed to impose any duty or obligation on the Exchange Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Exchange Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Exchange Guarantee Trustee shall be construed to be a duty to act in accordance with such power and authority. SECTION 3.3. Indemnity. The Exchange Guarantor agrees to indemnify the Exchange Guarantee Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Exchange Guarantee Trustee, arising out of or in connection with the acceptance or administration of this Exchange Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (including the fees of counsel, provided that the selection of such counsel will be subject to the consent of the Exchange Guarantor, which consent shall not be unreasonably withheld). The Exchange Guarantee Trustee will not claim or exact any lien or charge on any Guarantee Payments as a result of any amount due to it under this Exchange Guarantee Agreement. ARTICLE IV. EXCHANGE GUARANTEE TRUSTEE SECTION 4.1. Exchange Guarantee Trustee; Eligibility. (a) There shall at all times be a Exchange Guarantee Trustee which shall: (i) not be an Affiliate of the Exchange Guarantor; and 9 (ii) be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000, and shall be a corporation meeting the requirements of Section 310(c) of the Trust Indenture Act. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority, then, for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Exchange Guarantee Trustee shall cease to be eligible to so act under Section 4.1(e), the Exchange Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Exchange Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Exchange Guarantee Trustee and Exchange Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2. Appointment, Removal and Resignation of the Exchange Guarantee Trustee. (a) Subject to Section 4.2(b), the Exchange Guarantee Trustee may be appointed or removed without cause at any time by the Exchange Guarantor. (b) The Exchange Guarantee Trustee shall not be removed until a Successor Exchange Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Exchange Guarantee Trustee and delivered to the Exchange Guarantor. (c) The Exchange Guarantee Trustee appointed hereunder shall hold office until a Successor Exchange Guarantee Trustee shall have been appointed or until its removal or resignation. The Exchange Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Exchange Guarantee Trustee and delivered to the Exchange Guarantor, which resignation shall not take effect until a Successor Exchange Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Exchange Guarantee Trustee and delivered to the Exchange Guarantor and the resigning Exchange Guarantee Trustee. (d) If no Successor Exchange Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Exchange Guarantor of an instrument of resignation, the resigning Exchange Guarantee 10 Trustee may petition, at the expense of the Exchange Guarantor, any court of competent jurisdiction for appointment of a Successor Exchange Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Exchange Guarantee Trustee. ARTICLE V. GUARANTEE SECTION 5.1. Exchange Guarantee. The Exchange Guarantor irrevocably and unconditionally agrees to pay in full or a senior subordinated basis, to the extent set forth herein, to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Issuer), as and when due, regardless of any defense, right of setoff or counterclaim which the Issuer may have or assert, other than the defense of payment. The Exchange Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Exchange Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.2. Waiver of Notice and Demand. The Exchange Guarantor hereby waives notice of acceptance of the Exchange Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Exchange Guarantee Trustee, Issuer or any other Person before proceeding against the Exchange Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices an demands. SECTION 5.3. Obligations Not Affected. The obligations, covenants, agreements and duties of the Exchange Guarantor under this Exchange Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Exchange Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Exchange Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Exchange Preferred Securities; (c) any failure, omission, delay or lack of diligence on. the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders 11 pursuant to the terms of the Exchange Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization., arrangement, composition or readjustment of debt of, or other similar proceedings affecting the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Exchange Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Exchange Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Exchange Guarantor with respect to the happening of any of the foregoing. SECTION 5.4. Rights of Holders. The Exchange Guarantor expressly acknowledges that: (i) this Exchange Guarantee Agreement will be deposited with the Exchange Guarantee Trustee to be held for the benefit of the Holders; (ii) the Exchange Guarantee Trustee has the right to enforce this Exchange Guarantee Agreement on behalf of the Holders; (iii) the Holders of a Majority in liquidation amount of the Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Exchange Guarantee Trustee in respect of this Exchange Guarantee Agreement or exercising any trust or power conferred upon the Exchange Guarantee Trustee under this Exchange Guarantee Agreement; and (iv) upon the occurrence of an Event of Default, any Holder may institute a legal proceeding directly against the Exchange Guarantor to enforce its rights under this Exchange Guarantee Agreement, without first instituting a legal proceeding against the Exchange Guarantee Trustee, the Issuer or any other Person. SECTION 5.5. Guarantee of Payment. This Exchange Guarantee Agreement creates a guarantee of payment and not of collection. This Exchange Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer out of funds legally available therefor) or upon distribution of Notes to Holders as provided in the Declaration. SECTION 5.6. Subrogation. 12 The Exchange Guarantor shall be subrogated to all (if any) rights of the Holders against the Issuer in respect of any amounts paid to the Holders by the Exchange Guarantor under this Exchange Guarantee Agreement and shall have the right to waive payment by the Issuer pursuant to Section 5.1; provided, however, that the Exchange Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Exchange Guarantee Agreement, at the time of any such payment, any amounts are due and unpaid under this Exchange Guarantee Agreement. If any amount shall be paid to the Exchange Guarantor in violation of the preceding sentence, the Exchange Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7. Independent Obligations. The Exchange Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Exchange Preferred Securities and that the Exchange Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Exchange Guarantee Agreement notwithstanding the occurrence of any event referred to in subsection (a) through (g), inclusive, of Section 5.3 hereof. ARTICLE VI. SUBORDINATION SECTION 6.1. Subordination. (a) This Exchange Guarantee Agreement will constitute an unsecured obligation of the Exchange Guarantor and will rank subordinate and junior in right of payment to all Senior Indebtedness of the Exchange Guarantor. (b) The Exchange Guarantor may not make a Guarantee Payment to the Holders if (i) any Senior Indebtedness of the Exchange Guarantor having an outstanding principal amount at the time of determination in excess of $10,000,000 (the "Specified Indebtedness") is not paid when due or (ii) any other default on Specified Senior Indebtedness of the Exchange Guarantor occurs and the maturity of such Specified Senior Indebtedness is accelerated in accordance with its terms, unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Specified Senior Indebtedness has been paid in full. However, the Exchange Guarantor may make a Guarantee Payment without regard to the foregoing if the Exchange Guarantor and the Exchange Guarantee Trustee receive written notice approving such payment from a representative of the Specified Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second pre- ceding sentence) with respect to any Specified Senior Indebtedness of the Exchange Guarantor pursuant to which the maturity thereof may be accelerated immediately without further notice 13 (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the guarantor may not make a Guarantee Payment to the holders of Exchange Preferred Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Exchange Guarantee Trustee (with a copy to the Exchange Guarantor) of written notice (a "Blockage Notice") of such default from the representative of the holders of such Specified Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Exchange Guarantee Trustee and the Exchange Guarantor from the representative of the holders of such Specified Senior Indebtedness, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Specified Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Specified Senior Indebtedness or the representative of such holders have accelerated the maturity of such Specified Senior Indebtedness, the Exchange Guarantor may resume Guarantee Payments after the end of such Payment Blockage Period. The Exchange Guarantee Agreement shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Specified Senior Indebtedness during such period. (c) Upon any payment or distribution of the assets of the Exchange Guarantor upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Exchange Guarantor or its property, the holders of Senior Indebtedness of the Exchange Guarantor will be entitled to receive payment in full, and until the Senior Indebtedness of the Exchange Guarantor is paid in full, any payment or distribution to which the Holders would be entitled but for this Section 6.1 will be made to holders of such Senior Indebtedness as their interests may appear. If a Distribution is made to the Holders, that, due to this Section 6.1, should not have been made to them, such Holders are required to hold it in trust for the holders of Senior Indebtedness of the Exchange Guarantor and pay it over to them as their interests may appear. (d) If a Guarantee Payment is to be made by the Exchange Guarantor to the Holders, the Exchange Guarantor or the Exchange Guarantee Trustee shall promptly notify the holders of Senior Indebtedness of the Exchange Guarantor or the representative of such holders of such Guarantee Payment. If any Senior Indebtedness of the Exchange Guarantor is outstanding, the Exchange Guarantor may not pay such Guarantee Payment until five Business Days after the representative of all the issues of Senior Indebtedness of the Exchange Guarantor receives notice of such Guarantee Payment and, thereafter, may pay such Guarantee Payment only if the Exchange Guarantee Agreement otherwise permits payment at that time. ARTICLE VII. TERMINATION SECTION 7.1. Termination. 14 This Exchange Guarantee Agreement shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of the Exchange Preferred Securities, (ii) the distribution of Exchange Notes to the Holders in exchange for all of the Exchange Preferred Securities or (iii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Exchange Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to Exchange Preferred Securities or this Exchange Guarantee Agreement. ARTICLE VIII. MISCELLANEOUS SECTION 8.1. Successors and Assigns. All guarantees and agreements in this Exchange Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Exchange Guarantor and shall inure to the benefit of the Holders of the Exchange Preferred Securities then outstanding. Except in connection with a consolidation, merger or sale involving the Exchange Guarantor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Exchange Guarantor's obligations hereunder, the Exchange Guarantor shall not assign its obligations hereunder. SECTION 8.2. Amendments. Except with respect to any changes that do not adversely affect the rights of the Holders in any material respect (in which case no consent of the Holders will be required), this Exchange Guarantee Agreement may only be amended with the prior approval of the Holders of not less than a Majority in liquidation amount of all outstanding Exchange Preferred Securities. The provisions of Article VI of the Declaration concerning meetings of the Holders shall apply to the giving of such approval. This Exchange Guarantee Agreement shall not be amended without the prior receipt by the Exchange Guarantor of an opinion of independent tax counsel to the effect that such amendment of this Exchange Guarantee Agreement will not result in the recognition of income, gain or loss by the Holders. SECTION 8.3. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Exchange Guarantor, to the address set forth below or such other address, facsimile number or to the attention of such other Person as the Exchange Guarantor may give notice to the Holders: Symons International Group, Inc. 15 4720 Kingsway Drive Indianapolis, IN 46205 Facsimile No.: (317) 259-6395 Attention: David L. Bates (b) If given to the Issuer, in care of the Exchange Guarantee Trustee, at the Issuer's (and the Exchange Guarantee Trustee's) address set forth below or such other address as the Exchange Guarantee Trustee on behalf of the Issuer may given notice to the Holders: SIG Capital Trust I c/o Wilmington Trust Company 1100 North Market Street Rodney Square North Wilmington, Delaware 19890 Facsimile No.: Attention: Corporate Trust Administration (c) if given to any Holder, at the address set forth on the books and records of the Trust. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 8.4. Benefit. This Exchange Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Exchange Preferred Securities. SECTION 8.5. Interpretation. In this Exchange Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Exchange Guarantee Agreement but not defined in the preamble hereto have the respective meanings assigned to them in Section 1.1; (b) a term defined anywhere in this Exchange Guarantee Agreement has the same meaning throughout; 16 (c) all references to "the Exchange Guarantee Agreement" or "this Exchange Guarantee Agreement" are to this Exchange Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references to this Exchange Guarantee Agreement to Articles and Sections are to Articles and Sections of this Exchange Guarantee Agreement unless otherwise defined in this Exchange Guarantee Agreement or unless the context otherwise requires; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Exchange Guarantee Agreement unless otherwise defined in this Exchange Guarantee Agreement or unless the context otherwise requires; (f) a reference to the singular includes the plural and vice versa; and (g) the masculine, feminine or neuter genders used herein shall include the masculine, feminine and neuter genders. SECTION 8.6. Governing Law. THIS EXCHANGE GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instruments. 17 THIS EXCHANGE GUARANTEE AGREEMENT is executed as of the day and year first above written. Symons International Group, Inc. By:_______________________________________ Name: Alan G. Symons Title: Chief Executive Officer By:_______________________________________ Name: Gary P. Hutchcraft Title: Vice President Wilmington Trust Company, as Exchange Guarantee Trustee By:_______________________________________ Name:____________________________________ Title:_____________________________________ 18 EX-4 8 REGISTRATION RIGHTS AGREEMENT Exhibit 4.7 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of August 12, 1997 among SYMONS INTERNATIONAL GROUP, INC., an Indiana corporation (the "Company"), SIG CAPITAL TRUST I, a business trust created under the laws of the state of Delaware (the "Trust"), and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ("DLJ"), GOLDMAN, SACHS & CO., CIBC WOOD GUNDY SECURITIES CORP., and MESIROW FINANCIAL, INC. (collectively the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated August 7, 1997 (the "Purchase Agreement"), among the Company, as issuer of the 9 1/2% Senior Subordinated Notes due 2027 (the "Senior Subordinated Notes"), the Trust and the Initial Purchasers, which provides for, among other things, the sale by the Trust to the Initial Purchasers of 135,000 of the Trust's 9 1/2% Trust Preferred Securities, liquidation amount $1,000 per Trust Preferred Security (the "Preferred Securities"), the proceeds of which will be used by the Trust to purchase Senior Subordinated Notes. The Preferred Securities, together with the Senior Subordinated Notes and the Company's guarantee of the Preferred Securities (the "Company Guarantee"), are collectively referred to as the "Securities". In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Trust have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Advice" shall have the meaning set forth in the last paragraph of Section 3 hereof. "Applicable Period" shall have the meaning set forth in Section 3(t) hereof. "Business Day" shall mean a day that is not a Saturday, a Sunday, or a day on which banking institutions in New York, New York or Wilmington, Delaware are authorized or required to be closed. "Closing Time" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble to this Agreement and also includes the Company's successors and permitted assigns. "Declaration" or "Declaration of Trust" shall mean the Amended and Restated Declaration of Trust, dated as of August 12, 1997, by and among the Company Trustees, the Preferred Trustee and the Delaware Trustee, each as defined therein, and the Company, as sponsor, and by the holders, from time to time, of undivided beneficial interests in the Trust. 2 "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Trust; provided, however, that such depositary must have an address in the Borough of Manhattan, in The City of New York. "Effectiveness Period" shall have the meaning set forth in Section 2(b) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Exchange Offer" shall mean the offer by the Company and the Trust to the Holders to exchange all of the Registrable Securities (other than Private Exchange Securities) for a like principal amount of Exchange Securities pursuant to Section 2(a) hereof. "Exchange Offer Registration" shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2(a) hereof. "Exchange Securities" shall mean (i) with respect to the Senior Subordinated Notes, the 9 1/2% Senior Subordinated Notes due August 15, 2027 which are to be offered in exchange for the Subordinated Notes (the "Exchange Notes") and which will contain terms identical to the Senior Subordinated Notes (except that they will not contain terms with respect to the transfer restrictions under the Securities Act, will not require transfers thereof to be in minimum blocks of $100,000 principal amount and will not provide for any increase in the interest rate thereon), (ii) with respect to the Preferred Securities, the Trust's 9 1/2% Trust Preferred Securities, liquidation amount $1,000 per Preferred Security, which are to be offered in exchange for the Preferred Securities (the "Exchange Preferred Securities") and which will have terms identical to the Preferred Securities (except they will not contain terms with respect to transfer restrictions under the Securities Act, will not require minimum transfers thereof to be in blocks of $100,000 liquidation amount and will not provide for any increase in the distribution rate thereon) and (iii) with respect to the Company Guarantee, the Company's guarantee (the "Exchange Company Guarantee") of the Exchange Preferred Securities which will have terms identical to the Company Guarantee. "Holder" shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their respective successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture or Declaration of Trust. 3 "Indenture" shall mean the Indenture relating to the Senior Subordinated Notes and the Exchange Notes dated as of August 12, 1997 among the Company, as issuer, and the Indenture Trustee, as defined therein, as the same may be amended from time to time in accordance with the terms thereof. "Initial Purchasers" shall have the meaning set forth in the preamble to this Agreement. "Inspectors" shall have the meaning set forth in Section 3(n) hereof. "Issue Date" shall mean the date of original issuance of the Securities. "Majority Holders" shall mean the Holders of a majority of the aggregate liquidation amount of outstanding Preferred Securities. "Participating Broker-Dealer" shall have the meaning set forth in Section 3(t) hereof. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, limited liability company, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2(a) hereof. "Private Exchange Securities" shall have the meaning set forth in Section 2(a) hereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble to this Agreement. "Records" shall have the meaning set forth in Section 3(n) hereof. "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that Securities or Private Exchange Securities, as the case may be, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities or Private Exchange Securities for the exchange or resale thereof, as the case may be, shall have been declared effective under the Securities Act and such Securities or Private Exchange Securities, as the case may be, shall 4 have been disposed of pursuant to such Registration Statement, (ii) such Securities or Private Exchange Securities, as the case may be, may be sold to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the Securities Act, (iii) such Securities or Private Exchange Securities, as the case may be, shall have ceased to be outstanding or (iv) with respect to the Securities, such Securities have been exchanged for Exchange Securities upon consummation of the Exchange Offer and are thereafter freely tradeable by the holder thereof (other than an affiliate of the Company). "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any Holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities) and compliance with the rules of the NASD, (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing, printing and distributing any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of counsel for the Company and of the independent certified public accountants of the Company, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, (vi) the fees and expenses of the Trustee, and any exchange agent or custodian, (vii) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, and (viii) the reasonable fees and expenses of any special experts retained by the Company in connection with any Registration Statement. "Registration Statement" shall mean any registration statement of the Company and the Trust which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Rule 144(k) Period" shall mean the period of two years (or such shorter period as may hereafter be referred to in Rule 144(k) under the Securities Act (or similar successor rule)) commencing on the Issue Date. "SEC" shall mean the Securities and Exchange Commission. "Securities" shall have the meaning set forth in the preamble to this Agreement. 5 "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Senior Subordinated Notes" shall have the meaning set forth in the preamble to this Agreement. "Shelf Registration" shall mean a registration effected pursuant to Section 2(b) hereof. "Shelf Registration Event" shall have the meaning set forth in Section 2(b) hereof. "Shelf Registration Event Date" shall have the meaning set forth in Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company and the Trust pursuant to the provisions of Section 2(b) hereof which covers all of the Registrable Securities or all of the Private Exchange Securities, as the case may be, on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "TIA" shall have the meaning set forth in Section 3(1) hereof. "Trustees" shall mean any and all trustees with respect to (i) the Preferred Securities under the Declaration, (ii) the Senior Subordinated Notes under the Indenture and (iii) the Company Guarantee. 2. Registration Under the Securities Act. (a) Exchange Offer. To the extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Company and the Trust shall, for the benefit of the Holders, at the Company's cost, use its best efforts to (i) cause to be filed with the SEC by September 30, 1997 an Exchange Offer Registration Statement on an appropriate form under the Securities Act covering the Exchange Offer, (ii) cause such Exchange Offer Registration Statement to be declared effective under the Securities Act by the SEC not later than the date which is 180 days after the Issue Date, and (iii) keep such Exchange Offer Registration Statement effective for not less than 30 calendar days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the Holders. Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Trust shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for a like principal amount of Exchange Notes or a like liquidation amount of Exchange Preferred Securities, together with the Exchange Company Guarantee, as applicable (assuming that such Holder is not an affiliate of the Company within the meaning of Rule 405 under the Securities Act and is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, acquires the Exchange Securities in the 6 ordinary course of such Holder's business and has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities), to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Company and the Trust shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Exchange Offer open for acceptance for a period of not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (iii) utilize the services of the Depositary for the Exchange Offer; (iv) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last Business Day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for exchange, and a statement that such Holder is withdrawing his election to have such Securities exchanged; (v) notify each Holder that any Security not tendered by such Holder in the Exchange Offer will remain outstanding and continue to accrue interest or accumulate distributions, as the case may be, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and (vi) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. If any Initial Purchaser determines upon advice of its outside counsel that it is not eligible to participate in the Exchange Offer with respect to the exchange of Securities constituting any portion of an unsold allotment in the initial distribution, as soon as practicable upon receipt by the Company and the Trust of a written request from such Initial Purchaser, the Company and the Trust, as applicable, shall issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser, a like liquidation amount of Preferred Securities of the Trust, together with the Exchange Company Guarantee, or a like principal amount of the Senior Subordinated Notes of the Company, as applicable, that are identical (except that such securities may bear a customary legend with respect to restrictions on transfer pursuant to the Securities Act) to the Exchange Securities (the "Private Exchange Securities") and which are issued pursuant to the Indenture, the Declaration or the Company Guarantee (which provides that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture or the Declaration, as applicable, and that the Exchange Securities, the Private Exchange 7 Securities and the Securities will vote and consent together on all matters as one class and that neither the Exchange Securities, the Private Exchange Securities nor the Securities will have the right to vote or consent as a separate class on any matter). The Private Exchange Securities shall be of the same series as the Exchange Securities and the Company and the Trust will seek to cause the CUSIP Service Bureau to issue the same CUSIP Numbers for the Private Exchange Securities as for the Exchange Securities issued pursuant to the Exchange Offer. As soon as practicable after the close of the Exchange Offer and, if applicable, the Private Exchange, the Company and the Trust, as the case requires, shall: (i) accept for exchange all Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; (ii) deliver, or cause to be delivered, to the applicable Trustee for cancellation all Securities or portions thereof so accepted for exchange by the Company; and (iii) issue, and cause the applicable Trustee under the Indenture, the Declaration or the Company Guarantee, as applicable, to promptly authenticate and deliver to each Holder, new Exchange Securities or Private Exchange Securities, as applicable, equal in principal amount to the principal amount of the Senior Subordinated Notes or equal in liquidation amount to the liquidation amount of the Preferred Securities (together with the guarantee thereof) as are surrendered by such Holder. Distributions on each Exchange Preferred Security and interest on each Exchange Note issued pursuant to the Exchange Offer and in the Private Exchange will accrue from the last date on which a distribution or interest was paid on the Preferred Security or the Subordinated Note surrendered in exchange therefor or, if no distribution or interest has been paid on such Preferred Security or Subordinated Note, from the Issue Date. To the extent not prohibited by any law or applicable interpretation of the staff of the SEC, the Company and the Trust shall use their best efforts to complete the Exchange Offer as provided above, and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC. Each Holder of Registrable Securities who wishes to exchange such Registrable Securities for Exchange Securities in the Exchange Offer will be required to make certain customary representations in connection therewith, including, in the case of any Holder of Preferred Securities, representations that (i) it is not an affiliate of the Trust or the Company, (ii) the Exchange Securities to be received by it were acquired in the ordinary course of its business and (iii) at the time of the Exchange Offer, it has no arrangement with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Preferred Securities. The Company and the Trust shall inform the Initial Purchasers, after consultation with the Trustee, of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 8 Upon consummation of the Exchange Offer in accordance with this Section 2(a), the provisions of this Agreement shall continue to apply solely with respect to Registrable Securities that are Private Exchange Securities and Exchange Securities held by Participating Broker-Dealers, and the Company and the Trust shall have no further obligation to register the Registrable Securities (other than Private Exchange Securities) pursuant to Section 2(b) of this Agreement. (b) Shelf Registration. In the event that (i) the Company, the Trust or the Majority Holders reasonably determine, after conferring with counsel (which may be in-house counsel), that the Exchange Offer Registration provided in Section 2(a) above is not available because of any change in law or in currently prevailing interpretations of the staff of the SEC, (ii) the Exchange Offer Registration Statement is not declared effective within 180 days of the Issue Date, (iii) upon the request of any Initial Purchaser with respect to any Registrable Securities held by it, if such Initial Purchaser is not permitted, in the reasonable opinion of Simpson Thacher & Bartlett, pursuant to applicable law or applicable interpretations of the staff of the SEC, to participate in the Exchange Offer and thereby receive securities that are freely tradeable without restriction under the Securities Act and applicable blue sky or state securities laws or (iv) the Company has received an opinion of independent tax counsel experienced in such matters, to the effect that, as a result of the consummation of the Exchange Offer, there is more than an insubstantial risk that (x) the Trust would be subject to United States federal income tax with respect to income received or accrued on the Senior Subordinated Notes or the Exchange Notes, (y) interest payable by the Company on such Senior Subordinated Notes or Exchange Notes would not be deductible by the Company, in whole or in part, for United States federal income tax purposes or (z) the Trust would be subject to more than a de minimus amount of other taxes, duties or other governmental charges (any of the events specified in (i)-(iv) being a "Shelf Registration Event" and the date of occurrence thereof, the "Shelf Registration Event Date"), the Company and the Preferred Trustee on behalf of the Trust will (a) promptly deliver to the Holders and the Delaware Trustee written notice thereof and (b) at the Company's sole expense, as promptly as practicable after such Shelf Registration Event Date, as the case may be, and, in any event, within 45 days after such Shelf Registration Event Date (which shall be no earlier than 75 days after the Closing Time), file a Shelf Registration Statement providing for the sale by the Holders of all of the Registrable Securities, and shall use its best efforts to have such Shelf Registration Statement declared effective by the SEC as soon as practicable. No Holder of Registrable Securities shall be entitled to include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder and furnishes to the Company and the Trust in writing, within 15 days after receipt of a request therefor, such information as the Company and the Trust may, after conferring with counsel with regard to information relating to Holders that would be required by the SEC to be included in such Shelf Registration Statement or Prospectus including therein, reasonably request for inclusion in any Shelf Registration Statement or Prospectus included therein. Each Holder as to which any Shelf Registration is being effected agrees to furnish to the Company and the Trust all information with respect to such Holder necessary to make the information previously furnished to the Company by such Holder not materially misleading. 9 The Company and the Trust agree to use their best efforts to keep the Shelf Registration Statement continuously effective for the Rule 144(k) Period (subject to extension pursuant to the last paragraph of Section 3 hereof) or for such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding (the "Effectiveness Period"). The Company and the Trust shall not permit any securities other than Registrable Securities to be included in the Shelf Registration. The Company and the Trust will, in the event a Shelf Registration Statement is filed, provide to each Holder a reasonable number of copies of the Prospectus which is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration has become effective and take certain other actions as are required to permit certain unrestricted resales of the Registrable Securities. The Company and the Trust further agree, if necessary, to supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registrations, and the Company and the Trust agree to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) Expenses. The Company, in its capacity as borrower, shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or 2(b) hereof and will reimburse the Initial Purchasers for the reasonable fees and disbursements of Simpson Thacher & Bartlett, counsel for the Initial Purchasers, incurred in connection with the Exchange Offer (if the assistance of such Initial Purchasers is requested by the Company) and, if applicable, the Private Exchange, and either Simpson Thacher & Bartlett or any one other counsel designated in writing by the Majority Holders to act as counsel for the Holders of the Registrable Securities in connection with a Shelf Registration Statement, which other counsel shall be reasonably satisfactory to the Company. Except as provided herein, each Holder shall pay all expenses of its counsel, underwriting discounts and commissions and transfer taxes if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. (d) Effective Registration Statement. An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. The Company and the Trust will be deemed not to have used their best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if either of them voluntarily takes any action that would result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period unless such action is required by applicable law. 10 (e) Additional Interest. In the event that (i) (A) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is filed with the SEC on or prior to September 30, 1997 or (B) notwithstanding that the Company and the Trust have consummated or will consummate an Exchange Offer, the Company and the Trust are required to file a Shelf Registration Statement and such Shelf Registration Statement is not filed on or prior to the date required by Section 2(b) hereof, then commencing on the day after the applicable required filing date, additional interest shall accrue on the principal amount of the Senior Subordinated Notes, and additional distributions shall accumulate on the liquidation amount of the Preferred Securities, each at a rate of 0.25% per annum; or (ii)(A) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is declared effective by the SEC on or prior to the 180th day after Issue Date or (B) notwithstanding that the Company and the Trust have consummated or will consummate an Exchange Offer, the Company and the Trust are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the SEC on or prior to the 180th day after the Issue Date, then, additional interest shall accrue on the principal amount of the Senior Subordinated Notes and additional distributions shall accumulate on the liquidation amount of the Preferred Securities, each at a rate of 0.25% per annum; or (iii)(A) the Trust has not exchanged Exchange Preferred Securities for all Preferred Securities or the Company has not exchanged Exchange Company Guarantees or Exchange Notes for all Company Guarantees or all Senior Subordinated Notes validly tendered, in accordance with the terms of the Exchange Offer on or prior to the 30th day after the date on which the Exchange Offer Registration Statement was declared effective or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all Preferred Securities have been disposed of thereunder or otherwise cease to be Registrable Securities), then additional interest shall accrue on the principal amount of Senior Subordinated Notes, and additional distributions shall accumulate on the liquidation amount of the Preferred Securities, each at a rate of 0.25% per annum commencing on (x) the 31st day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above; provided, however, that neither the additional interest rate on the Senior Subordinated Notes, nor the additional distribution rate on the liquidation amount of the Preferred Securities, may exceed in the aggregate 0.25% per annum; provided, further, however, that (1) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (ii) above), or (3) upon the exchange of Exchange Preferred Securities, Exchange Company Guarantees and Exchange Notes for all Preferred Securities, Company Guarantees and Senior Subordinated Notes tendered (in the case of clause (iii)(A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii)(B) above), additional interest on the Senior Subordinated Notes, and additional distributions on the liquidation amount of the Preferred Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. 11 Any amounts of additional interest and additional distributions due pursuant to Section 2(e)(i), (ii) or (iii) above will be payable in cash on the relevant record dates for the payment of interest and distributions pursuant to the Indenture and the Declaration respectively. (f) Specific Enforcement. Without limiting the remedies available to the Holders, the Company and the Trust acknowledge that any failure by the Company or the Trust to comply with its obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, any Holder may obtain such relief as may be required to specifically enforce the Company's and the Trust's obligations under Section 2(a) and Section 2(b) hereof. 3. Registration Procedures. In connection with the obliga- tions of the Company and the Trust with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Company and the Trust shall use their best efforts to: (a) prepare and file with the SEC a Registration Statement or Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within the relevant time period specified in Section 2 hereof on the appropriate form under the Securities Act, which form (i) shall be selected by the Company and the Trust, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; provided, however, that if (1) such filing is pursuant to Section 2(b), or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities, before filing any Registration Statement or Prospectus or any amendments or supplements thereof, the Company and the Trust shall furnish to and afford the Holders of the Registrable Securities and each such Participating Broker-Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed. The Company and the Trust shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document if the Majority Holders or such Participating Broker-Dealer, as the case may be, their counsel or the managing underwriters, if any, shall reasonably object; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the Effectiveness Period or the Applicable Period, as the case may be; and cause each Prospectus to be supplemented, if so determined by the Company or the Trust or requested by the SEC, by any required prospectus supplement and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act, and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder applicable to it with respect to the disposition of all securities covered by each 12 Registration Statement during the Effectiveness Period or the Applicable Period, as the case may be, in accordance with the intended method or methods of distribution by the selling Holders thereof described in this Agreement (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities included in the Shelf Registration Statement, at least three Business Days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holder that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders; and (ii) furnish to each Holder of Registrable Securities included in the Shelf Registration Statement and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities included in the Shelf Registration Statement in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) in the case of a Shelf Registration, use its best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions by the time the applicable Registration Statement is declared effective by the SEC as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request in writing in advance of such date of effectiveness, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company and the Trust shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process in any jurisdiction where it would not otherwise be subject to such service of process or (iii) subject itself to taxation in any such jurisdiction if it is not then so subject; (e) in the case of (1) a Shelf Registration or (2) Participating Broker-Dealers from whom the Company or the Trust has received prior written notice that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(t) hereof and who are seeking to sell Exchange Securities and are required to deliver Prospectuses, notify each Holder of Registrable Securities, or such Participating Broker-Dealers, as the case may be, their counsel and the managing underwriters, if any, promptly and promptly confirm such notice in writing (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the qualification of the Registrable Securities or the Exchange Securities to be offered or sold by any Participating Broker-Dealer in any jurisdiction described in paragraph 3(d) hereof or the initiation of any proceedings for that purpose, (iv) in the 13 case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company and the Trust contained in any purchase agreement, securities sales agreement or other similar agreement, if any cease to be true and correct in all material respects, (v) of the happening of any event or the failure of any event to occur or the discovery of any facts or otherwise, during the Effectiveness Period which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which causes such Registration Statement or Prospectus to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (vi) of the Company and the Trust's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (g) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities included within the coverage of such Shelf Registration Statement, without charge, at least one conformed copy of each Registration Statement relating to such Shelf Registration and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (h) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and in such denominations (consistent with the provisions of the Indenture and the Declaration) and registered in such names as the selling Holders or the underwriters may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities pursuant to such Shelf Registration Statement; (i) in the case of a Shelf Registration or an Exchange Offer Registration, upon the occurrence of any circumstance contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, use its best efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and to notify each Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus to correct such misstatement or omission; (j) in the case of a Shelf Registration, a reasonable time prior to the filing of any document which is to be incorporated by reference into a Registration Statement or a Prospectus after the initial filing of a Registration Statement, provide a reasonable number of copies of such document to the Holders; and make such of the representatives of the Company and the Trust as shall be reasonably requested by the Holders of Registrable Securities or the Initial Purchasers on behalf of such Holders available for discussion of such document; 14 (k) obtain a CUSIP number for all Exchange Preferred Securities and the Preferred Securities (and if the Trust has made a distribution of the Senior Subordinated Notes to the Holders of the Preferred Securities, the Senior Subordinated Notes or the Exchange Notes) as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (l) cause the Indenture, the Declaration, the Company Guarantee and the Exchange Company Guarantee to be qualified under the Trust Indenture Act of 1939 (the "TIA") in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, and effect such changes to such documents as may be required for them to be so qualified in accordance with the terms of the TIA and execute, and use its best efforts to cause the relevant trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such documents to be so qualified in a timely manner; (m) in the case of a Shelf Registration, enter into such agreements (including underwriting agreements) as are customary in underwritten offerings and take all such appropriate actions as are reasonably requested in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, if requested by (x) any Initial Purchaser, in the case where an Initial Purchaser holds Securities acquired by it as part of its initial distribution and (y) other Holders of Securities covered thereby: (i) make such representations and warranties to Holders of such Registrable Securities and the underwriters (if any), with respect to the business of the Trust, the Company and its subsidiaries as then conducted and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and the Trust and updates thereof (which may be in the form of a reliance letter) in form and substance reasonably satisfactory to the managing underwriters (if any) and the Holders of a majority in principal amount of the Registrable Securities being sold, addressed to each selling Holder and the underwriters (if any) covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions); (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters from the independent certified public accountants of the Company and the Trust (and, if necessary, any other independent certified public accountants of any subsidiary of the Company and the Trust or of any business acquired by the Company and the Trust for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as are reasonably requested by such underwriters in accordance with Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 4 hereof (or such other provisions and procedures acceptable to 15 Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriters or agents) with respect to all parties to be indemnified pursuant to said Section (including, without limitation, such underwriters and selling Holders). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder; (n) if (1) a Shelf Registration is filed pursuant to Section 2(b) or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make reasonably available for inspection by any selling Holder of such Registrable Securities being sold, or each such Participating Broker- Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Trust, the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Trust, the Company and its subsidiaries to supply all relevant information in each case reasonably requested by any such Inspector in connection with such Registration Statement; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by you and on behalf of such other parties as described in Section 2(c) hereof. Records which the Company and the Trust determine, in good faith, to be confidential and any records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or is necessary in connection with any action, suit or proceeding or (iii) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree in writing that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Trust or the Company unless and until such is made generally available to the public by the Company. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree in writing that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of the Records deemed confidential; (o) comply with all applicable rules and regulations of the SEC so long as any provision of this Agreement shall be applicable and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold 16 to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods; (p) upon consummation of an Exchange Offer or a Private Exchange, if requested by a Trustee, obtain an opinion of counsel to the Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or the Private Exchange, as the case may be, and which includes an opinion that (i) the Company and the Trust, as the case requires, has duly authorized, executed and delivered the Exchange Securities and Private Exchange Securities, and (ii) each of the Exchange Securities or the Private Exchange Securities, as the case may be, constitute a legal, valid and binding obligation of the Company or the Trust, as the case requires, enforceable against the Company or the Trust, as the case requires, in accordance with its respective terms (in each case, with customary exceptions); (q) if an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Securities by Holders to the Company or the Trust, as applicable (or to such other Person as directed by the Company or the Trust, respectively), in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company or the Trust, as applicable, shall mark, or cause to be marked, on such Registrable Securities delivered by such Holders that such Registrable Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall such Registrable Securities be marked as paid or otherwise satisfied; (r) cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; (s) use its best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby; (t) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," which section shall be reasonably acceptable to the Initial Purchasers or another representative of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer (a "Participating Broker-Dealer") that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of the Initial Purchasers or such other representative, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker- Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonable request (each of the Company and the Trust hereby consents to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto by any Person subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto), (iii) use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements under the Securities Act and applicable rules and regulations in order to resell the Exchange Securities; provided, however, that such period shall not be required to exceed 90 days (or such longer period if extended pursuant to the last sentence of Section 3 hereof) (the "Applicable Period"), and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market making activities or other trading activities, it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer"; and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act; and (B) in the case of any Exchange Offer Registration Statement, the Company and the Trust agree to deliver to the Initial Purchasers or to another representative of the Participating Broker-Dealers, if requested by any such Initial Purchasers or such other representative of the Participating Broker-Dealers, on behalf of the Participating Broker-Dealers upon consummation of the Exchange Offer (i) an opinion of counsel in form and substance reasonable satisfactory to the Initial Purchasers or such other representative of the Participating Broker-Dealers, covering the matters customarily covered in opinions requested in connection with Exchange Offer Registration Statements and such other matters as may be reasonably requested (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions), (ii) an officers' certificate containing certifications substantially similar to those set forth in Section 5(g) of the Purchase Agreement and such additional certifications as are customarily delivered in a public offering of debt securities and (iii) as well as upon the effectiveness of the Exchange Offer Registration Statement, a comfort letter, in each case, in customary form if permitted by Statement on Auditing Standards No. 72. 17 The Company or the Trust may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company or the Trust, as applicable, such information regarding such seller as may be required by the staff of the SEC to be included in a Registration Statement. The Company or the Trust may exclude from such registration the Registrable Securities of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. The Company shall have no obligation to register under the Securities Act the Registrable Securities of a seller who so fails to furnish such information. In the case of (1) a Shelf Registration Statement or (2) Participating Broker-Dealers who have notified the Company and the Trust that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(t) hereof and who are seeking to sell Exchange Securities and are required to deliver Prospectuses, each Holder agrees that, upon receipt of any notice from the Company or the Trust of the happening of any event of the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof or until it is advised in writing (the "Advice") by the Company and the Trust that the use of the applicable Prospectus may be resumed, and, if so directed by the Company and the Trust, such Holder will deliver to the Company or the Trust (at the Company's or the Trust's expense, as the case requires) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities or Exchange Securities, as the case may be, current at the time of receipt of such notice. If the Company or the Trust shall give any such notice to suspend the disposition of Registrable Securities or Exchange Securities, as the case may be, pursuant to a Registration Statement, the Company and the Trust shall use their best efforts to file and have declared effective (if an amendment) as soon as practicable an amendment or supplement to the Registration Statement and shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days in the period from and including the date of the giving of such notice to and including the date when the Company and the Trust shall have made available to the Holders (x) copies of the supplemented or amended Prospectus necessary to resume such dispositions or (y) the Advice. 4. Indemnification and Contribution. (a) In connection with any Registration Statement, the Company and the Trust shall, jointly and severally, indemnify and hold harmless each Initial Purchaser, each Holder, each underwriter who participates in an offering of the Registrable Securities, each Participating Broker-Dealer, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), covering Registrable Securities or Exchange Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the 18 statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the prior written consent of the Company; and (iii) from and against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of counsel chosen by such Holder (which such counsel shall be subject to the reasonable approval of the Company), such Participating Broker- Dealer, or any underwriter (except to the extent otherwise expressly provided in Section 4(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 4(a); provided, however, that (i) this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished in writing to the Company or the Trust by such Holder, such Participating Broker-Dealer or any underwriter with respect to such Holder, Participating Broker-Dealer or any Underwriter, as the case may be, expressly for use in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) and (ii) the Company and the Trust shall not be liable to any such Holder, Participating Broker-Dealer, any underwriter or controlling person, with respect to any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary Prospectus to the extent that any such loss, liability, claim, damage or expense of any Holder, Participating Broker-Dealer, any underwriter or controlling person results from the fact that such Holder, Participating Broker-Dealer, underwriter or controlling person sold Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented if the Company had previously furnished copies thereof to such Holder, Participating Broker-Dealer, underwriter or controlling person and the loss, liability, claim, damage or expense of such Holder, Participating Broker-Dealer, underwriter or controlling person results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was corrected in the final Prospectus. Any amounts advanced by the Company or the Trust to an indemnified party pursuant to this Section 4 as a result of such losses shall be returned to the Company or the Trust if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company or the Trust. 19 (b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Trust, any underwriter and the other selling Holders and each of their respective directors, officers (including each officer of the Company and the Trust who signed the Registration Statement), employees, trustees and agents and each Person, if any, who controls the Company, the Trust, any underwriter or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to actions taken in connection with distribution of the Securities in violation of, or untrue statements or omissions, or alleged untrue statements or omissions, made in, the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment to supplement thereto) in reliance upon and in conformity with written information furnished to the Company or the Trust by such selling Holder with respect to such Holder expressly for use in the Registration Statement (or any amendment thereto), or any such Prospectus (or any amendment or supplement thereto); provided, however, that, in the case of a Shelf Registration Statement, no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 4, except to the extent that it is materially prejudiced by such failure. An indemnifying party may participate at its own expense in the defense of such action. If an indemnifying party so elects within a reasonable time after receipt of such notice, an indemnifying party, severally or jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and reasonably acceptable to the indemnified parties defendant in such action; provided, however, that if (i) representation of such indemnified party by the same counsel would present a conflict of interest or (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and any such indemnified party reasonably determines that there be any legal defenses available to such indemnified party which are different from or in addition to those available to such indemnifying party, then in the case of clauses (i) and (ii) of this Section 4(c), such indemnifying party and counsel for each indemnifying party or parties shall not be entitled to assume such defense. If an indemnifying party is not entitled to assume the defense of such action as a result of the proviso to the preceding sentence, counsel for such indemnifying party and counsel for each indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties. If an indemnifying party assumes the defense of such action, in accordance with and as permitted by the provisions of this paragraph, such indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. Subject to the foregoing, in no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to local counsel), separate from its own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment 20 with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional written release in form and substance satisfactory to the indemnified parties of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 4 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company, the Trust and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, the Trust and the Holders, as incurred; provided that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company, the Trust and the Holders, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company and Trust, on the one hand, and the Holders, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company and the Trust, on the one hand, and of the Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Trust, on the one hand, or by or on behalf of the Holders, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Trust and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 4 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 4, each affiliate of a Holder, and each director, officer, employee, agent and Person, if any, who controls a Holder or such affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder, and each director of each of the Company and the Trust, each officer of each of the Company and the Trust who signed the Registration Statement, and each Person, if any, who controls each of the Company and the Trust within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall have the same rights to contribution as each of the Company or the Trust. 5. Participation in Underwritten Registrations. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents reasonably required under the terms of such underwriting arrangements. 21 6. Section of Underwriters. The Holders of Registrable Securities covered by the Shelf Registration Statement who desire to do so may sell the securities covered by such Shelf Registration in an underwritten offering. In any such underwritten offering, the underwriter or underwriters and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Registrable Securities included in such offering; provided, however, that such underwriters and managers must be satisfactory to the Company and the Trust. 7. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the Company or the Trust is subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any Registrable Securities remain outstanding, each of the Company and the Trust, as the case may be, will use its best efforts to file the reports required to be filed by it under the Securities Act and Section 13(e) or 15(d) of the Exchange Act and the rules and regulations adopted by the SEC thereunder, that if it ceases to be so required to file such reports, it will, upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales of their securities pursuant to Rule 155A under the Securities Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales of their securities pursuant to Rule 144A under the Securities Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, (ii) Rule 144A under the Securities Act, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company and the Trust will deliver to such Holder a written statement as to whether it has complied with such requirements. (b) No Inconsistent Agreements. The Company or the Trust has not entered into nor will the Company or the Trust on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not conflict with and are not inconsistent with the rights granted to the holders of the Company's or the Trust's other issued and outstanding securities under any such agreements. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions thereof may not be given unless the Company and the Trust has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure; provided no amendment, modification, supplement, waiver or consent to the departure with respect to the provisions of Section 4 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder of Registrable Securities. Notwithstanding the foregoing sentence, (i) this Agreement may be amended, without the consent of any Holder of Registrable Securities, by written agreement signed 22 by the Company, the Trust and DLJ, to cure any ambiguity, correct or supplement any provision of this Agreement that may be inconsistent with any other provision of this Agreement or to make any other provisions with respect to matters or questions arising under this Agreement which shall not be inconsistent with other provisions of this Agreement, (ii) this Agreement may be amended, modified or supplemented, and waivers and consents to departures from the provisions hereof may be given, by written agreement signed by the Company, the Trust and DLJ to the extent that any such amendment, modification, supplement, waiver or consent is, in their reasonable judgment, necessary or appropriate to comply with applicable law (including any interpretation of the Staff of the SEC) or any change therein and (iii) to the extent any provision of this Agreement relates to the Initial Purchasers, such provision may be amended, modified or supplemented, and waivers or consents to departures from such provisions may be given, by written agreement signed by DLJ, the Company and the Trust. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telefax, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company or the Trust by means of a notice given in accordance with the provisions of this Section 7(d), which address initially is, with respect to the Initial Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the Company or the Trust, initially at the Company's address set forth in the Purchase Agreement and thereafter at such other address, notice of which is gives in accordance with the provisions of this Section 7(d). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of the Initial Purchasers, including, without limitation and without the need for an express assignment, subsequent Holders; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. (f) Third Party Beneficiary. Each of the Initial Purchasers shall be a third party beneficiary of the agreements made hereunder between the Company and the Trust, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements 23 directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) Counterparts. This agreement may be executed in any number of counterparts and by the parties herein in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Securities Held by the Company, the Trust or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company, the Trust or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SYMONS INTERNATIONAL GROUP, INC. By:__/s/ Alan G. Symons________________ Name: Alan G. Symons Title: Chief Executive Officer SIG CAPITAL TRUST I By:__/s/ Alan G. Symons________________ Name: Alan G. Symons Title: Company Trustee Confirmed and accepted as of the date first above written: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. By: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as Representative of the Several Initial Purchasers By:_______________________________ Name: Title: IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SYMONS INTERNATIONAL GROUP, INC. By:____________________________________ Name: Alan G. Symons Title: Chief Executive Officer SIG CAPITAL TRUST I By:____________________________________ Name: Alan G. Symons Title: Company Trustee Confirmed and accepted as of the date first above written: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. By: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as Representative of the Several Initial Purchasers By:__/s/ Jonathan D. Kelly_______________ Name: Jonathan D. Kelly Title: Vice President - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated August 12, 1997 among SYMONS INTERNATIONAL GROUP, INC., SIG CAPITAL TRUST I and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC., as Initial Purchasers - -------------------------------------------------------------------------------- EX-5 9 OPINION OF DANN PECAR NEWMAN & KLEIMAN Exhibit 5.1 September 16, 1997 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 SIMPSON THACHER & BARTLETT 425 Lexington Avenue New York, New York 10017-3954 Re: Symons International Group, Inc./ $139,176,000 9 1/2% Senior Subordinated Notes Dear Sirs: We have acted as counsel for Symons International Group, Inc., an Indiana corporation (the "Company") in connection with (i) the issuance of $139,176,000 9 1/2% Senior Subordinated Notes of the Company, and (ii) the execution of certain documents in connection therewith, including, but not limited to the Senior Subordinated Indenture, the Amended and Restated Declaration of Trust, the Preferred Securities Company Guarantee, the Common Securities Company Guarantee, the Registration Rights Agreement, the Purchase Agreement, the Preliminary Offering Memorandum and the Offering Memorandum, all as referred to in the Purchase Agreement, dated August 7, 1997, between you, the Company and SIG Capital Trust I. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 2 In rendering the legal opinions expressed herein, we have reviewed applicable law, have made such inquiries as we have deemed relevant and necessary and have examined the original instruments, documents, certificates and records we have deemed necessary in rendering these opinions, including but not limited to the following: 1. Certificate of Existence of the Company, dated August 8, 1997 by the Secretary of State of Indiana. 2. Articles of Incorporation and By-Laws of the Company, certified by the Secretary of the Company. 3. Preliminary Offering Memorandum, dated July 23, 1997. 4. Offering Memorandum, dated August 7, 1997. 5. The Operative Documents to be delivered on the Closing Date. Any term not defined herein shall have the same meaning as set forth in the Purchase Agreement. Based upon our examination of the foregoing instruments, documents and certificates, and in reliance upon the completeness, correctness, accuracy, truth and authenticity thereof and of the information therein contained and certain representations made to us by certain officers of the Company, concerning which information we express no opinion and declare that we have made no independent investigation of the truth, accuracy or completeness thereof and assume no obligation to do so, and subject to the limitations, qualifications, exceptions and assumptions hereinafter set forth, we are of the opinion, as of the date hereof, that under the federal laws of the United States and the laws of the States of Indiana and New York (assuming the law of New York is the same as the law of the State of Indiana: (i) The Company has been duly incorporated and is validly existing as a corporation under the laws of the State of Indiana, with all requisite corporate power and authority to own, lease and operate its properties and to conduct its business as it is currently being conducted and as described in the Offering Memorandum, and is duly DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 3 qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction in which the ownership, leasing and operation of its property and the conduct of its business requires such qualification. (ii) the authorized, issued and outstanding capital stock of the Company has been duly and validly authorized and issued and is fully paid and nonassessable. (iii) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement and the other Operative Documents to which it is a party and to consummate the transactions contemplated hereby or thereby, including, without limitation, the corporate power and authority to issue, sell and deliver the Senior Subordinated Notes, the Preferred Securities Company Guarantee, the Exchange Notes and the Exchange Preferred Securities Company Guarantee. (iv) This Agreement has been duly and validly authorized, executed and delivered by the Company. (v) The Indenture has been duly and validly authorized, executed and delivered by the Company and the Indenture constitutes a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law). (vi) The Senior Subordinated Notes have been duly and validly authorized by the Company and when the Senior Subordinate Notes are issued and authenticated in accordance with the terms of the Indenture and delivered against payment therefor in accordance with the terms hereof, the Senior Subordinated Notes will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, except as the enforceability thereof may be subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 4 or at law). The Senior Subordinated Notes, when issued, authenticated and delivered, will conform to the description thereof in the Offering Memorandum. (vii) The Exchange Notes have been duly and validly authorized by the Company, and when the Exchange Notes are issued and authenticated in accordance with the terms of the Indenture and the Registration Rights Agreement, the Exchange Notes will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, except as the enforceability thereof may be subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law). The Exchange Notes, when issued, authenticated and delivered, will conform to the description thereof in the Offering Memorandum. (viii) The Preferred Securities Company Guarantee has been duly and validly authorized by the Company and when the Preferred Securities Company Guarantee is issued and authenticated in accordance with the terms of the Declaration and delivered against payment therefor in accordance with the terms hereof, the Preferred Securities Company Guarantee will be a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law). The Preferred Securities Company Guarantee, when issued, authenticated and delivered, will conform to the description thereof in the Offering Memorandum. (ix) The Exchange Preferred Securities Company Guarantee has been duly and validly authorized by the Company, and when the Exchange Preferred Securities Company Guarantee is issued and authenticated in accordance with the terms of the Declaration and the Registration Rights Agreement, the Exchange Preferred Securities Company Guarantee will be a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms and entitled to the benefits of the Indenture, except as the enforceability thereof may be subject to the effects of bankruptcy, insolvency, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 5 fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law). The Exchange Preferred Securities Company Guarantee, when issued, authenticated and delivered, will conform to the description thereof in the Offering Memorandum. (x) The Registration Rights Agreement has been duly and validly authorized, executed and delivered by the Company and the Registration Rights Agreement constitutes a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law) and except that any rights to indemnity and contribution thereunder may be limited by federal and state securities laws or by considerations of public policy. The Registration Rights Agreement conforms to the description thereof in the Offering Memorandum. (xi) The execution, delivery and performance by the Company of the Purchase Agreement, the Guarantor Agreements and the other Operative Documents to which it is a party, the issuance and sale of the Securities and the Exchange Securities, and the consummation of the transactions contemplated hereby and thereby, will not violate, conflict with or constitute a breach of any of the terms or provisions of, or be a default under (or an event that with notice or the lapse of time, or both, would constitute a default), or require consent under (other than those that have been or will be obtained prior to the Closing Date), or result in the imposition of a lien or encumbrance on any properties of the Company or any of its subsidiaries, or an acceleration of indebtedness pursuant to, (i) the charter or bylaws or other organizational documents of the Company or any of its subsidiaries, (ii) to our knowledge, any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their property is or may be bound, (iii) any United States federal or State of Indiana statute, rule or regulation applicable to the Company, any of its subsidiaries or any of their assets or properties, or (iv) to our knowledge, any judgment, order or decree of any United States federal or State of Indiana court or United States federal or State of Indiana governmental agency or authority having DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 6 jurisdiction over the Company, any of its subsidiaries or their assets or properties except insofar as any of (ii), (iii) or (iv) above would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. No consent, approval, authorization or order of, or filing, registration, qualification, license or permit of or with, any United States federal or State of Indiana court or governmental agency, body or administrative agency is required for the execution, delivery and performance of this Agreement and the other Operative Documents and the consummation of the transactions contemplated hereby and thereby, except such as have been obtained and made (or, in the case of the Registration Rights Agreement, will be obtained and made) under the Securities Act, the Trust Indenture Act, and state securities or Blue Sky laws and regulations or such as may be required by the NASD (assuming full and complete compliance by the Initial Purchasers with the agreements and representations contained in Section 5(b) of the Purchase Agreement and the related information contained in the Offering Memorandum). As to such matters relating to state securities or Blue Sky laws and regulations or as such may be required by the NASD, we have relied upon the review of such matters by your counsel and the advice to you by your counsel. To our knowledge, no consents or waivers from any other person are required for the execution, delivery and performance of this Agreement and the other Operative Documents and the consummation of the transactions contemplated hereby and thereby, other than such consents and waivers as have been obtained (or, in the case of the Registration Rights Agreement, will be obtained). (xii) To our knowledge, no action has been taken and no statute, rule or regulation or order has been enacted, adopted or issued by any United States federal or State of Indiana governmental agency that prevents the issuance of the Securities or Exchange Securities; to our knowledge, no injunction, restraining order or order of any nature by a United States federal or State of Indiana court of competent jurisdiction has been issued that prevents the issuance of the Securities or Exchange Securities or suspends the sale of the Securities or Exchange Securities in any jurisdiction referred to in Section 4(e) of the Purchase Agreement; and to our knowledge, no action, suit or proceeding is pending against or affecting or threatened against the Company or any of its subsidiaries before any United States federal or State of Indiana court or arbitrator or any governmental body, agency or official which is reasonably likely to have a Material Adverse Effect; and, to our knowledge, every request of any securities authority or agency of any jurisdiction for additional information has been complied with in all material respects. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 7 (xiii) When the Securities are issued and delivered pursuant to this Agreement, the Declaration and the Indenture, none of the Securities will be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system. (xiv) Assuming the accuracy of the Initial Purchasers' representations and warranties contained in Section 5(b) of the Purchase Agreement and the compliance by the Initial Purchasers with the agreements contained in such Section 5(b), no registration of the Securities under the Securities Act, and no qualification of the Indenture is required under the Trust Indenture Act, is required for the sale of the Securities to you as contemplated hereby or for the Exempt Resales solely in the manner contemplated by this Agreement, the Declaration, the Indenture and the Offering Memorandum. (xv) Neither the Trust, the Company nor any of its subsidiaries is (i) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act and regulations, or (ii) a "holding company" or a "subsidiary company" or an "affiliate" of a holding company within the meaning of the Public Utility Holding Act of 1935, as amended. (xvi) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its date, and each amendment or supplement thereto, as of its date (except for the financial statements, including the notes thereto, and the supporting schedules and appendices and other financial, statistical and accounting data included therein or omitted therefrom, as to which no opinion need be expressed), contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. (xvii) The statements made in the Offering Memorandum under the captions "Description of the Preferred Securities," "Description of the Senior Subordinated Notes," "Relationship Among the Preferred Securities, the Senior Subordinated Notes and the Preferred Securities Company Guarantee" and "Plan of Distribution" (except those matters set forth in the second paragraph of Section 6(c) of the Purchase Agreement), insofar as they purport to constitute summaries of certain contracts, agreements or documents, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 8 constitute accurate summaries of such contracts, agreements or documents in all material respects. For purposes of rendering the opinions contained in paragraphs (v), (vi), (vii), (viii), (ix) and (x) above, we have no reason to believe that any provision of New York law would render any of the documents referred to in such paragraphs unenforceable in any material respect (subject to each of the other assumptions and qualifications contained in such opinion), assuming that New York law is the same as Indiana law, and that we have no reason to believe that New York law is different from Indiana law (it being understood that no member of our firm is licensed to practice law in the State of New York). We have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and their counsel in connection with the preparation of the Preliminary Offering Memorandum and the Offering Memorandum and have considered the matters required to be stated therein and the statements contained therein and, although we have not independently verified the accuracy, completeness or fairness of such statements (except as indicated above), we advise you that, on the basis of the foregoing, no facts have come to our attention that caused us to believe that the Preliminary Offering Memorandum or the Offering Memorandum (as amended or supplemented, if applicable), at the time such Preliminary Offering Memorandum or Offering Memorandum were circulated or at the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, we further state that we assume no responsibility for, and have not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in the Preliminary Offering Memorandum or the Offering Memorandum or any amendment or supplement thereto or the statements made in the second paragraph of Section 6(c) of the Purchase Agreement. The opinions contained herein are rendered to you at the request of the Company. The foregoing opinion is subject to the following additional limitations, qualifications, exceptions and assumptions: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 9 (a) Our opinion is based solely on the laws of the States of New York (assuming the law of New York is the same as the law of the State of Indiana), Indiana and United States federal law, and we express no opinion as to matters governed or affected by the laws of other states or as to the effect of the governing law provisions in the Operative Documents. All documents opined to hereunder are to be construed under New York law without regard to conflict of law provisions which might be contained in such documents. We express no opinion with respect to the enforceability of any provision which requires that New York law be applied in connection with the validity or enforceability of any of the documents opined to hereunder. (b) We have relied upon information, certificates and representations made by representatives of the Company and copies of documents and records furnished to us by the Company and others, and, for purposes of this opinion, we have assumed that all such information and copies are true, correct, complete, authentic and accurate and remain unchanged as of the date hereof, and that all signatures are genuine, that all persons executing the documents were of legal age and had the legal capacity to do so, and said matters have not been independently verified by us. We have also assumed authenticity of the originals of all documents submitted to us as copies. (c) We express no opinion as to the status of title to any property, real or personal, which is the subject matter of the Operative Documents or as to the relative rights, interests and priorities of the various parties who have or claim any interest in any such property. (d) The opinions expressed herein are based upon certain dated certificates and certified copies described herein, and we assume that no act or event has occurred between the dates thereof and the date hereof which would in any way affect any of the matters opined upon herein or which would in any manner alter any of said certificates or certified copies. To our knowledge, no such act or event has occurred. (e) This opinion is limited to the matters expressly stated herein, and no opinion is inferred or may be implied beyond the matters expressly stated. This opinion does not constitute a guarantee of payment, performance or collectability of the aforesaid notes, securities or documents of any of the obligations or other matters referred to or opined DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 10 upon herein, and by rendering this opinion we are not guaranteeing or insuring the payment, performance or collectability said notes, securities or documents or any of the obligations or other matters referred to or opined upon herein. We shall have no continuing obligations hereunder to inform you of changes in law or fact subsequent to the date hereof or facts of which we become aware after the date hereof. (f) The term "enforceable" as used herein or as referred to in any other Operative Document not specifically referred to herein (i) is limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws as from time to time are in effect affecting the enforcement of rights of creditors' generally, and (ii) shall not be deemed to include the availability to any person or entity of the remedy of specific performance, injunctive relief or other equitable remedies to the extent general principles of equity make such remedies unavailable. The unavailability of these remedies does not render the Operative Documents invalid as a whole, and there exists in the Operative Documents, or pursuant to applicable law, legally adequate remedies for the realization of the principal benefits and/or security intended to be provided by the Operative Documents. (g) We do not hereby express any opinion as to the strict enforceability of each and every remedy and provision of the Operative Documents. Certain rights, remedies and waivers contained in the Operative Documents may be limited or rendered ineffective by applicable state laws or judicial decisions governing such provisions, but such laws and judicial decisions should not render the Operative Documents invalid as a whole, and there exists in the Operative Documents, or pursuant to applicable law, legally adequate remedies for the realization of the principal benefits and/or security intended to be provided by the Operative Documents. (h) The enforceability of the covenants and restrictions in the Operative Documents against the Company may be limited or abrogated if the party seeking enforcement fails to act in good faith and in a commercially fair and reasonable manner in seeking to exercise and enforce its rights and remedies thereunder and our opinion is subject to the effects of the application of the principles of equity (regardless of whether enforcement is considered in proceedings at law or in equity) in regard to covenants or provisions in agreements where the breach of such covenants or provisions DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 11 imposes restrictions or burdens and it cannot be demonstrated that the enforcement of such restrictions and burdens is reasonably necessary for such party's protection. (i) We express no opinion as to the perfection or relative priorities of any security interests or liens on any property of the Company created by the Operative Documents or of any other security interests or collateral that may be described or referred to in the Operative Documents or the proceeds thereof. (j) Any cognovit provisions contained in any of the Operative Documents, under which the Company has waived service of process and authorized confession of judgment, are void and unenforceable under Indiana law assuming Indiana law applies. I.C. ss. 34-2-26-1. Therefore, we cannot opine with any certainty as to the effect that the existence of any cognovit provisions in the Operative Documents may have on the enforceability of the Operative Documents under Indiana law. We express no opinion as to the validity, legally binding effect or enforceability of the waiver of rights and defenses contained in Section 5.15 of the Indenture. (k) In making our examination of the Operative Documents, we have assumed that each party thereto, other than the Company, had full power and authority to execute, deliver and perform all of its obligations thereunder, and has duly authorized execution, delivery and performance thereof by all necessary and proper action. (l) We have assumed that sufficient consideration has been given for the Operative Documents. (m) Where there are no definitive court rulings, this opinion is based upon our understanding of current interpretations of law. (n) We have assumed that the facts and matters represented and warranted by the Company in the Operative Documents are true and correct and we have relied on these representations and warranties in rendering this opinion. (o) This firm has been engaged specifically to represent the Company in connection with this transaction. We have represented the Company in certain other matters; but we have not made inquiry of the Company as to any other matters. Whenever DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. CIBC WOOD GUNDY SECURITIES CORP. MESIROW FINANCIAL, INC. SIMPSON THACHER & BARTLETT September 16, 1997 Page 12 our opinion herein with respect to the existence or absence of facts is intended to be based upon our knowledge or awareness or upon matters known to us, it is intended to signify that during the course of our limited representation of the Company, no information has come to our attention which would give us actual knowledge of the existence or absence of such facts. Except to the extent expressly set forth herein, we have not undertaken any independent investigation to determine the existence or absence of such facts, and no inference as to our knowledge of the existence or absence of such facts should be drawn from our representation of the Company. This opinion is rendered solely for the benefit of each of you, and may not be relied upon by any other party, nor may copies be delivered to any other person or filed with any governmental agency, without our prior written consent. Yours truly, /s/ DANN PECAR NEWMAN & KLEIMAN, Professional Corporation EX-5 10 OPINION OF RICHARDS, LAYTON & FINGER Exhibit 5.2 September 16, 1997 SIG Capital Trust I c/o Symons International Group, Inc. 4720 Kingsway Drive Indianapolis, Indiana 46205 Re: SIG Capital Trust I ------------------- Ladies and Gentlemen: We have acted as special Delaware counsel for Symons International Group, Inc. an Indiana corporation (the "Company"), and SIG Capital Trust I, a Delaware business trust (the "Trust"), in connection with the matters set forth herein. At your request, this opinion is being furnished to you. For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of originals or copies of the following: (a) The Certificate of Trust of the Trust, dated as of August 4, 1997 (the "Certificate"), as filed in the office of the Secretary of State of the State of Delaware (the "Secretary of State") on August 4, 1997; (b) The Declaration of Trust of the Trust, dated as of August 4, 1997, by and among the Company and the Trustees of the Trust named therein; SIG Capital Trust I September 16, 1997 Page 2 (c) The Amended and Restated Declaration of Trust of the Trust, dated as of August 12, 1997 (including Exhibits A, C and D thereto) (the "Declaration"), among the Company as sponsor, the trustees of the Trust named therein, and the holders, from time to time, of undivided beneficial interests in the assets of the Trust; (d) The Registration Statement on Form S-4 (the "Registration Statement"), including a preliminary prospectus (the "Prospectus"), relating to the 9 1/2% Trust Preferred Securities of the Trust representing undivided beneficial interests in the assets of the Trust (each, an "Exchange Preferred Security") and collectively, the "Exchange Preferred Securities"), as proposed to be filed by the Company and the Trust with the Securities and Exchange Commission on or about September 16, 1997; and (e) A Certificate of Good Standing for the Trust, dated September 16, 1997 obtained from the Secretary of State. Initially capitalized terms used herein and not otherwise defined are used as defined in the Declaration. For purposes of this opinion, we hae not reviewed any documents other than the documents listed in paragraphs (a) through (e) above. In particular, we have not reviewed any document (other than the documents listed in paragraphs (a) through (e) above) that is referred to in or incorporated by reference into the documents reviewed by us. We have assumed that there exists no provision in any document that we have not reviewed that is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own but rather have relied solely upon the foregoing documents, the statements and information set forth therein and the additional matters recited or assumed herein, all of which we have assumed to be true, complete and accurate in all material respects. With respect to all documents examined by us, we have assumed (i) the authenticity of all documents submitted to us as authentic originals, (ii) the conformity with the originals of all documents submitted to us as copies or forms, and (iii) the genuineness of all signatures. For purposes of this opinion, we have assumed (i) that the Declaration constitutes the entire agreement among the parties thereto with respect to the subject matter thereof, including with respect to the creation. operation and termination of the Trust, and that the Declaration and the Certificate are in full force and effect and have not been amended, (ii) except to the extent provided in paragraph 1 below, the due SIG Capital Trust I September 16, 1997 Page 3 creation or due organization or due formation, as the case may be, and valid existence in good standing of each party to the documents examined by us under the laws of the jurisdiction governing its creation, organization or formation, (iii) the legal capacity of natural persons who are parties to the documents examined by us, (iv) that each of the parties to the documents examined by us has the power and authority to execute and deliver, and to perform it obligations under, such documents, (v) the due authorization, execution and delivery by all parties thereto of all document examined by us, (vi) the receipt by each Person to whom an Exchange Preferred Security is to be issued by the Trust (collectively, the "Exchange Preferred Security Holders") of a Preferred Securities Certificate and the consideration for the Exchange Preferred Security acquired by it, in accordance with the Declaration and the Registration Statement, and (vii) that the Exchange Preferred Securities are issued to the Exchange Preferred Security Holders in accordance with the Declaration and the Registration Statement. We have not participated in the preparation of the Registration Statement and assume no responsibility for its contents. This opinion is limited to the laws of the State of Delaware (excluding the securities laws of the State of Delaware) and we have not considered and express no opinion on the laws of any other jurisdiction, including federal laws and rules and regulations relating thereto. Our opinions are rendered only with respect to Delaware laws and rules, regulations and orders thereunder which are currently in effect. Based on the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that: 1. The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act. 2. The Exchange Preferred Securities will represent valid and, subject to the qualifications set forth in paragraph 3 below, fully paid and nonassessable undivided beneficial interests in the assets of the Trust. 3. The Exchange Preferred Security Holders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. We consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. In addition, we hereby SIG Capital Trust I September 16, 1997 Page 4 consent to the use of our name under the Heading "Legal Matters" in the Prospectus. In giving the foregoing consents, we do not thereby admit that we come within the category of Persons who consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as stated above, without our prior written consent, this opinion may not be furnished or quoted to, or relied upon by, any other Person for any purpose. Very truly yours, /s/ Richards, Layton & Finger BJK/bjr EX-8 11 OPINION OF DANN PECAR NEWMAN & KLEIMAN Exhibit 8 September 16, 1997 Symons International Group, Inc. SIG Capital Trust I 4720 Kingsway Drive Indianapolis, Indiana 46205 Ladies and Gentlemen: We have acted as special tax counsel for Symons International Group, Inc. (the "Company"), an Indiana corporation, and SIG Capital Trust I (the "Trust"), a Delaware business trust, in connection with a Registration Statement on Form S-4 filed with the Securities and Exchange Commission on or about September 16, 1997 (as amended through the date hereof, the "Registration Statement") which registers Trust Preferred Securities (the "Exchange Preferred Securities") of the Trust (liquidation amount of $1,000 per Preferred Securities). In connection therewith, we have participated in the preparation of, and have reviewed, the Registration Statement, including the prospectus (the "Prospectus") and the form of prospectus supplement (the "Prospectus Supplement") included therewith. We have examined and relied upon the Registration Statement and, in each case as filed with the Registration Statement, (i) the form of the Senior Subordinated Indenture (the "Indenture") between SIG and Wilmington Trust Company, as Trustee, which Indenture includes the form of the Exchange Preferred Securities, to be used in connection with the issuance of the Senior Subordinated Notes of the Company due 2027 (the "Exchange Notes"); (ii) the Amended and Restated Declaration of Trust for the Trust (the "Declaration"), (iii) the form of guarantee by SIG with respect to the Exchange Preferred Securities (the "Exchange Guarantee"); and (iv) certain other relevant documents used in connection with the issuance of the Exchange Notes, the Exchange Preferred Securities and the Exchange Guarantee (collectively, the "Operative Documents"). As to certain questions of fact material or relevant to the opinions expressed herein, we have relied upon a certificate obtained from an officer of the Company and have assumed the accuracy of the facts certified or stated to us and have made no independent investigation of such facts and assume no obligation to do so. SIG Capital Trust I September 16, 1997 Page 2 Based on the foregoing and assuming that the Operative Documents are executed and delivered in substantially the form filed as exhibits to the Registration Statement and that the transactions contemplated to occur under the Operative Documents in fact occur in accordance with the terms thereof, we hereby confirm, in all material respects, that the discussions set forth in the Prospectus Supplement under the heading "United States Federal Income Taxation" is fair and accurate summary of the matters addressed therein, based upon current law and the assumptions stated or referred to therein. There can be no assurance that contrary positions may not be taken by the Internal Revenue Service. We hereby consent to the use of our name in the above-captioned Registration Statement and to the filing of this opinion as Exhibit 8 to the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. This opinion is expressed as of the date hereof, unless otherwise expressly stated, and we disclaim any undertaking to advise you of any subsequent changes of the facts stated or assumed herein or any subsequent changes in applicable law. Very truly yours, /s/ Dann Pecar Newman & Kleiman Professional Corporation Wilmington Trust Company August 12, 1997 Page 6 This opinion is rendered solely for the benefit of each of you, and may not be relied upon by any other party, nor may copies be delivered to any other person or filed with any governmental agency, without our prior written consent. Yours truly, DANN PECAR NEWMAN & KLEIMAN, Professional Corporation EX-10 12 GS FUNDS STOCK PURCHASE AGREEMENT Exhibit 10 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") is entered into this _____ day of July, 1997 by and among Symons International Group, Inc., an Indiana corporation ("SIG") and GS Capital Partners II, L.P., a Delaware limited partnership ("GSCP"), GS Capital Partners Offshore, L.P., a Cayman Island limited partnership ("Offshore"), Goldman, Sachs & Co. VerWaltung GmbH ("VerWaltung"), Stone Street Funds 1996, L.P., a Delaware limited partnership ("Stone Street") and Bridge Street Funds 1996, L.P., a Delaware limited partnership ("Bridge Street") (Offshore, VerWaltung, Stone Street and Bridge Street are collectively referred to as the "Affiliates"). WITNESSETH: There are currently issued and outstanding 1,106,625 common shares ("Shares") of GGS Management Holdings, Inc., a Delaware corporation ("GGSM"); and WHEREAS, SIG owns 575,445 Shares; and WHEREAS, GSCP and the Affiliates own in the aggregate 531,180 Shares, which are owned as follows: Company Shares - ------- ------ GS Capital Partners II, L.P. 333,277.8 GS Capital Partners Offshore, L.P. 132,491.7 Goldman Sachs & Co VerWaltung GmbH 12,292.6 Stone Street Funds 1996, L.P. 31,652.4 Bridge Street Funds 1996, L.P. 21,465.5 and; WHEREAS, SIG desires to purchase, and GSCP and the Affiliates desire to sell, the 531,180 Shares of GGSM currently owned in the aggregate by GSCP and Affiliates; and WHEREAS, the parties hereto have agreed that the aggregate purchase price for such Shares shall be Sixty-One Million Dollars ($61,000,000.00) (the "Purchase Price"); and WHEREAS, GSCP understands and agrees that SIG intends to finance the Purchase Price from the proceeds received by SIG from an offering of notes (the "Note Financing"); and -1- WHEREAS, the parties hereby agree that upon the completion of the purchase of such Shares, the parties hereto shall relinquish all rights to any and all prior agreements and understandings executed by the parties prior to the date hereof. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and subject to the terms and conditions hereof, the parties hereto agree as follows: Section 1 Purchase of Shares 1.1 GSCP and the Affiliates hereby agree to sell, and SIG hereby agrees to purchase, in the aggregate, Five Hundred Thirty-One Thousand, One Hundred Eighty (531,180) Shares of GGSM ("The Stock") for the aggregate purchase price of Sixty-One Million Dollars ($61,000,000.00). 1.2 Subject to Section 6 hereof, the closing of the purchase contemplated herein (the "Closing") shall occur simultaneously with the closing of the Note Financing; provided, however, that, should the Note Financing not occur, SIG may, at its option, schedule the Closing at any time prior to September 30, 1997 upon ten (10) days' advance written notice. Section 2 Closing 2.1 At the Closing, SIG shall pay the Purchase Price to the account or accounts which shall be designated by GSCP at least ten (10) days prior to the Closing. GSCP and the Affiliates shall deliver The Stock at the Closing, duly endorsed by GSCP or an Affiliate, as appropriate, transferring The Stock to SIG, free and clear of all liens, encumbrances, pledges, voting agreements, contractual rights or other claims of any nature whatsoever with respect to The Stock. Section 3 Representations and Warranties of GSCP GSCP and the Affiliates, jointly and severally, represent and warrant to SIG as follows: 3.1 GSCP and the Affiliates are duly organized, validly existing and in good standing under the applicable laws of their jurisdiction of formation. GSCP and the Affiliates have the requisite partnership or corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of, and the performance by each of GSCP and the Affiliates of its obligations under this Agreement have been duly and validly authorized by all necessary partnership or corporate action, as appropriate, on the part of each of GSCP and the Affiliates. No other corporate, shareholder or partnership approval on the part of any of GSCP or the Affiliates is necessary for any of GSCP or the Affiliates to enter into this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of GSCP and the Affiliates and constitutes its valid -2- and binding obligations, enforceable against them in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar law affecting creditors' rights generally and subject to the effect of general principles of equity. 3.2 At the Closing, GSCP and the Affiliates will deliver The Stock free and clear of all liens, claims, demands and encumbrances whatsoever with respect to the stock. 3.3 The execution and delivery of this Agreement by GSCP and the Affiliates will not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by GSCP and the Affiliates will not, (i) violate or conflict with any provision of the articles of incorporation, bylaws, partnership agreements or other organizing documents of GSCP or the Affiliates; or (ii) conflict with or result in the breach or termination of, or otherwise give any contracting party the right to change the terms of, or to terminate or accelerate the maturity of, or constitute a default under the terms of, any indenture, mortgage, loan or credit agreement or any other material agreement or instrument to which any of GSCP and/or the Affiliates is a party or by which any of them or any of their assets may be bound or affected, except to the extent that any of the foregoing would not materially impact GSCP and its Affiliates' ability to perform their obligations hereunder. Further, GSCP and the Affiliates represent and warrant that the execution and delivery of this Agreement by GSCP and the Affiliates will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the Shares or give to others (other than SIG) any interest or rights therein. 3.4 GSCP and the Affiliates have not made any agreement or taken any other action which might cause any person or entity to become entitled to a broker's fee or commission as a result of the transactions contemplated in this Agreement. 3.5 There are no actions, suits, investigations or proceedings of any nature pending or, to the knowledge of GSCP and the Affiliates, threatened, against GSCP or the Affiliates (x) affecting The Stock, or (y) that would be reasonably likely to impair GSCP and the Affiliates' ability to consummate the obligations hereunder, at law or in equity, by or before any court or governmental department, agency or instrumentality. 3.6 GSCP and the Affiliates will deliver to SIG at the Closing good title to The Stock. GSCP and the Affiliates will transfer The Stock to SIG at the Closing free and clear of all claims, liens, demands and encumbrances whatsoever with respect to the Stock. 3.7 GSCP and the Affiliates hereby agree that they will not, disclose or reveal to any individual (other than to officers, directors, and employees of GSCP and its affiliates), corporation, partnership, association, entity or business, any proprietary or confidential technology, trade secret, confidential information, data, processes, strategies, techniques, philosophies, software, other proprietary intellectual property or other proprietary or confidential information (collectively, "Confidential Information") used by SIG in any of its businesses and GSCP and the Affiliates hereby agree that the Confidential Information is the exclusive property of SIG and/or its subsidiaries. -3- 3.8 GSCP and the Affiliates have not, and hereby agree that, for three years from the date hereof, they will not, directly (for themselves or others), employ, offer employment to, or solicit the services of any current or future employee of SIG or any subsidiary of SIG while such individual is in the employ of SIG or any subsidiary of SIG. Section 4 Representations and Warranties of SIG SIG hereby represents and warrants to GSCP and the Affiliates as follows: 4.1 SIG is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana and SIG has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of, and the performance by SIG of its obligations under, this Agreement have been duly and validly authorized by all necessary corporate action on the part of SIG. No other corporate or shareholder proceedings on the part of SIG are necessary to approve this Agreement or consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by SIG and constitutes SIG's valid and binding obligation, enforceable against SIG in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar law affecting creditors' rights generally and subject to the effect of general principles of equity. 4.2 The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by SIG will not, (i) violate or conflict with any provision of SIG's charter, articles of incorporation, bylaws or other governing documents; or (ii) conflict with or result in a breach or termination of, or otherwise give any contracting party the right to change the terms of, or to terminate or accelerate the maturity of, or constitute a default under the terms of, any indenture, mortgage, loan or credit agreement or any other material agreement or instrument to which SIG or any of its affiliates is a party or by which any of them or their assets are bound, except to the extent that any of the foregoing would not materially impact SIG's ability to perform its obligations hereunder. 4.3 The purchase by SIG of The Stock pursuant to this Agreement does not require any consent, approval or authorization of, any governmental or regulatory authority. 4.4 SIG has not made any agreement or taken any other action which might cause anyone to become entitled to a broker's fee or commission as a result of the transactions contemplated hereby. 4.5 There are no actions, suits, proceedings or investigations of any nature pending, or to the knowledge of SIG, threatened, against SIG or any of its affiliates and no other events have occurred or are reasonably likely to occur, in each case which would be reasonably likely to materially impair SIG's ability to consummate the Note Offering or perform its obligations hereunder. -4- 4.6 Neither SIG, nor any of its affiliates, has attempted to contact, contacted, held discussions with, conducted negotiations with, or entered into any agreement or undertaking (whether oral or written) with any party concerning the sale, transfer or other disposal or potential sale, transfer or other disposal of any of the shares of capital stock (whether by way of merger, consolidation or otherwise) of GGSM, GGS Management, Inc., Superior Insurance Company or Pafco General Insurance Company. Notwithstanding any other provision of this Agreement, SIG shall only be responsible for the accuracy of this representation up through and including the Closing. Section 5 Cancellation of Agreements 5.1 The parties hereto agree that if the Closing occurs, all Shareholder Agreements (as hereinafter defined) entered into between the parties hereto prior to the date hereof shall become null, void and of no effect as of the date of Closing. Such agreements include, but are not limited to, a Stock Purchase Agreement dated as of January 31, 1996 and the three amendments thereto, the Amended and Restated Stockholder Agreement dated as of November 8, 1996 including any and all amendments thereto, the Registration Rights Agreement dated as of April 30, 1996 and any and all letter agreements between the parties executed prior to the date hereof ("Shareholder Agreements"). Section 6 Conditions To Closing 6.1 The obligations of SIG to proceed with the Closing under this Agreement are subject to the fulfillment prior to or at Closing of the following conditions (any one or more of which may be waived in whole or in part by SIG at SIG's option): a. The representations and warranties of GSCP and the Affiliates contained in this Agreement shall be true and correct in all material respects on and as of the date of Closing with the same force and effect as if those representations and warranties had been made on, or as of such time and SIG shall have received a certificate to such effect signed by an authorized officer, partner or other authorized signatory of GSCP and the Affiliates. b. GSCP and the Affiliates shall have performed in all material respects all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by them on or before the Closing, and SIG shall have received a certificate to such effect signed by an authorized officer, partner or other authorized signatory of GSCP and/or the Affiliates. c. No order of any court or administrative agency shall be in effect with enjoins or prohibits the transactions contemplated hereby. -5- d. GSCP and the Affiliates shall have delivered to SIG copies, certified by the duly qualified and acting Secretary, Assistant Secretary, partner or other authorized signatory of GSCP and/or the Affiliates, of resolutions adopted by the appropriate governing body of GSCP and the Affiliates approving this Agreement and the consummation of the transactions contemplated hereby. e. SIG shall have completed the Note Financing. f. GSCP and the Affiliates shall execute such further instruments of conveyance and transfer as SIG may reasonably request to convey and transfer The Stock to SIG. g. GSCP and the Affiliates shall execute at Closing the mutual general release in the form attached hereto as Exhibit A and made a part hereof by reference. 6.2 The obligations of GSCP and the Affiliates to proceed with the Closing under this Agreement are subject to the fulfillment prior to or at Closing of the following conditions (any one or more of which may be waived in whole or in part by GSCP at its option): a. The representations and warranties of SIG contained in this Agreement shall be true and correct in all material respects (except that the representation contained in Section 4.6 shall be true in all respects) on and as of the time of Closing with the same force and effect as those such representations and warranties had been made on, as of and with reference to such time, and GSCP and the Affiliates shall have received a certificate to such effect signed by an authorized officer of SIG. b. SIG shall have performed in all material respects all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied by them on or before the Closing, and GSCP and the Affiliates shall have received a certificate to such effect signed by an authorized officer of SIG. c. SIG shall execute at Closing the mutual general release in the form attached hereto as Exhibit A and made a part hereof by reference. Section 7 Indemnification 7.1 a. The parties hereto hereby each agree to indemnify, defend and hold harmless the other from and against any loss, liability, claim, action, obligation, damage, deficiency, judgment, costs and expenses (including reasonable attorneys' fees and expenses incurred in the investigating, preparing or defending any -6- litigation or proceeding commenced or threatened) ("Damage") arising out of or resulting from any misrepresentation, breach of warranty or non- fulfillment of any covenant on the part of such party as shall be contained in this Agreement b. Following the Closing, SIG shall indemnify and hold harmless GSCP and the Affiliates and each of the officers, directors, employees, representatives and agents of GSCP and the Affiliates, including the present directors (each as "Indemnified Director") of GGSM and its subsidiaries designated by GSCP and/or the Affiliates (each of the foregoing, including the Indemnified Directors, an "Indemnified Party"), against all Damages suffered by an Indemnified Party arising out of, relating to, or resulting from, any claim, action, suit, pro- ceeding or investigation arising out of, relating to, or resulting from the fact that such Indemnified Party or any of its affiliates, or any entity of or for which is a director, officer, employee, representative agent, was a shareholder or director of GGSM and/or any of its subsidiaries. Without limiting SIG's and its subsidiaries' obligations pursuant to the prior sentence, SIG agrees that it will cause GGSM to maintain in effect for a period of three years following the Closing all rights to in- demnification and all limitations of liability existing as of the date hereof in favor of the In- demnified Directors in GGSM's and its subsidiaries' Certificates of Incorporation and Bylaws. SIG shall use its best efforts to cause the Indemnified Directors to be covered for a period of three years after the Closing by the directors' and officers' insurance policy currently maintained by GGSM (provided that SIG may permit GGSM to sub- stitute therefor policies of at lease the same coverage and amount containing terms and conditions which are not less advantageous to the Indemnified Directors than the terms and conditions of such existing policy) with respect to acts or omissions which are or were committed by the Indemnified Directors in their capacity as directors of GGSM. 7.2 Notwithstanding anything contained herein, no action or claim for Damage resulting from any breach of the representations and warranties contained herein shall be brought or made after December 31, 1998. 7.3 Any indemnification payment made pursuant to this Agreement shall be increased by any federal, state, local or foreign tax liability actually incurred, or expected with reasonable certainty to be incurred. 7.4 In addition to the rights otherwise granted by this Section 7, GSCP and the Affiliates, on the one hand, and SIG on the other hand, agree that the Damage caused by the breach by it of any of the provisions hereof will be difficult to determine and monetary damages may not afford the other party a full and adequate remedy for such breach, and therefore, each of the parties agrees that the other party shall be entitled to an immediate injunction and restraining order (without the necessity -7- of a bond) to prevent any breach or any threatened or continued breach by such party without the other party having to prove Damages, in addition to any other remedies to which the other party may be entitled at law or in equity. Section 8 Termination 8.1 This Agreement may be terminated or extended at any time by mutual written consent of the parties hereto prior to September 30, 1997. 8.2 Unless earlier terminated in accordance with Section 8.1, this Agreement will terminate on September 30, 1997 if the Closing has not yet occurred. 8.3 In the event of termination of this Agreement as provided in this Section 8, this Agreement shall forthwith terminate and there shall be no liability on the part of any party or any party's officers or directors, expect for liabilities arising from a breach of this Agreement prior to such termination. Section 9 Post-Closing Price Adjustment 9.1 In the event that, within one (1) year following the Closing, SIG or any of its affiliates shall, in any transaction or series of related transactions, directly or indirectly, sell, transfer or otherwise dispose of (each a "Sale") GGSM, GGS Management, Inc. ("GGS") or Pafco General Insurance Company ("Pafco") and Superior Insurance Company ("Superior"), or shall enter into any agreement for the Sale of GGSM, GGS or Pafco and Superior (whether any such Sale or contemplated Sale is by means of a merger, consolidation, or sale of all or substantially all of the assets or shares of capital stock of GGSM or GGS), the, upon the consummation of any such Sale, SIG shall pay to GSCP an amount of cash equal to (such amount, the "Price Adjustment Amount") (a) 48% of the total value of the highest amount of consideration received or to be received by SIG or any of its affiliates in connection with such Sale, less (b)(i) $61,000,000 plus (ii), if the Note Financing is consummated, the Daily Interest Amount (as defined below) multiplied by the number of days that elapse from the Closing through the date upon which SIG or any of its affiliates enters into any agreement for any Sale subject to this Section 9.1. "Daily Interest Amount" shall equal (x) $61,000,000, multiplied by (y) (a) the annual interest payable by SIG in respect of the notes issued pursuant to the Note Financing (or in respect of any notes issued in exchange for such notes) divided by, (b) 365. 9.2 Notwithstanding the provisions of Section 9.1 hereof, if the Price Adjustment Amount is negative, SIG shall not be required to make any payment to GSCP pursuant to this Section 9. 9.3 Notwithstanding any other provision of this Agreement, in no event shall SIG be required to pay to GSCP pursuant to this Section 9 an amount in excess of $5,000,000. -8- Section 10 Miscellaneous 10.1 Each of the parties hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all reasonable actions and to do, or cause to be done, all reasonable things necessary, proper or advisable to consummate the transactions contemplated by this Agreement. None of the parties hereto will take or permit to be taken (by any entity that they control) any action that would be in breach of the terms or provisions of this Agreement or that would cause any of the representations contained herein to be or become untrue. In addition, SIG shall use commercially reasonable efforts to cause the Note Financing to be consummated prior to September 30, 1997. 10.2 Whether or not the Closing occurs, subject to Section 7, except as otherwise stated or hereinafter agreed, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. It is specifically agreed that, subject to Section 7, SIG shall not be responsible for the legal, accounting or other professional fees incurred by GSCP relating to this Agreement, its execution or the Closing. 10.3 At Closing, GSCP will deliver written resignations of Sanjay H. Patel and Michael A. Pruzan (or any designated successor thereto) from the Board of Directors of GGSM, GGS Management, Inc., Superior Insurance Company, Superior American Insurance Company, Superior Guaranty Insurance Company, Standard Plan, Inc. and Pafco General Insurance Company. 10.4 The content and timing of any press release or other public announcement proposed to be made concerning the transactions contemplated by this Agreement must be consented to in advance by each party, which consents shall not be unreasonably withheld or delayed. Except in connection with any press release or other public announcement made pursuant to the prior sentence, SIG shall not, and shall not permit any of its affiliates to, issue any press release or make any other public statement which makes any reference to GSCP, its affiliates, or "Goldman Sachs," without the prior consent of GSCP 10.5 Subject to Section 7.2 hereof, the representations, warranties, covenants and agreements of the purchasers and sellers contained in this Agreement shall survive the Closing and shall not merge in the performance of any obligation by any party hereto. 10.6 This Agreement may not be amended or modified without the prior written consent of all parties. 10.7 Failure to insist upon strict compliance with any of the terms or conditions to this Agreement at any one time shall not be deemed a waiver of such term or condition at any other time, nor shall any waiver or relinquishment of any right or power granted herein at any time be deemed a waiver or relinquishment of the same or any other right or power at any other time. -9- 10.8 This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws. Each of the parties hereto irrevocably and unconditional consents to submit to the exclusive jurisdiction of the courts of the United States of America located in the County of New York, for any action, proceeding or investigation in any court or before any governmental authority ("Litigation") arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any Litigation relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process for any Litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditional waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the United States of America located in the County of New York, and hereby further irrevocably and unconditional waives and agrees not to plead or claim in any such court that any such Litigation brought in any such court has been brought in an inconvenient forum. 10.9 Any notice or other communication to be given hereunder shall be in writing and shall be deemed sufficient when: a. mailed by United States Certified Mail, Return Receipt Requested; b. mailed by overnight express mail; c. sent by facsimile or telecopy machine, followed by confirmation mailed by First Class Mail or overnight express mail; or d. delivered in person, at the address set forth below, or such other address as a party may provide to the other in accordance with the procedure for notice as set forth in this Section. If to: Symons International Group, Inc.: David L. Bates, Esq. Vice President, General Counsel and Secretary 4720 Kingsway Drive Indianapolis, Indiana 46205 Telephone: 317 259-6384 Facsimile: 317 259-6395 -10- If to: GSCP Michael A. Pruzan Goldman Sachs & Co. 85 Broad Street New York, New York 10004 Telephone: 212 902-9123 Facsimile: 212 357-0926 Copy to: Gail Weinstein, Esq. Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Telephone: 212 859-8000 Facsimile: 212 859-8585 10.10 If any provision of this Agreement shall be determined to be invalid or unenforceable, this Agreement shall be deemed amended to delete such provision and the remainder of this Agreement shall be enforceable by this terms. 10.11 This Agreement may not be assigned or delegated by any party without the prior written consent of all other parties. 10.12 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 10.13 Each party agrees to execute and deliver all such documents and agreements and to take all further acts as may be reasonably necessary or appropriate to effectuate this Agreement. 10.14 Headings and captions contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or prescribe the scope of this Agreement or the intent of any provision. 10.15 The masculine gender shall include the feminine and neuter genders and the singular shall include the plural. 10.16 This Agreement constitutes the entire agreement of the parties with respect to the matters set forth herein and supersedes any and all prior understandings or agreements, oral or written, with respect to such matters. -11- 10.17 Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. No party shall be considered the draftsman. On the contrary, this Agreement has been reviewed, negotiated and accepted by all parties and their lawyers and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 10.18 This Agreement may be executed in any number of counterparts, each of which shall be an original, and all such counterparts shall constitute one in the same Agreement, binding on all the parties notwithstanding that all the parties are not signatories to the same counterpart. 10.19 This Agreement is for the sole benefit of the parties hereto and shall be construed to grant legal or equitable rights only to the parties hereto. 10.20 The preambles contained herein above are incorporated herein by reference as though repeated verbatim. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. SYMONS INTERNATIONAL GROUP, INC. By:__/s David L. Bates_________________ Name: David L. Bates Title: Vice President, General Counsel & Sec. GS CAPITAL PARTNERS II, L.P. By: GS Advisors, L.P. Its general partner By: GS Advisors, Inc. Its general partner By:__/s/ C.H. Skodinski________________ Name: C.H. Skodinski, V.P. Title: -12- Stock Purchase Agreement cont. . . . . . GS CAPITAL PARTNERS OFFSHORE, L.P. By: GS Advisors II (Cayman), L.P. Its general partner By: GS Advisors II, Inc. Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. GOLDMAN SACHS & CO. VerWaltung GmbH By:__/s/ Joseph H. Glemberman_________ Name: JOSEPH H. GLEBERMAN Title: MANAGING DIRECTOR and By:__/s/ C.H. Skodinski______________ Name: Title: C.H. Skodinski, Reg. Agent STONE STREET FUNDS 1996, L.P. By: Stone Street Empire, Corp., Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. BRIDGE STREET FUNDS 1996, L.P. By: Stone Street Empire, Corp., Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. -13- Exhibit A MUTUAL GENERAL RELEASE For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, SIG and GSCP and the Affiliates, jointly and severally, for themselves and their respective successors and assigns, hereby fully release and discharge each other and all entities and persons related to or affiliated with them, from all liabilities, contingent or otherwise, which Goran, SIG, its direct and indirect subsidiaries, or GSCP and the Affiliates, or any related or affiliated entities have against the other party with respect to any and all claims, demands, liabilities or costs or other expenses or liabilities incurred pursuant to the Shareholder Agreements, including any and all other expenses or liabilities of a non-recurring nature incurred pursuant to the Shareholder Agreements. None of the terms or provisions of this Mutual General release may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the parties hereto. This Mutual General Release shall be binding upon the undersigned and their respective parties hereto. This Mutual General Release shall be governed by and shall be construed and interpreted in accordance with, the internal laws of the State of Indiana, without reference to principles of conflict of laws. All defined terms used herein shall have the same meaning as is ascribed in the Stock Purchase Agreement to which this Mutual General Release is an Exhibit. IN WITNESS WHEREOF, the undersigned have executed this Mutual General Release effective this _23rd_ day of ___July__________, 1997. SYMONS INTERNATIONAL GROUP, INC. By:__/s/ David L. Bates_______________ Name: David L. Bates Title: Vice President, Gen. Counsel & Sec. GORAN CAPITAL INC. By:__/s/ David L. Bates_______________ Name: David L. Bates Title: Vice President, Gen. Counsel & Sec. -14- Exhibit A Mutual General Release cont. . . . . . GS CAPITAL PARTNERS II, L.P. By: GS Advisors, L.P. Its general partner By: GS Advisors, Inc. Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. GS CAPITAL PARTNERS OFFSHORE, L.P. By: GS Advisors II (Cayman), L.P. Its general partner By: GS Advisors II, Inc. Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. -15- Exhibit A Mutual General Release cont. . . . . . GOLDMAN SACHS & CO. VerWaltung GmbH By:__/s/ Joseph H. Gleberman__________ Name: JOSEPH H. GLEBERMAN Title: MANAGING DIRECTOR and By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, Reg Agent STONE STREET FUNDS 1996, L.P. By: Stone Street Empire, Corp., Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. BRIDGE STREET FUNDS 1996, L.P. By: Stone Street Empire, Corp., Its general partner By:__/s/ C.H. Skodinski_______________ Name: Title: C.H. Skodinski, V.P. -16- EX-12 13 COMPUTATION OF THE RATIOS Exhibit 12.1 SYMONS INTERNATIONAL GROUP, INC. Computation of the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends For the Years Ended December 31, 1992, 1993, 1994, 1995 and 1996 and for the Six Months Ended June 30, 1997 and 1996 (dollars in thousands)
December December December December December June 30, June 30, 31, 1992 31, 1993 31, 1994 31, 1995 31, 1996 1996 1997 -------- -------- -------- -------- -------- ---- ---- Earnings (loss) before income taxes and interest costs $ 2,263 $ (310) $ 2,569 $ 8,688 $ 27,641 $ 7,331 $ 20,073 Amortization of deferred debt costs $ --- $ --- $ --- $ --- $ 154 $ 39 $ 116 ------- -------- -------- --------- -------- -------- -------- $ 2,263 $ (310) $ 2,569 $ 8,688 $ 27,795 $ 7,370 $ 20,189 ------- -------- -------- --------- -------- -------- -------- Interest costs $ 459 $ 996 $ 1,184 $ 1,248 $ 3,938 $ 1,261 $ 2,744 Amortization of deferred debt costs $ --- $ --- $ --- $ --- $ 154 $ 39 $ 116 -------- -------- --------- --------- -------- -------- -------- $ 459 $ 996 $ 1,184 $ 1,248 $ 4,092 $ 1,300 $ 2,860 -------- ------- -------- -------- -------- -------- -------- Ratio of earnings to fixed charges 4.93 (0.31) 2.17 6.96 6.79 5.67 7.06 ==== ====== ==== ==== ==== ==== ====
EX-21 14 SUBSIDIARIES OF SYMONS INTERNATIONAL GROUP, INC. Exhibit 21 SYMONS INTERNATIONAL GROUP, INC. ----------- | | ------100%----------------|-------100%----------------| | (crop insurance) (nonstandard automobile | | insurance) | IGF Holdings, Inc. GGS Management ------------------ Holdings, Inc. | -------------- | | | | | | IGF Insurance Company GGS Management, Inc. --------------------- -------------------- | | | |------------------------------------| | | | | Pafco General Superior Insurance Insurance Company Company ----------------- ------- | | | |---------------------------| | | Superior American Superior Guaranty Insurance Company Insurance Commpany ----------------- ------------------ EX-23 15 CONSENT OF COOPERS & LYBRAND L.L.P. Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement of Symons International Group, Inc. on Form S-4 (File No. 333-_________), of our report dated March 21, 1997 and our report dated June 14, 1996, on our audits of the consolidated financial statements and financial statement schedules of Symons International Group, Inc. and Superior Insurance Company, Inc., respectively. We also consent to the reference to our firm under the captions "Selected Financial Data" and "Experts." /s/ COOPERS & LYBRAND L.L.P. Indianapolis, Indiana September 15, 1997 EX-24 16 POWER OF ATTORNEYS OF OFFICERS AND DIRECTORS Exhibit 24 POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 15th day of September, 1997. /s/ G. Gordon Symons G. Gordon Symons POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this _____ day of September, 1997. ------------------------------------------ James G. Torrance, Q.C. POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of September, 1997. /s/ John K. McKeating John K. McKeating POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 15th day of September, 1997. /s/ David R. Doyle David R. Doyle POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of September, 1997. /s/ Jerome B. Gordon Jerome B. Gordon POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of September, 1997. /s/ Douglas H. Symons Douglas H. Symons POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of September, 1997. /s/ Robert C. Whiting Robert C. Whiting POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 15th day of September, 1997. /s/ David L. Bates David L. Bates POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 15th day of September, 1997. /s/ Gary P. Hutchcraft Gary P. Hutchcraft POWER OF ATTORNEY The undersigned hereby appoints Alan G. Symons, David L. Bates and Gary P. Hutchcraft, and each of them, any of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf, in any and all capacities, the Registration Statement to which this Power of Attorney is an exhibit and to file the Registration Statement and all amendments and post-effective amendments to the Registration Statement and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact lawfully does or causes to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of September, 1997. /s/ Alan G. Symons Alan G. Symons EX-25 17 FORM T-1 OF WILMINGTON TRUST COMPANY Exhibit 25.1 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) SYMONS INTERNATIONAL GROUP, INC. (Exact name of obligor as specified in its charter) Indiana 35-1707115 (State of incorporation) (I.R.S. employer identification no.) 4720 Kingsway Drive Indianapolis, Indiana 46205 (Address of principal executive offices) (Zip Code) Senior Subordinated Notes of Symons International Group, Inc. (Title of the indenture securities) ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 8th day of September, 1997. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ Donald G. MacKelcan By:/s/ Emmett R. Harmon - ------------------------------ ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on 5 any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock 7 may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative 8 vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. 9 Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such 11 business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. 2 ARTICLE III Committees Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such 3 implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. 4 (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. 5 ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables 6 of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary 7 or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any 8 and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 9 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 10 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 11 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: September 8, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON ------------------------ ---------- Name of Bank City in the State of DELAWARE , at the close of business on June 30, 1997. -------- ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................ 208,942 Interest-bearing balances.......................................... 0 Held-to-maturity securities.......................................... 403,700 Available-for-sale securities........................................ 905,200 Federal funds sold and securities purchased under agreements to resell................................................. 151,700 Loans and lease financing receivables: Loans and leases, net of unearned income........ 3,816,484 LESS: Allowance for loan and lease losses...... 54,535 LESS: Allocated transfer risk reserve.......... 0 Loans and leases, net of unearned income, allowance, and reserve... 3,761,949 Assets held in trading accounts...................................... 0 Premises and fixed assets (including capitalized leases)............. 95,762 Other real estate owned.............................................. 1,751 Investments in unconsolidated subsidiaries and associated companies.. 42 Customers' liability to this bank on acceptances outstanding......... 0 Intangible assets.................................................... 3,572 Other assets......................................................... 108,295 Total assets......................................................... 5,640,913 CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices.................................................. 3,864,774 Noninterest-bearing .......................... 875,081 Interest-bearing.............................. 2,989,693 Federal funds purchased and Securities sold under agreements to repurchase........................................................ 337,784 Demand notes issued to the U.S. Treasury............................. 95,000 Trading liabilities (from Schedule RC-D)............................. 0 Other borrowed money:................................................ /////// With original maturity of one year or less........................ 775,000 With original maturity of more than one year...................... 43,000 Bank's liability on acceptances executed and outstanding............. 0 Subordinated notes and debentures.................................... 0 Other liabilities (from Schedule RC-G)............................... 84,197 Total liabilities.................................................... 5,199,755 EQUITY CAPITAL Perpetual preferred stock and related surplus........................ 0 Common Stock......................................................... 500 Surplus (exclude all surplus related to preferred stock)............. 62,118 Undivided profits and capital reserves............................... 376,212 Net unrealized holding gains (losses) on available-for-sale securities........................................................... (2,328) Total equity capital................................................. 441,158 Total liabilities, limited-life preferred stock, and equity capital.. 5,640,913 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, 2 suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, 3 hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. 4 Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, 5 and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe 6 for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time 7 by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, 8 (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation 9 entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that 10 some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or 11 otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. 12 Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III Committees Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. 2 (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as 5 the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of 5 Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any 7 dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 8 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 9 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: September 8, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - ------------------------------- -------------- Name of Bank City in the State of DELAWARE , at the close of business on June 30, 1997. -------- ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins............... 208,942 Interest-bearing balances......................................... 0 Held-to-maturity securities.......................................... 403,700 Available-for-sale securities........................................ 905,200 Federal funds sold and securities purchased under agreements to resell......................................151,700 Loans and lease financing receivables: Loans and leases, net of unearned income. 3,816,484 LESS: Allowance for loan and lease losses. 54,535 LESS: Allocated transfer risk reserve. 0 Loans and leases, net of unearned income, allowance, and reserve............................................ 3,761,949 Assets held in trading accounts...................................... 0 Premises and fixed assets (including capitalized leases)............. 95,762 Other real estate owned.............................................. 1,751 Investments in unconsolidated subsidiaries and associated companies.. 42 Customers' liability to this bank on acceptances outstanding......... 0 Intangible assets.................................................... 3,572 Other assets......................................................... 108,295 Total assets......................................................... 5,640,913 CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices................................................. 3,864,774 Noninterest-bearing ........ 875,081 Interest-bearing. 2,989,693 Federal funds purchased and Securities sold under agreements to repurchase................................. 337,784 Demand notes issued to the U.S. Treasury............................ 95,000 Trading liabilities (from Schedule RC-D)............................ 0 Other borrowed money:............................................... /////// With original maturity of one year or less...................... 775,000 With original maturity of more than one year.................... 43,000 Bank's liability on acceptances executed and outstanding............ 0 Subordinated notes and debentures................................... 0 Other liabilities (from Schedule RC-G).............................. 84,197 Total liabilities................................................... 5,199,755 EQUITY CAPITAL Perpetual preferred stock and related surplus........................ 0 Common Stock......................................................... 500 Surplus (exclude all surplus related to preferred stock)............. 62,118 Undivided profits and capital reserves............................... 376,212 Net unrealized holding gains (losses) on available-for- sale securities...................................................... (2,328) Total equity capital................................................. 441,158 Total liabilities, limited-life preferred stock, and equity capital....................................................... 5,640,913 2 EX-25 18 FORM T-1 OF WILMINGTON TRUST COMPANY Exhibit 25.2 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) SYMONS INTERNATIONAL GROUP, INC. SIG CAPITAL TRUST I (Exact name of obligor as specified in its charter) Indiana 35-1707115 Applied For (State of incorporation) (I.R.S. employer identification no.) 4720 Kingsway Drive Indianapolis, Indiana 46205 (Address of principal executive offices) (Zip Code) Trust Preferred Securities of SIG Capital Trust I (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 8th day of September, 1997. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ Donald G. MacKelcan By:/s/ Emmett R. Harmon - ------------------------------ ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on 5 any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock 7 may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative 8 vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. 9 Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such 11 business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. 2 ARTICLE III Committees Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such 3 implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. 4 (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. 5 ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables 6 of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary 7 or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any 8 and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 9 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 10 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 11 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: September 8, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON ------------------------ ---------- Name of Bank City in the State of DELAWARE , at the close of business on June 30, 1997. -------- ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................ 208,942 Interest-bearing balances.......................................... 0 Held-to-maturity securities.......................................... 403,700 Available-for-sale securities........................................ 905,200 Federal funds sold and securities purchased under agreements to resell................................................. 151,700 Loans and lease financing receivables: Loans and leases, net of unearned income........ 3,816,484 LESS: Allowance for loan and lease losses...... 54,535 LESS: Allocated transfer risk reserve.......... 0 Loans and leases, net of unearned income, allowance, and reserve... 3,761,949 Assets held in trading accounts...................................... 0 Premises and fixed assets (including capitalized leases)............. 95,762 Other real estate owned.............................................. 1,751 Investments in unconsolidated subsidiaries and associated companies.. 42 Customers' liability to this bank on acceptances outstanding......... 0 Intangible assets.................................................... 3,572 Other assets......................................................... 108,295 Total assets......................................................... 5,640,913 CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices.................................................. 3,864,774 Noninterest-bearing .......................... 875,081 Interest-bearing.............................. 2,989,693 Federal funds purchased and Securities sold under agreements to repurchase........................................................ 337,784 Demand notes issued to the U.S. Treasury............................. 95,000 Trading liabilities (from Schedule RC-D)............................. 0 Other borrowed money:................................................ /////// With original maturity of one year or less........................ 775,000 With original maturity of more than one year...................... 43,000 Bank's liability on acceptances executed and outstanding............. 0 Subordinated notes and debentures.................................... 0 Other liabilities (from Schedule RC-G)............................... 84,197 Total liabilities.................................................... 5,199,755 EQUITY CAPITAL Perpetual preferred stock and related surplus........................ 0 Common Stock......................................................... 500 Surplus (exclude all surplus related to preferred stock)............. 62,118 Undivided profits and capital reserves............................... 376,212 Net unrealized holding gains (losses) on available-for-sale securities........................................................... (2,328) Total equity capital................................................. 441,158 Total liabilities, limited-life preferred stock, and equity capital.. 5,640,913 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, 2 suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, 3 hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. 4 Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, 5 and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe 6 for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time 7 by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, 8 (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation 9 entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that 10 some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or 11 otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. 12 Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III Committees Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. 2 (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as 5 the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of 5 Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any 7 dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 8 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 9 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: September 8, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - ------------------------------- -------------- Name of Bank City in the State of DELAWARE , at the close of business on June 30, 1997. -------- ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins............... 208,942 Interest-bearing balances......................................... 0 Held-to-maturity securities.......................................... 403,700 Available-for-sale securities........................................ 905,200 Federal funds sold and securities purchased under agreements to resell......................................151,700 Loans and lease financing receivables: Loans and leases, net of unearned income. 3,816,484 LESS: Allowance for loan and lease losses. 54,535 LESS: Allocated transfer risk reserve. 0 Loans and leases, net of unearned income, allowance, and reserve............................................ 3,761,949 Assets held in trading accounts...................................... 0 Premises and fixed assets (including capitalized leases)............. 95,762 Other real estate owned.............................................. 1,751 Investments in unconsolidated subsidiaries and associated companies.. 42 Customers' liability to this bank on acceptances outstanding......... 0 Intangible assets.................................................... 3,572 Other assets......................................................... 108,295 Total assets......................................................... 5,640,913 CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices................................................. 3,864,774 Noninterest-bearing ........ 875,081 Interest-bearing. 2,989,693 Federal funds purchased and Securities sold under agreements to repurchase................................. 337,784 Demand notes issued to the U.S. Treasury............................ 95,000 Trading liabilities (from Schedule RC-D)............................ 0 Other borrowed money:............................................... /////// With original maturity of one year or less...................... 775,000 With original maturity of more than one year.................... 43,000 Bank's liability on acceptances executed and outstanding............ 0 Subordinated notes and debentures................................... 0 Other liabilities (from Schedule RC-G).............................. 84,197 Total liabilities................................................... 5,199,755 EQUITY CAPITAL Perpetual preferred stock and related surplus........................ 0 Common Stock......................................................... 500 Surplus (exclude all surplus related to preferred stock)............. 62,118 Undivided profits and capital reserves............................... 376,212 Net unrealized holding gains (losses) on available-for- sale securities...................................................... (2,328) Total equity capital................................................. 441,158 Total liabilities, limited-life preferred stock, and equity capital....................................................... 5,640,913 2 EX-25 19 FORM T-1 OF WILMINGTON TRUST COMPANY Exhibit 25.3 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) SYMONS INTERNATIONAL GROUP, INC. (Exact name of obligor as specified in its charter) Indiana 35-1707115 (State of incorporation) (I.R.S. employer identification no.) 4720 Kingsway Drive Indianapolis, Indiana 46205 (Address of principal executive offices) (Zip Code) Symons International Group, Inc. Guarantee with respect to Trust Preferred Securities (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 8th day of September, 1997. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ Donald G. MacKelcan By:/s/ Emmett R. Harmon - ------------------------------ ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on 5 any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock 7 may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative 8 vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. 9 Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such 11 business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. 2 ARTICLE III Committees Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such 3 implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. 4 (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. 5 ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables 6 of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary 7 or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any 8 and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 9 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 10 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 11 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: September 8, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON ------------------------ ---------- Name of Bank City in the State of DELAWARE , at the close of business on June 30, 1997. -------- ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................ 208,942 Interest-bearing balances.......................................... 0 Held-to-maturity securities.......................................... 403,700 Available-for-sale securities........................................ 905,200 Federal funds sold and securities purchased under agreements to resell................................................. 151,700 Loans and lease financing receivables: Loans and leases, net of unearned income........ 3,816,484 LESS: Allowance for loan and lease losses...... 54,535 LESS: Allocated transfer risk reserve.......... 0 Loans and leases, net of unearned income, allowance, and reserve... 3,761,949 Assets held in trading accounts...................................... 0 Premises and fixed assets (including capitalized leases)............. 95,762 Other real estate owned.............................................. 1,751 Investments in unconsolidated subsidiaries and associated companies.. 42 Customers' liability to this bank on acceptances outstanding......... 0 Intangible assets.................................................... 3,572 Other assets......................................................... 108,295 Total assets......................................................... 5,640,913 CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices.................................................. 3,864,774 Noninterest-bearing .......................... 875,081 Interest-bearing.............................. 2,989,693 Federal funds purchased and Securities sold under agreements to repurchase........................................................ 337,784 Demand notes issued to the U.S. Treasury............................. 95,000 Trading liabilities (from Schedule RC-D)............................. 0 Other borrowed money:................................................ /////// With original maturity of one year or less........................ 775,000 With original maturity of more than one year...................... 43,000 Bank's liability on acceptances executed and outstanding............. 0 Subordinated notes and debentures.................................... 0 Other liabilities (from Schedule RC-G)............................... 84,197 Total liabilities.................................................... 5,199,755 EQUITY CAPITAL Perpetual preferred stock and related surplus........................ 0 Common Stock......................................................... 500 Surplus (exclude all surplus related to preferred stock)............. 62,118 Undivided profits and capital reserves............................... 376,212 Net unrealized holding gains (losses) on available-for-sale securities........................................................... (2,328) Total equity capital................................................. 441,158 Total liabilities, limited-life preferred stock, and equity capital.. 5,640,913 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, 2 suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, 3 hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. 4 Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, 5 and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe 6 for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time 7 by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, 8 (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation 9 entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that 10 some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or 11 otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. 12 Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III Committees Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. 2 (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as 5 the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of 5 Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any 7 dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 8 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 9 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: September 8, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - ------------------------------- -------------- Name of Bank City in the State of DELAWARE , at the close of business on June 30, 1997. -------- ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins............... 208,942 Interest-bearing balances......................................... 0 Held-to-maturity securities.......................................... 403,700 Available-for-sale securities........................................ 905,200 Federal funds sold and securities purchased under agreements to resell......................................151,700 Loans and lease financing receivables: Loans and leases, net of unearned income. 3,816,484 LESS: Allowance for loan and lease losses. 54,535 LESS: Allocated transfer risk reserve. 0 Loans and leases, net of unearned income, allowance, and reserve............................................ 3,761,949 Assets held in trading accounts...................................... 0 Premises and fixed assets (including capitalized leases)............. 95,762 Other real estate owned.............................................. 1,751 Investments in unconsolidated subsidiaries and associated companies.. 42 Customers' liability to this bank on acceptances outstanding......... 0 Intangible assets.................................................... 3,572 Other assets......................................................... 108,295 Total assets......................................................... 5,640,913 CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices................................................. 3,864,774 Noninterest-bearing ........ 875,081 Interest-bearing. 2,989,693 Federal funds purchased and Securities sold under agreements to repurchase................................. 337,784 Demand notes issued to the U.S. Treasury............................ 95,000 Trading liabilities (from Schedule RC-D)............................ 0 Other borrowed money:............................................... /////// With original maturity of one year or less...................... 775,000 With original maturity of more than one year.................... 43,000 Bank's liability on acceptances executed and outstanding............ 0 Subordinated notes and debentures................................... 0 Other liabilities (from Schedule RC-G).............................. 84,197 Total liabilities................................................... 5,199,755 EQUITY CAPITAL Perpetual preferred stock and related surplus........................ 0 Common Stock......................................................... 500 Surplus (exclude all surplus related to preferred stock)............. 62,118 Undivided profits and capital reserves............................... 376,212 Net unrealized holding gains (losses) on available-for- sale securities...................................................... (2,328) Total equity capital................................................. 441,158 Total liabilities, limited-life preferred stock, and equity capital....................................................... 5,640,913 2 EX-99 20 FORM OF LETTER OF TRANSMITTAL Exhibit 99.1 LETTER OF TRANSMITTAL SIG CAPITAL TRUST I OFFER TO EXCHANGE ITS 9 1/2% TRUST PREFERRED SECURITIES WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ITS OUTSTANDING 9 1/2% TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $1,000 PER TRUST PREFERRED SECURITY) PURSUANT TO THE PROSPECTUS DATED SEPTEMBER __, 1997 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____________, 1997, UNLESS THE OFFER IS EXTENDED. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: WILMINGTON TRUST COMPANY BY MAIL/OVERNIGHT DELIVERY/HAND: Wilmington Trust Company Corporate Trust Operation Rodney Square North 100 North Market Street Wilmington, Delaware 19890-0001 Attn: Jill Rylee TO CONFIRM BY TELEPHONE OR FOR INFORMATION: (302) 651-8869 FACSIMILE TRANSMISSIONS: (302) 651-1079 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of Preferred Securities (as defined below) either if (i) Preferred Securities are to be forwarded herewith or (ii) tenders of Preferred Securities are to be made by book-entry transfer to an account maintained by Wilmington Trust Company (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth under "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus and an Agent's Message (as defined herein) is not delivered. Holders of Preferred Securities whose certificates (the "Certificates") for such Preferred Securities are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on or prior to the Expiration Date, must tender their Preferred Securities according to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY DESCRIPTION OF PREFERRED SECURITIES
LIQUIDATION NUMBER OF LIQUIDATION AMOUNT OF BENEFICIAL AMOUNT OF PREFERRED HOLDERS FOR NAME AND ADDRESS PREFERRED SECURITIES WHICH OF REGISTERED SECURITIES TENDERED (IF PREFERRED HOLDER (PLEASE FILL CERTIFICATE (IF ALL ARE LESS THAN ALL SECURITIES ARE IN IF BLANK) NUMBERS* TENDERED) ARE TENDERED)** HELD $ $ $ $ $ $ TOTAL AMOUNT TENDERED: $ $ ===================================== ============== ================ =================
* Need not be completed by book-entry holders. ** Preferred Securities may be tendered in whole or in part in denominations of $100,000 and integral multiples of $1,000 in excess thereof, provided that if any Preferred Securities are tendered for exchange in part, the untendered Liquidation Amount thereof must be $100,000 or any integral multiple of $1,000 in excess thereof. All Preferred Securities held shall be deemed tendered unless a lesser number is specified in this column. - -------------------------------------------------------------------------------- (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS (defined in Instruction 1) ONLY) o CHECK HERE IF TENDERED PREFERRED SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution _____________________________________________ DTC Account Number ________________________________________________________ Transaction Code Number____________________________________________________ o CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED PREFERRED SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder __________________________________________________ Window Ticket Number (if any)_______________________________________________ Date of Execution of Notice of Guaranteed Delivery__________________________ Name of Institution which Guaranteed Delivery_______________________________ If Guaranteed Delivery is to be made By Book-Entry Transfer: Name of Tendering Institution_______________________________________________ DTC Account Number__________________________________________________________ Transaction Code Number_____________________________________________________ o CHECK HERE IF PREFERRED SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER AND NON- EXCHANGED OR UNTENDERED PREFERRED SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. o CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE PREFERRED SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER- DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:_______________________________________________________________________ Address:____________________________________________________________________ Area Code and Telephone Number:_____________ Contact Person:_______________ 2 Ladies and Gentlemen: The undersigned hereby tenders to SIG Capital Trust I, a Delaware business trust (the "Issuer"), and Symons International Group, Inc., an Indiana corporation, as Depositor (the "Corporation"), the above-described aggregate Liquidation Amount of the Trust's 9.5% Trust Preferred Securities (the "Preferred Securities") in exchange for a like aggregate Liquidation Amount of the Trust's 9.5% Trust Preferred Securities (the "Exchange Preferred Securities") which have been registered under the Securities Act of 1933 (the "Securities Act"), upon the terms and subject to the conditions set forth in the Prospectus dated September __, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"). Subject to and effective upon the acceptance for exchange of all or any portion of the Preferred Securities tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment,), the undersigned hereby sells, assigns and transfers to or upon the order of the Issuer all right, title and interest in and to such Preferred Securities as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Corporation and the Issuer in connection with the Exchange Offer) with respect to the tendered Preferred Securities, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Preferred Securities to the Issuer together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuer, upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Preferred Securities to be issued in exchange for such Preferred Securities, (ii) present Certificates for such Preferred Securities for transfer, and to transfer the Preferred Securities on the books of the Issuer, and (iii) receive for the account of the Issuer all benefits and otherwise exercise all rights of beneficial ownership of such Preferred Securities, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE PREFERRED SECURITIES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE THE ISSUER WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE PREFERRED SECURITIES TENDERED HEREBY ARE TO SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE CORPORATION, THE ISSUER OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE PREFERRED SECURITIES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ANY OBLIGATIONS IT MAY HAVE UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name and address of the registered holder of the Preferred Securities tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Preferred Securities. The Certificate numbers and the Preferred Securities that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Preferred Securities are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Preferred Securities than are tendered or accepted for exchange, Certificates for such nonexchanged or untendered Preferred Securities will be returned (or, in the case of Preferred Securities tendered by book-entry transfer, such Preferred Securities will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Preferred Securities pursuant to any one of the procedures described under "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus and in the instructions herein will, upon the Corporation's and the Issuer's acceptance for exchange of such tendered Preferred Securities, constitute a binding agreement between the undersigned, the Corporation and the Issuer upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Corporation and the Issuer may not be required to accept for exchange any of the Preferred Securities tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the Exchange Preferred Securities be issued in the name of the undersigned or, in the case of a book-entry transfer of Preferred Securities, that such Exchange Preferred Securities be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing Preferred Securities not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Preferred Securities, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions" below, please deliver Exchange Preferred Securities to the undersigned at the address shown below the undersigned's signature. 3 BY TENDERING PREFERRED SECURITIES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE CORPORATION OR THE ISSUER WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT, (II) ANY EXCHANGE PREFERRED SECURITIES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE PREFERRED SECURITIES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE PREFERRED SECURITIES. BY TENDERING PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF PREFERRED SECURITIES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF TO THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH PREFERRED SECURITIES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH PREFERRED SECURITIES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER A PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE PREFERRED SECURITIES (PROVIDED THAT BY SO ACKNOWLEDGING AND BE DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). THE CORPORATION AND THE ISSUER HAVE AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER IN CONNECTION WITH RESALES OF EXCHANGE PREFERRED SECURITIES RECEIVED IN EXCHANGE FOR PREFERRED SECURITIES, WHERE SUCH PREFERRED SECURITIES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH EXCHANGE PREFERRED SECURITIES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, SECURITIES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER WHO ACQUIRED PREFERRED SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES, BY TENDERING SUCH PREFERRED SECURITIES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE CORPORATION OR THE ISSUER OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE PREFERRED SECURITIES PURSUANT OTHER PROSPECTUS UNTIL THE CORPORATION OR THE ISSUER HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE CORPORATION OR THE ISSUER HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE PREFERRED SECURITIES MAY BE RESUMED, AS THE CASE MAY BE. IF THE CORPORATION OR THE ISSUER GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE PREFERRED SECURITIES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF EXCHANGE PREFERRED SECURITIES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE PREFERRED SECURITIES OR TO AND INCLUDING THE DATE ON WHICH THE CORPORATION OR THE ISSUER HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE PREFERRED SECURITIES MAY BE RESUMED, AS THE CASE MAY BE. Holders of Preferred Securities whose Preferred Securities are accepted for exchange will not receive accumulated Distributions on such Preferred Securities for any period from and after the last Distribution date to which Distributions have been paid or duly provided for on such Preferred Securities prior to the original issue date of the Exchange Preferred Securities or, if no such Distributions have been paid or duly provided for, will not receive any accrued Distributions on such Preferred Securities, and the undersigned waives the right to receive any interest on such Preferred Securities accrued from and after such Distribution date or, if no such Distributions have been paid or duly provided for, from and after August 15, 1997. 4 All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. 5 ================================================================================ HOLDERS SIGN HERE (SEE INSTRUCTIONS 2, 5 AND 6) (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 14) (NOTE: SIGNATURES MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2) Must be signed by registered holder exactly as name appears on Certificates for Preferred Securities hereby tendered or on a security position listing, or by any person authorized to become the registered holder by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Corporation, the Issuer or the Exchange Agent to comply with the restrictions on transfer applicable to the Preferred Securities). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer's full title. See Instruction 5. o ------------------------------------------------------------------------------- o ------------------------------------------------------------------------------- (SIGNATURE OF HOLDER) Date , 1997 ------------------------- Name --------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title) ----------------------------------------------------------- Address ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number -------------------------------------------------- Tax Identification or Social Security Number ------------------------------------ GUARANTEE OF SIGNATURE (SEE INSTRUCTIONS 2 AND 5) o ------------------------------------------------------------------------------ (AUTHORIZED SIGNATURE) Date , 1997 -------------------------- Name of Firm -------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number -------------------------------------------------- ================================================================================ 6 ================================================================================ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if the Exchange Preferred Securities and/or any Preferred Securities that are not tendered are to be issued in the name of someone other than the registered holder of the Preferred Securities whose name appears above. Issue o Exchange Preferred Securities o Preferred Securities to: Name --------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number -------------------------------------------------- Tax Identification or Social Security Number ------------------------------------ ================================================================================ ================================================================================ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if the Exchange Preferred Securities and/or any Preferred Securities that are not tendered are to be sent to someone other than the registered holder of the Preferred Securities whose name appears above, or to such registered holder at an address other than that shown above. Mail o Exchange Preferred Securities o Preferred Securities to: Name --------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number -------------------------------------------------- Tax Identification or Social Security Number ------------------------------------ ================================================================================ 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a) Certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth under "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus and an Agent's Message is not delivered. Certificates, or book-entry confirmation of a book-entry transfer of such Preferred Securities into the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter of Transmittal. The term "book-entry confirmation" means a confirmation of book-entry transfer of Preferred Securities into the Exchange Agent's account at DTC. The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by the Letter of Transmittal (including the representations contained herein) and that the Issuer and the Corporation may enforce the Letter of Transmittal against such participant. Preferred Securities may be tendered in whole or in part in the Liquidation Amount of $100,000 (100 Preferred Securities) and integral multiples of $1,000 in excess thereof, provided that, if any Preferred Securities are tendered for exchange in part, the untendered Liquidation Amount thereof must be $100,000 (100 Preferred Securities) or any integral multiple of $1,000 in excess thereof. Holders who wish to tender their Preferred Securities and (i) whose Preferred Securities are not immediately available or (ii) who cannot deliver their Preferred Securities, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer on or prior to the Expiration Date, may tender their Preferred Securities by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth under "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Corporation and the Issuer, must be received by the Exchange Agent on or prior to the Expiration Date; and (iii) the Certificate (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Preferred Securities, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three New York Stock Exchange Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Preferred Securities to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY ON OR PRIOR TO THE EXPIRATION DATE. Neither the Corporation nor the Issuer will accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of the Preferred Securities) of Preferred Securities tendered herewith, unless such holder has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or 8 (ii) Such Preferred Securities are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Preferred Securities" is inadequate, the Certificate numbers and/or the Liquidation Amount of Preferred Securities and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Preferred Securities will be accepted only in the Liquidation Amount of $100,000 (100 Preferred Securities) and integral multiples of $1,000 in excess thereof, provided that if any Preferred Securities are tendered for exchange in part, the untendered Liquidation Amount thereof must be $100,000 (100 Preferred Securities) or any integral multiple of $1,000 in excess thereof. If less than all the Preferred Securities evidenced by any Certificate submitted are to be tendered, fill in the Liquidation Amount of Preferred Securities which are to be tendered in the box entitled "Liquidation Amount of Preferred Securities Tendered (If Less than all are Tendered)." In such case, a new Certificate for the remainder of the Preferred Securities that were evidenced by your Certificate for the Preferred Securities will be sent to the holder of the Preferred Securities, promptly after the Expiration Date unless the appropriate boxes on this letter of Transmittal are completed. All Preferred Securities represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Preferred Securities may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be received by the Exchange Agent at one of its addresses set forth above or in the Prospectus on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Preferred Securities to be withdrawn, the aggregate Liquidation Amount of Preferred Securities to be withdrawn, and (if Certificates for Preferred Securities have been tendered) the name of the registered holder of the Preferred Securities as set forth on the Certificates for the Preferred Securities, if different from that of the person who tendered such Preferred Securities. If Certificates for the Preferred Securities have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Certificates for the Preferred Securities, the tendering holder must submit the serial numbers shown on the particular Certificates for the Preferred Securities to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Preferred Securities tendered for the account of an Eligible Institution. If Preferred Securities have been tendered pursuant to the procedures for book-entry transfer set forth under "The Exchange Offer-Procedures for Tendering Preferred Securities," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Preferred Securities, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission on or prior to the Expiration Date. Withdrawals of tenders of Preferred Securities may not be rescinded. Preferred Securities properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering Preferred Securities." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Corporation and the Issuer, in their sole discretion, whose determination shall be final and binding on all parties. The Corporation and the Issuer, any affiliates or assigns of the Corporation and the Issuer, the Exchange Agent or any other person shall not be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Preferred Securities which have been tendered but which are withdrawn on or prior to the Expiation Date will be returned to the holder thereof without cost to such holder promptly after withdrawal. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder of the Preferred Securities tendered hereby, the signature must correspond exactly with the name as written on the face of the Certificates without alteration, enlargement or any change whatsoever. If any of the Preferred Securities tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Preferred Securities are registered in different names on several Certificates,it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Corporation and the Issuer, in their sole discretion, of such person's authority to so act. 9 When this Letter of Transmittal is signed by the registered holder of the Preferred Securities listed and transmitted hereby, no endorsement of Certificates or separate bond powers are required unless Exchange Preferred Securities are to be issued in the name of a person other than the registered holder. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder of the Preferred Securities listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name of the register holder appears on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Corporation, the Issuer or the Exchange Agent may require in accordance with the restrictions on transfer applicable to the Preferred Securities. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Preferred Securities are to be issued in the name of a person other than the registered holder, or if Exchange Preferred Securities are to be sent to someone other than the registered holder or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Preferred Securities not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC unless the appropriate boxes on this Letter of Transmittal are completed. See Instruction 4. 7. IRREGULARITIES. The Corporation and the Issuer will determine, in their sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Preferred Securities, which determination shall be final and binding on all parties. The Corporation and the Issuer reserve the absolute right to reject any and all tenders determined by either of them not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Corporation or the Issuer, be unlawful. The Corporation and the Issuer also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer--Certain Conditions to the Exchange Offer" or any conditions or irregularity in any tender of Preferred Securities of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Corporation's and the Issuer's interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Preferred Securities will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. The Corporation, the Issuer, any affiliates or assigns of the Corporation, the Issuer, the Exchange Agent, or any other person shall not be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification. 8. QUESTIONS, REQUEST FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a holder whose tendered Preferred Securities are accepted for exchange is required to provide the Exchange Agent with such holder's correct taxpayer identification number ("TIN") on the Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or other payee to a $50 penalty. In addition, payments to such holders or other payees with respect to Preferred Securities exchanged pursuant to the Exchange Offer may be subject to 31% backup withholding. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 31%of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Preferred Securities or of the last transferee appearing on the transfers attached to, or endorsed on, the Preferred Securities. If the Preferred Securities are registered in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain holders (including, among others, corporations, financial institutions and ceratin foreign person) may not be subject to these backup withholding and reporting requirements. Such holders should nevertheless complete the attached Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid possible erroneous backup withholding. A foreign person may qualify as an 10 exempt recipient by submitting a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. Please consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which holders are exempt from backup withholding. Backup withholding is not an additional U.S. Federal income tax. Rather, the U.S. Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 10. LOST, DESTROYED OR STOLE CERTIFICATES. If any Certificates representing Preferred Securities have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificates. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificates have been followed. 11. SECURITY TRANSFER TAXES. Holders who tender their Preferred Securities for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, Preferred Securities are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Preferred Securities tendered, or if a transfer tax is imposed for any reason other than the exchange of Preferred Securities in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. 11 ================================================================================ PAYER'S NAME: Wilmington Trust Company SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT Social security RIGHT AND CERTIFY BY SIGNING AND DATING number OR Employer BELOW. Identification Number FORM W-9 __________________ - -------------------------------------------------------------------------------- Department of the Treasury Part 2 - CERTIFICATION - Under penalties of Internal Revenue Service perjury, I certify that: Payer's Request for (1) The number shown on this form is my Taxpayer Identification correct Taxpayer Identification Number Number (TIN) (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. - -------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS - You must cross Part 3 - out item (2) above if you have been notified by the IRS that you are currently subject Awaiting TIN o to backup withholding because of under- reporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). THE INTERNAL REVENUE SERVICES DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. SIGNATURE DATE - ------------------------------------------- -------------------------------- NAME (Please Print) ------------------------------------------------------------ ADDRESS (Please Print) ------------------------------------------------------------ ================================================================================ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND CONSENT SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. ================================================================================ CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature Date ---------------------------------------- ------------------------ Name (Please Print) ------------------------------------------------------------ Address (Please Print) ---------------------------------------------------------- ================================================================================ 12 EX-99 21 FORM OF NOTICE OF GUARANTEED DELIVERY Exhibit 99.2 NOTICE OF GUARANTEED DELIVERY TO BE USED IN CONNECTION WITH SIG CAPITAL TRUST I OFFER TO EXCHANGE ITS 9 1/2% TRUST PREFERRED SECURITIES WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 9 1/2% TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY) ================================================================================ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997 UNLESS THE OFFER IS EXTENDED --------------- ================================================================================ As set forth in the Exchange Offer (as defined below), this Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the Exchange Offer if (i) certificates for the Trust's (as defined below) 9 1/2% Trust Preferred Securities (the "Preferred Securities") are not immediately available, (ii) the Preferred Securities, the Letter of Transmittal and all other required documents cannot be delivered to Wilmington Trust Company (the "Exchange Agent") on or prior to the Expiration Date (as defined in the Prospectus referred to below) or (iii) the procedures for delivery by book-entry transfer cannot be completed on or prior to the Expiration Date. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission, to the Exchange Agent on or prior to the Expiration Date. See "The Exchange Offer--Procedures for Tendering Preferred Securities" in the Prospectus. Wilmington Trust Company, Exchange Agent By Mail, Hand or Overnight Delivery: Wilmington Trust Company Corporate Trust Operation Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attn: Jill Rylee Facsimile Transmission: (302) 651-1079 Confirm By Telephone: Jill Rylee: (302) 651-8869 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX OF THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to SIG Capital Trust I, a Delaware statutory business trust (the "Trust"), upon the terms and subject to the conditions set forth in the Prospectus dated ____________, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate liquidation amount of Preferred Securities set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Preferred Securities." Aggregate Liquidation Amount Tendered:_____________________________________ Name of Registered Holder:___________________________ Address:_____________________________________________ _____________________________________________________ Certificate Nos. (if available):______________________________________ Area Code and Telephone Number:______________________ Signature:___________________________________________ The undersigned understands that tenders of Preferred Securities will be accepted only in liquidation amounts of $100,000 and integral multiples of $1,000 in excess thereof. If Preferred Securities will be tendered by book-entry transfer, provide the following information: DTC Account Number:____________________________ Date:____________________________, 1997 THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agent Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchange Medallion Program (an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at its address set forth above, either the Preferred Securities tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Preferred Securities to the Exchange Agent's account at The Depository Trust Company, pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letters of Transmittal (or facsimile thereof or Agent's Message (as defined in the Letter of Transmittal in lieu thereof) and any other required documents within three New York Stock Exchange trading days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letters of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) and the Preferred Securities tendered hereby (or a book-entry confirmation) to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm:__________________________________________________________________ (Authorized Signature)_________________________________________________________ Title: Address:_______________________________________________________________________ _______________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number:________________________________________________ Date:__________________________________________________________________________ NOTE: DO NOT SEND PREFERRED SECURITIES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL SURRENDER OF PREFERRED SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. 3 EX-99 22 FORM OF EXCHANGE AGENCY AGREEMENT Exhibit 99.3 [FORM OF EXCHANGE AGENCY AGREEMENT] ____________, 1997 Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Re: Ladies and Gentlemen: ____________, a ________ corporation, as Depositor (the "Company"), and _________, a Delaware business trust (the "Trust"), hereby appoint Wilmington Trust Company ("Wilmington Trust") to act as exchange agent (the "Exchange Agent") in connection with an exchange offer by the Company and the Trust to exchange up to $________ Capital Securities"). The terms and conditions of the exchange offer are set forth in a Prospectus, dated________ ___, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), and in the related Letter of Transmittal, which together constitute the "Exchange Offer." The registered holders of the Capital Securities are hereinafter referred to as the "Holders." Capitalized terms used herein and not defined shall have the respective meanings described thereto in the Prospectus. On the basis of the representations, warranties and agreements of the Company, the Trust and Wilmington Trust contained herein and subject to the terms and conditions hereof, the following sets forth the agreement among the Company, the Trust and Wilmington Trust as Exchange Agent for the Exchange Offer: 1. APPOINTMENT AND DUTIES AS EXCHANGE AGENT. a. The Company and the Trust hereby authorize Wilmington Trust to act as Exchange Agent in connection with the Exchange Offer and Wilmington Trust agrees to act as Exchange Agent in connection with the Exchange Offer. As Exchange Agent, Wilmington Trust will perform those services as are outlined herein, including, but not limited to, accepting tenders of Old Capital Securities, and communicating generally regarding the Exchange Offer with brokers, dealers, commercial banks, trust companies and other persons, including Holders of the Old Capital Securities. b. The Company and the Trust acknowledge and agree that Wilmington Trust has been retained pursuant to this Agreement to act solely as Exchange Agent in connection with the Exchange Offer, and in such capacity, Wilmington Trust shall perform such duties in good faith as are outlined herein. c. Wilmington Trust will examine each of the Letters of Transmittal and certificates for Old Capital Securities and any other documents delivered or mailed to Wilmington Trust by or for Holders of the Old Capital Securities, and any book entry confirmations received by Wilmington Trust with respect to the Old Capital Securities, to ascertain whether: (i) the Letters of Transmittal and any such other documents are duly executed and properly completed in accordance with the instructions set forth therein and that such book entry confirmations are in due and proper form and contain the information required to be set forth therein, (ii) the Old Capital Securities have otherwise been properly tendered, (iii) Old Capital Securities tendered in part are tendered in Liquidation Amounts of $100,000 (100 Capital Securities) and integral multiples of $1,000 in excess thereof and that if any Old Capital Securities are tendered for exchange in part, the untendered Liquidation Amount thereof is $100,000 (100 Capital Securities) or any integral multiple of $1,000 in excess thereof, and (iv) Holders have provided their correct Tax Identification Number or required certification. Determination of all questions as to validity, form, eligibility and acceptance for exchange of any Old Capital Securities shall be made by the Company and the Trust, which determination shall be final and binding. In each case where the Letters of Transmittal or any other documents have been improperly completed or executed of where book-entry conformations are not in due and proper form or omit certain information, or any of the certificates for Old Capital Securities are not in proper form for transfer or some other irregularity in connection with the tender or acceptance of the Old Capital Securities exists, Wilmington Trust will endeavor, upon request of the Company or the Trust, to advise the tendering Holders of the irregularity and to take any other action as the Company or the Trust may request to cause such irregularity to be corrected. Notwithstanding the above, Wilmington Trust shall not be under any duty to give any notification of any irregularities in tenders or incur any liability for failure to give any such notification. d. With the approval of the Trust and the President, any Senior Vice President, any Executive Vice President, any Vice President or the Treasurer or any Assistant Treasurer of the Company, (such approval, if given orally, to be confirmed in writing) or any other party designated by any such officer, Wilmington Trust is authorized to waive any irregularities in connection with any tender of Old Capital Securities pursuant to the Exchange Offer. 2 e. Tenders of Old Capital Securities may be made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer" and Old Capital Securities shall be considered properly tendered only when tendered in accordance with such procedures set forth therein. Notwithstanding the provisions of this paragraph, Old Capital Securities which the Trust and the President, any Senior Vice President, any Executive Vice President, any Vice President or the Treasurer, any Assistant Treasurer or any other designated officer of the Company, shall approve (such approval, if given orally, to be confirmed in writing) as having been properly tendered shall be considered to be properly tendered. f. Wilmington Trust shall advise the Company and the Trust with respect to any Old Capital Securities received as soon as possible after 5:00 p.m., New York City time, on the Expiration Date and accept its instructions with respect to disposition of such Old Capital Securities. g. Wilmington Trust shall deliver certificates for Old Capital Securities tendered in part to the transfer agent for split-up and shall return any untendered Old Capital Securities or Old Capital Securities which have not been accepted by the Company and the Trust to the Holders promptly after the expiration or termination of the Exchange Offer. h. Upon acceptance by the Company and the Trust of any Old Capital Securities duly tendered pursuant to the Exchange Offer (such acceptance if given orally, to be confirmed in writing), the Company and the Trust will cause New Capital Securities in exchange therefor to be issued as promptly as practicable and Wilmington Trust will deliver such New Capital Securities on behalf of the Company and the Trust at the rate of $100,000 (100 Capital Securities) Liquidation Amount of New Capital Securities for each $100,000 Liquidation Amount of Old Capital Securities tendered as promptly as practicable after acceptance by the Company and the Trust of the Old Capital Securities for exchange and notice (such notice if given orally, to be confirmed in writing) of such acceptance by the Company and the Trust. Unless otherwise instructed by the Company or the Trust, Wilmington Trust shall issue New Capital Securities only in denominations of $100,000 (100 Capital Securities) or any integral multiple of $1,000 in excess thereof. i. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and the conditions set forth in the Prospectus and the Letter of Transmittal, Old Capital Securities tendered pursuant to the Exchange Offer may be withdrawn at any time on or prior to the Expiration Date in accordance with the terms of the Exchange Offer. j. Notice of any decision by the Company and the Trust not to exchange any Old Capital Securities tendered shall be given by the Company and the Trust either orally (if given orally, to be confirmed in writing) or in a written notice to Wilmington Trust. k. If, pursuant to the Exchange Offer, the Company and the Trust do not accept for exchange all or part of the Old Capital Securities tendered because of an invalid tender, the occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange Offer" or otherwise, Wilmington Trust shall, upon notice 3 from the Company and the Trust (such notice if given orally, to be confirmed in writing), promptly after the expiration or termination of the Exchange Offer return such certificates for unaccepted Old Capital Securities (or effect appropriate book-entry transfer), together with any related required documents and the Letters of Transmittal relating thereto that are in Wilmington Trust's possession, to the persons who deposited such certificates. l. Certificates for reissued Old Capital Securities, unaccepted Old Capital Securities or New Capital Securities shall be forwarded by (a) first-class certified mail, return receipt requested under a blanket surety bond obtained by Wilmington Trust protecting Wilmington Trust, the Company and the Trust from loss or liability arising out of the non-receipt or non- delivery of such certificates or (b) by registered mail insured by Wilmington Trust separately for the replacement value of each such certificate. m. Wilmington Trust is not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, commercial bank, trust company or other nominee or to engage or use any person to solicit tenders. n. As Exchange Agent, Wilmington Trust: (i) shall have no duties or obligations other than those specifically set forth herein or in the Prospectus or in the related Letter of Transmittal; (ii) will make no representations and will have no responsibilities as to the validity, value or genuineness of any of the certificates for the Old Capital Securities deposited pursuant to the Exchange Offer, and will not be required to and will make no representation as to the validity, value or genuineness of the Exchange Offer; (iii) shall not be obligated to take any legal action hereunder which might in Wilmington Trust's reasonable judgment involve any expense or liability, unless Wilmington Trust shall have been furnished with indemnity satisfactory to it and additional fees for taking of such action; (iv) may reasonably rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telegram or other document or security delivered to Wilmington Trust and reasonably believed by Wilmington Trust to be genuine and to have been signed by the proper party or parties; (v) may reasonably act upon any tender, statement, request, comment, agreement or other instrument whatsoever not only as to its due execution and validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which Wilmington Trust believes in good faith to be genuine and to have been signed or represented by a proper person or persons acting in a fiduciary or representative capacity; 4 (vi) may rely on and shall be protected in acting upon written or oral instructions from the President, any Senior Vice President, any Executive Vice President, any Vice President, the Treasurer, any Assistant Treasurer or any other designed officer of the Company; (vii) may consult with its own counsel with respect to any questions relating to Wilmington Trust's duties and responsibilities and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by Wilmington Trust hereunder in good faith and in accordance with the advice of such counsel; and (viii) shall not advise any person tendering Old Capital Securities pursuant to the Exchange Offer as to whether to tender or refrain from tendering all or any portion of its Old Capital Securities or as to the market value, decline or appreciation in market value of any Old Capital Securities that may or may not occur as a result of the Exchange Offer or as to the market value of the New Capital Securities. Wilmington Trust shall furnish copies of the Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery or such other forms as may be approved from time to time by the Company and the Trust, to all persons requesting such documents from Wilmington Trust. The Company and the Trust will furnish you with copies of such documents at your request. o. Wilmington Trust shall advise orally and promptly thereafter confirm in writing to the Company and the Trust and such other person or persons as the Company and the Trust may request, daily (and more frequently during the week immediately preceding the Expiration Date and if otherwise reasonably requested) up to and including the Expiration Date, the aggregate principal amount of Old Capital Securities which have been tendered pursuant to the terms of the Exchange Offer and the items received by Wilmington Trust pursuant to the Exchange Offer and this Agreement. In addition, Wilmington Trust will also provide, and cooperate in making available to the Company and the Trust, or any such other person or persons upon request (such request if made orally, to be confirmed in writing) made from time to time, such other information in its possession as the Company and the Trust may reasonably request. Such cooperation shall include, without limitation, the granting by Wilmington Trust to the Company and the Trust, and such person or persons as the Company and the Trust may request, access to those persons on Wilmington Trust's staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date the Company and the Trust shall have received adequate information in sufficient detail to enable the Company and the Trust to decide whether to extend the Exchange Offer. Wilmington Trust shall prepare a final list of all persons whose tenders were accepted, the aggregate principal amount of Old Capital Securities tendered, the aggregate principal amount of Old Capital Securities accepted and deliver said list to the Company and the Trust. p. Letters of Transmittal, book-entry confirmations and Notices of Guaranteed Delivery shall be stamped by Wilmington Trust as to the date and the time of receipt thereof and shall be preserved by Wilmington Trust as to the date and the time of receipt thereof and shall be preserved by Wilmington Trust for a period of time at least equal to the period of time 5 Wilmington Trust preserves other records pertaining to the transfer of securities, or one year, whichever is longer, and thereafter shall be delivered by Wilmington Trust to the Company and the Trust. Wilmington Trust shall dispose of unused Letters of Transmittal and other surplus materials by returning them to the Company or the Trust. 2. COMPENSATION. $____ will be payable to Wilmington Trust in its capacity as Exchange Agent; provided, that Wilmington Trust reserves the right to receive reimbursement from the Company for any reasonable out-of-pocket expenses incurred as Exchange Agent in performing the services described herein. 3. INDEMNIFICATION. a. The Company and the Trust hereby agree to protect, defend, indemnify and hold harmless Wilmington Trust against and from any and all costs, losses, liabilities, taxes, expenses (including reasonable counsel fees and disbursements) and claims imposed upon or asserted against Wilmington Trust on account of any action taken or omitted to be taken by Wilmington Trust in connection with its acceptance of or performance of its duties under this Agreement and the documents related thereto as well as the reasonable costs and expenses of defending itself against any claim or liability arising out of or relating to this Agreement and the documents related thereto. This indemnification shall survive the release, discharge, termination and/or satisfaction of this Agreement. Anything in this Agreement to the contrary notwithstanding, neither the Company nor the Trust shall be liable for indemnification or otherwise for any loss, liability, cost or expense to the extent arising out of Wilmington Trust's bad faith, gross negligence or willful misconduct. In no case shall the Company or the Trust be liable under this indemnification agreement with respect to any claim against Wilmington Trust until the Company and the Trust shall be notified by Wilmington Trust, by letter, of the written assertion of a claim against Wilmington Trust or of any other action commenced against Wilmington Trust, promptly after Wilmington Trust shall have received any such written assertion or shall have been served with a summons in connection therewith; provided, that, Wilmington Trust's failure to give such notice shall not excuse the Company or the Trust from its obligations hereunder. The Company and the Trust shall be entitled to participate at their own expense in the defense of any such claim or other action, and, if the Company and the Trust so elect, the Company or the Trust may assume the defense of any pending or threatened action against Wilmington Trust in respect of which indemnification may be sought hereunder with counsel reasonably acceptable to Wilmington Trust; provided that the Company and the Trust shall not be entitled to assume the defense of any such action if the named parties to such action include the Company or the Trust and Wilmington Trust and representation of the parties by the same legal counsel would, in the reasonable opinion of counsel for Wilmington Trust , be inappropriate due to actual or potential conflicting interests between them. In the event that the Company or the Trust shall assume the defense of any such suit with counsel reasonably acceptable to Wilmington Trust, the Company or the Trust, as applicable, shall not be liable for the fees and expenses incurred by Wilmington Trust of any counsel retained by Wilmington Trust subsequent to such assumption of defense by the Company or the Trust. 6 b. The Company agrees to indemnify and hold harmless the Trust from and against any and all losses, claims, damages and liabilities whatsoever, as due from the Trust under this Section. 4. TAX INFORMATION. The Company or the Trust shall arrange to comply with all requirements under the tax laws of the United States, including those relating to missing Tax Identification Numbers, and shall file any appropriate reports with the Internal Revenue Service. The Company and the Trust understand that they may be required, in certain instances, to deduct 31% with respect to interest paid on the New Capital Securities and proceeds from the sale, exchange, redemption or retirement of the New Capital Securities from Holders who have not supplied their correct Taxpayer Identification Number or required certification. Such funds will be turned over to the Internal Revenue Service. 5. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws principles). 6. NOTICES. Any communication or notice provided for hereunder shall be in writing and shall be given (and shall be deemed to have been given upon receipt) by delivery in person, telecopy, or overnight delivery or by registered or certified mail (postage prepaid, return receipt requested) to the applicable party at the addresses indicated below: If to the Company: If to the Trust: 7 If to Wilmington Trust: Corporate Trust Operation Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Telecopier No.: (302) 651-1079 Attention: Jill Rylee With a copy to: Richards, Layton & Finger, P.A. One Rodney Square P.O. Box 551 Wilmington, Delaware 19899 Telecopier No.: (302) 658-6548 Attention: Bernard J. Kelley, Esquire or, as to each party, at such other address as shall be designated by such party in a written notice complying as to delivery with the terms of this Section. 7. PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Without limitation to the foregoing, the parties hereto expressly agree that no holder of Capital Securities shall have any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 8. COUNTERPARTS; SEVERABILITY. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which when so executed shall be deemed an original, and all of such counterparts shall together constitute one and the same agreement. If any term or other provision of this Agreement or the application thereof is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the agreements contained herein is not affected in any manner adverse to any party. Upon such determination that any term or provision or the application thereof is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the agreements contained herein may be performed as originally contemplated to the fullest extent possible. 8 9. CAPTIONS. The descriptive headings contained in this Agreement are included for convenience or reference only and shall not affect in any way the meaning or interpretation of this Agreement. 10. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter hereof. This Agreement may not be amended or modified nor may any provision hereof be waived except in writing signed by each party to be bound thereby. 11. TERMINATION. This Agreement shall terminate upon the earlier of (a) the 90th day following the expiration, withdrawal, or termination of the Exchange Offer, (b) the close of business on the date of actual receipt of written notice by Wilmington Trust from the Company and the Trust stating that this Agreement is terminated, (c) one year following the date of this Agreement, or (d) the time and date on which this Agreement shall be terminated by mutual consent of the parties hereto. Kindly indicate your willingness to act as Exchange Agent and Wilmington Trust's acceptance of the foregoing provisions by signing in the space provided below for that purpose and returning to the Company a copy of this Agreement so signed, whereupon this Agreement and Wilmington Trust's acceptance shall constitute a binding agreement among Wilmington Trust, the Company and the Trust. Accepted and agreed to as of the date first written above: WILMINGTON TRUST COMPANY By:_________________________________ Name: Title: Very truly yours, [NAME] By:_________________________________ Name: Title: [NAME] By:_________________________________ Name: Title: 9 -----END PRIVACY-ENHANCED MESSAGE-----