-----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, ErAWnT2IWV8ESclDhox8/ma0HXDqXYP8OCDT0Ukmk05d98rZFeKE1QvnGFYQ5D6v gzXEFtdUPVwyLftTJcElzw== 0000074931-98-000005.txt : 19980327 0000074931-98-000005.hdr.sgml : 19980327 ACCESSION NUMBER: 0000074931-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORION CAPITAL CORP CENTRAL INDEX KEY: 0000074931 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07801 FILM NUMBER: 98573996 BUSINESS ADDRESS: STREET 1: 600 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 8606746600 MAIL ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 FORMER COMPANY: FORMER CONFORMED NAME: EQUITY FUNDING CORP OF AMERICA DATE OF NAME CHANGE: 19760518 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP OF AMERICA DATE OF NAME CHANGE: 19670330 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP DATE OF NAME CHANGE: 19661024 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 1997 1-7801 ---------------- ORION CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-6069054 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9 Farm Springs Road, Farmington, Connecticut 06032 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 860-674-6600 ------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, $1 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: (Title of Class) 9.125% Senior Notes due September 1, 2002 7.25% Senior Notes due July 15, 2005 8.73% Trust Preferred Capital Securities due January 1, 2037 (issued by a wholly-owned Trust of the Registrant) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock of the registrant held by non-affiliates was $1,445,510,000 as of March 24, 1998. As of March 24, 1998, 27,533,525 Shares of Common Stock, $1.00 par value, of registrant were outstanding exclusive of shares held by registrant and its subsidiaries. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III is incorporated by reference from registrant's definitive proxy statement for its Annual Meeting to be held on May 28, 1998. Registrant intends to file the proxy material, which involves the election of directors, not later than 120 days after the close of its fiscal year. Table of Contents Page Part I Item 1: Business 3 General 3 Regional Operations 10 Special Programs 11 Guaranty National Companies 16 Insurance Industry Characteristics 17 Miscellaneous Operations 29 Item 2: Properties 29 Item 3: Legal Proceedings 29 Item 4: Submission of Matters to a Vote of Security Holders 29 Information concerning Executive Officers of the Company 29 Part II Item 5: Market for Registrant's Common Equity and Related 32 Stockholder Matters Item 6: Selected Financial Data 33 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A: Quantitative and Qualitative Disclosures About Market Risk 47 Item 8: Financial Statements and Supplementary Data 48 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 82 Part III Item 10: Directors and Executive Officers of the Registrant 82 Item 11: Executive Compensation 82 Item 12: Security Ownership of Certain Beneficial Owners and Management 82 Item 13: Certain Relationships and Related Transactions 82 Part IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K 82 Signatures 88 Exhibit Index 91 Forward-Looking Statements All statements made in this Annual Report on Form 10-K that do not reflect historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Orion Capital Corporation and its consolidated subsidiaries to be materially different from any future results, performance or achievements, expressed or implied by the forward-looking statements. Such risks, uncertainties and other factors include, among other things, (i) general economic and business conditions; (ii) interest rate and financial market changes; (iii) competition and the regulatory environment in which we operate (iv) claims frequency; (v) claims severity; (vi) medical cost inflation; (vii) increases in the cost of property repair; (viii) the number of new and renewal policy applications submitted to us; and (ix) other factors over which we have little or no control. Orion Capital 2 Corporation disclaims any obligation to update or to publicly announce the impact of any such factors or revisions to any forward-looking statements to reflect future events or developments. Some of these factors are discussed further in this report in Part I, Item 1: Business, and Part II, Item 7: Managements' Discussion and Analysis of Financial Condition and Results of Operations. PART I ITEM 1. BUSINESS GENERAL Our Operations Orion Capital Corporation is an insurance holding company. We have the ability, through our seventeen wholly-owned insurance subsidiaries and investments in other insurance companies, to write almost all types of property and casualty insurance nation-wide and throughout Canada. However, our operations are highly specialized. We currently only underwrite and sell the following specialized insurance products and services: - workers compensation products and related services primarily through EBI Companies; - professional liability coverage for architects, engineers, environmental consultants, lawyers and accountants through DPIC Companies; - special property and casualty insurance programs tailored to the risks associated with selected types of businesses, including commercial nonstandard automobile insurance, through Orion Specialty; - personal nonstandard automobile insurance through Guaranty National; and - underwriting management of insurance pools focusing on ocean cargo, inland marine and related property coverage through Wm. H. McGee. As of December 1997, we own 100% of Guaranty National Corporation. Guaranty National and its subsidiaries sell nonstandard automobile insurance, and specialty property and casualty insurance coverages which are not readily available in traditional insurance markets. Prior to December 1997, we owned slightly more than 80% of Guaranty National, but during that month we brought all the remaining shares of Guaranty National we did not own at $36.00 per share in a public tender offer. The total cost of the new shares was $116,082,000, of which $104,429,000 was paid in cash. After completion of the acquisition of Guaranty National, in January 1998 the Company shifted Guaranty National's commercial lines to a newly formed unit, Orion Specialty. At that same time, we also shifted the company's program business specialist unit, Connecticut Specialty Group, to the new unit and began the integration of the two operations. This action transformed Guaranty National into a personal lines only company. In November 1996, we exited the assumed reinsurance business when we sold the ongoing operations of our subsidiary, Security Reinsurance Company. The purchaser was Hartford Fire Insurance Company acting for HartRe, the Hartford Insurance Group's reinsurance operation. As a result of the sale, Security Reinsurance Company discontinued actively writing business and became an inactive company. 3 We have also invested in a publicly traded insurance holding company called Intercargo Corporation. We own 24.7% of Intercargo. Intercargo's subsidiaries are insurance companies that specialize in international trade and transportation coverages. Intercargo operates as an independent company and we select one member of its seven-member board of directors. We have agreed with Intercargo that, without its approval, until June 30, 2000, we will not increase our ownership above 35%, and until June 30, 2005, we will not increase our ownership above 49%. We own insurance companies, as well as brokerage companies and insurance management and service companies. Those companies have licenses to transact business nationwide and in all Canadian provinces. In general we do not sell our insurance products directly to our policyholders. We obtain substantially all our business through independent insurance agents and brokers. We have approximately 3,600 employees. Substantially all of our employees work in our insurance or insurance-related operations. The Company is not a party to any collective bargaining agreements and believes its relationship with its employees to be good. Orion Capital Corporation was incorporated in the State of Delaware in 1960, and its wholly-owned insurance subsidiaries are incorporated in the States of California, Connecticut, Colorado, Oklahoma, South Carolina, Texas and Wisconsin. Our principal executive offices are located 9 Farm Springs Road, Farmington, Connecticut 06032 and the telephone numbers are (860) 674-6600 and (800) 243-7060. Orion Capital Corporation - Capital Structure We have simplified our debt and capital structure over the past several years. This simplified structure has permitted us to take advantage of lower interest rates, reduce the cost of capital and eliminate sinking fund payments until the maturity of our senior notes. In June 1997, to increase the trading liquidity and affordability of our common stock, we declared a 2-for-1 stock split. At year end, the only securities that Orion Capital Corporation had outstanding were: - 27,605,544 shares of Common Stock; - $110,000,000 face amount of 9.125% Senior Notes, due September 1, 2002; - $100,000,000 face amount of 7.25% Senior Notes, due July 15, 2005; and - $125,000,000 of 8.73% Trust Preferred Capital Securities, due January 1, 2037. On January 13, 1997, Orion Capital Corporation issued $125,000,000 of 8.73% Junior Subordinated Deferrable Interest Debentures, due January 1, 2037, to Orion Capital Trust I, a Delaware statutory business trust we sponsored. The Trust simultaneously sold, in a private placement, $125,000,000 of the Trust's 8.73% Preferred Capital Securities, which have substantially the same terms as the 8.73% Debentures. The proceeds from the sale of the securities were used, in part, to purchase Guaranty National in December 1997. The securities were registered with the Securities and Exchange Commission in April, 1997. On February 2, 1998, similar to the prior year's issuance of trust preferred securities, Orion Capital Corporation issued $125,000,000 of 7.701% Junior Subordinated Deferrable Interest Debentures, due April 15, 2028, to Orion Capital Trust II, a Delaware statutory business trust we 4 sponsored. Trust II then simultaneously sold $125,000,000 of the Trust's 7.701% Preferred Capital Securities, which have substantially the same terms as the 7.701% Debentures, in a private placement. Approximately $100,000,000 of the net proceeds from the sale were used to retire the bank indebtedness of Guaranty National. We agreed to register the 7.701% Preferred Capital Securities under the Securities Act of 1933, and will file a registration statement with the Securities and Exchange Commission. While the two trust preferred issuances have complicated structures, they give us all the advantages of preferred stock with the tax deductibility feature of debt. The securities provide a low after-tax cost of financing for our business growth. See Notes H and R to the consolidated Financial Statements. Segment Reporting The Securities and Exchange Commission requires registered companies to report their results in segments by type of business, geographic distribution or other meaningful breakdown. Our insurance operations are divided into three insurance segments. In addition, the miscellaneous income and expenses of our parent company are reported as a fourth segment. The four segments are as follows: I. Regional Operations - this segment includes the workers compensation insurance products and services sold by the EBI Companies. II. Special Programs - this segment includes five operations: 1. DPIC Companies, which markets our professional liability insurance; 2. Orion Specialty (formerly known as Connecticut Specialty through December 31, 1997) which writes our specialty insurance programs and our commercial nonstandard automobile insurance; 3. Wm. H. McGee & Co., Inc., our underwriting management company that specializes in ocean marine, inland marine and related property insurance; 4. our 24.7% interest in Intercargo Corporation, which sells insurance coverages for international trade; and 5. SecurityRe - the run-off operations of our assumed reinsurance business. III. Guaranty National Companies - which specializes primarily in personal nonstandard automobile insurance and other property insurance. IV. Other - miscellaneous income and expenses of the parent company. 5 Net Earnings Our net earnings and per share amounts for the past three years, were as follows: 1997 1996 1995 Net earnings............ $115,806,000 $86,631,000 $67,622,000 Net earnings per basic share................. $ 4.24 $ 3.16 $ 2.41 Net earnings per diluted share................. $ 4.15 $ 3.12 $ 2.38 Earnings per share has been calculated based upon a new accounting standard, SFAS No. 128 "Earnings per Share." Diluted earnings per share is the same as per share amounts previously reported. Additionally, all shares and per share amounts have been restated for the 2-for-1 stock split issued on July 7, 1997. The above basic per share figures were based on weighted average common shares outstanding of 27,333,000 in 1997, 27,400,000 in 1996 and 28,110,000 in 1995. The above diluted per share figures were based on weighted average common shares and diluted equivalent outstanding of 27,900,000 in 1997, 27,788,000 in 1996 and 28,374,000 in 1995. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations." In the following pages of this report, Orion Capital Corporation is referred to as "Orion" or the "parent corporation," while Orion and its consolidated subsidiaries are collectively referred to as the "Company." The following tables present condensed financial information showing revenues, pre-tax earnings (loss) and other financial data and ratios of the four segments for each of the three years in the period ended December 31, 1997. Identifiable assets, by segment, are included in Note O to the Consolidated Financial Statements, "Industry Segment Information." 6
Year Ended December 31, ------------------------------ 1997 1996 1995 ---- ---- ---- (000s omitted) REVENUES: Regional Operations - Premiums earned ................... $ 362,127 $ 356,809 $322,098 Net investment income ............. 41,787 38,226 35,750 Realized investment gains ......... 13,776 6,804 4,636 Other income ...................... 338 176 188 ---------- ---------- -------- Total Regional Operations........ 418,028 402,015 362,672 ---------- ---------- -------- Special Programs - Premiums earned ................... 448,923 462,295 426,905 Net investment income ............. 68,700 62,646 59,584 Realized investment gains ......... 22,222 11,066 7,781 Other income ...................... 19,726 22,658 13,564 ---------- ---------- -------- Total Special Programs .......... 559,571 558,665 507,834 ---------- ---------- -------- Guaranty National Companies - Premiums earned ................... 546,630 481,648 - Net investment income ............. 43,613 39,439 - Realized investment gains ......... 11,984 8,455 - ---------- ---------- -------- Total Guaranty National Companies........................ 602,227 529,542 - ---------- ---------- -------- Other ............................... 10,709 3,227 3,774 ---------- ---------- -------- $1,590,535 $1,493,449 $874,280 ========== ========== ======== EARNINGS (LOSS): Regional Operations ................. $ 86,807 $ 68,371 $ 57,830 Special Programs .................... 49,700 44,052 43,241 Guaranty National Companies.......... 56,249 35,727 4,466 ---------- ---------- -------- Total property and casualty operations......................... 192,756 148,150 105,537 Other................................ (16,576) (20,794) (17,502) ---------- ---------- -------- 176,180 127,356 88,035 Federal income taxes................. (46,481) (32,033) (20,413) Minority interest expense............ (13,893) (8,692) - ---------- ---------- -------- Net earnings........................... $ 115,806 $ 86,631 $ 67,622 ========== ========== ======== 7 The following table sets forth, on a consolidated basis, certain insurance ratios for the Company: Year Ended December 31, -------------------------------- 1997 1996 1995 ---- ---- ---- Loss and loss adjustment expenses to premiums earned ....................... 66.7% 67.9% 68.4% Policy acquisition and other insurance expenses to premiums earned ........... 31.2 30.1 29.0 ----- ----- ----- Total before policyholders' dividends.. 97.9 98.0 97.4 Policyholders' dividends to premiums earned ................................ 1.8 1.8 2.9 ----- ----- ----- Combined ratio......................... 99.7% 99.8% 100.3% ===== ===== =====
One or more of Orion's insurance subsidiaries are licensed to transact business in each of the 50 states of the United States, the District of Columbia, Puerto Rico and all provinces of Canada. In 1997, approximately 14.8% of the Company's consolidated direct premiums written was generated in California, 7.7% in Pennsylvania, 6.4% in New York, 5.6% in Texas and 5.5% in Florida. The large increase in California premiums in 1997 and 1996 is from nonstandard private passenger automobile coverages written by Guaranty National. Also significant in California is architects and engineers professional liability insurance. The primary line of business in Pennsylvania and Texas is workers compensation. New York's primary line is ocean and inland marine business written by McGee. The primary lines of business in Florida are private passenger and commercial automobile, and commercial multiple peril. The following table shows the geographical distribution of direct premiums written by the Company in 1997, 1996 and 1995, including Guaranty National's premiums for 1997 and 1996:
Geographical Distribution of Direct Premiums Written Year Ended December 31, ------------------------------------------------------- State 1997 Pct. 1996 Pct. 1995 Pct. - ----- ---- ---- ---- ---- ---- ---- (000s omitted - except for percentages) California ........ $ 226,028 14.8% $ 171,962 12.0% $ 45,308 5.7% Pennsylvania ...... 116,745 7.7 130,786 9.1 110,993 13.9 New York .......... 96,754 6.4 106,090 7.4 37,667 4.7 Texas ............. 85,250 5.6 84,939 5.9 62,426 7.8 Florida............ 84,149 5.5 52,307 3.7 36,226 4.5 All others (1) .... 912,389 60.0 885,366 61.9 506,664 63.4 ---------- ----- ---------- ----- -------- ----- $1,521,315 100.0% $1,431,450 100.0% $799,284 100.0% ========== ===== ========== ===== ======== ===== (1) In 1997, no other single state or country accounts for more than 5% of total direct premiums written.
8 For 1997, 27.8% of the Company's net premiums written was derived from workers compensation insurance written primarily in twenty-four states; 27.3% came from private passenger automobile insurance; 18.3% related to liability insurance other than automobile, primarily professional liability insurance; 11.4% came from commercial automobile insurance and 5.1% was from marine insurance coverages. No other line of business contributed in excess of 5% to 1997 net premiums written. The following table shows net premiums written for the Company, including Guaranty National for 1997 and 1996, by major statutory lines of business:
Net Premiums Written Year Ended December 31, ------------------------------------------------------- 1997 Pct. 1996 Pct. 1995 Pct. ---- ---- ---- ---- ---- ---- (000s omitted - except for percentages) Workers compensation .. $ 380,789 27.8% $ 383,615 28.8% $355,691 47.0% Private passenger automobile .......... 373,076 27.3 307,533 23.0 33,161 4.4 Liability other than automobile .......... 250,013 18.3 249,425 18.7 210,679 27.8 Commercial automobile . 155,646 11.4 147,287 11.0 64,874 8.6 Marine ................ 69,125 5.1 67,587 5.1 49,152 6.5 Commercial multiple peril ............... 65,796 4.8 46,401 3.5 5,654 .7 All others ............ 72,623 5.3 132,273 9.9 38,225 5.0 ---------- ----- ---------- ----- -------- ----- $1,367,068 100.0% $1,334,121 100.0% $757,436 100.0% ========== ===== ========== ===== ======== =====
9 REGIONAL OPERATIONS The Regional Operations segment is mainly comprised of the EBI Companies ("EBI"), which provides workers compensation insurance as well as alternative workers compensation services and related products. Through the addition of alternative products and pricing approaches, entry into new states and continued emphasis on its value-added services, EBI expects to further expand its presence in the workers compensation market. EBI is a specialist in workers compensation on a regional and national basis. EBI continues to expand its nationwide presence in this market by bringing its distinctive value-added approach to new states and a new customer focus in the multi-state/national accounts segment. EBI operates on a nationwide basis through 44 offices located in 24 states and plans further expansion into new states in the coming year. It ranks among the 20 largest writers of workers compensation insurance in the United States based on net premiums written and has the lowest three year average loss ratio within this group. Its headquarters is in Itasca, Illinois, a suburb of Chicago. Information about EBI is available on the Internet at http://www.ebico.com. EBI's competitive edge stems from its distinctive service-oriented approach. EBI offices are staffed with underwriters, marketing representatives, claim representatives, accident prevention consultants, lawyers, medical and rehabilitation experts and other technical and administrative personnel who work in a multidisciplinary team environment. The team approach starts with the underwriting process. EBI's method of underwriting is not merely to evaluate the risk, but also to assess and reduce the likelihood of injury through accident prevention services. Accident prevention and claims management personnel, as well as underwriters, have direct responsibility for account selection and in underwriting each client. Zero Accident Culture R - ----------------------- The EBI team then works directly with the client and its employees to identify the factors that affect their insurance costs, and to provide services designed to reduce the frequency and severity of injuries. EBI's approach to accident prevention requires insureds to establish and maintain a Zero Accident Culture R, ("ZAC") designed to keep the work environment free of accidents. EBI manages worker injuries through its team of claims personnel and rehabilitation nurses to minimize the employee's disability and related medical costs. With a desire to influence and impact the work place environment to reduce losses and long-range insurance costs, EBI's marketing targets businesses where its ZAC philosophy and service-oriented approach can have the greatest impact. EBI has concentrated its efforts on an ever-broadening array of businesses in selected industries, including manufacturers, nursing homes, hospitals, hotels, and school districts. EBI's expansion in recent years has given it a much broader base of operations. Today, EBI is recognized as a national workers compensation niche insurance carrier. Continued Expansion - ------------------- As EBI has continued to grow, it has refined its agency force by strengthening relationships with large, regional and national insurance agents and brokers. Approximately 1,000 independent agents and brokers produce all of the direct business written in 1997 by EBI. These agents and brokers receive commissions on the sale of insurance. No single independent agent or broker contributed more than 10% of this segment's net written premiums. EBI has recorded profitable underwriting results for the past five years which has led it to continue its plan of geographic expansion. In 1997, it added five new branch offices and expanded into three new states. It intends to expand into five new states in 1998 utilizing a multi-disciplinary team approach to select the states in which it operates. EBI's expansion strategy has been, in part, to anticipate reform initiatives in various states and establish a foothold in such new markets before reform benefits have been realized. Expansion opportunities now also include multi-state/national clients. EBI has been able to gain a strong reputation for service. 10 Alternative workers compensation products and services are designed to capitalize on EBI's expertise in traditional workers compensation. EBI applies those skills to writing workers compensation for large accounts and clients desiring large deductibles. Among the alternative products EBI offers is a workers compensation excess coverage and an accompanying self-insured administration program and an integrated employee benefit program. What is Workers Compensation Insurance ? - ---------------------------------------- A workers compensation policy obligates an insurance company to pay all disability, medical, and other benefits for injured workers as may be required by applicable state laws. The insurance policies currently written by EBI provide workers compensation coverage with limits of liability set by the provisions of state workers compensation laws. The benefits provided by these laws vary with the nature and severity of the injury or disease, as well as with the wage level, occupation, and age of the employee. Employers' liability coverage is also provided to employers who may be subject to claims for damages (not workers compensation benefits) due to an injury to a worker. The amount of workers compensation premiums earned is directly dependent upon wage levels as well as the number of employees on the payroll of each policyholder and the job classifications of those employees. Premium rates are revised annually in most states in which EBI does business. EBI uses the rates and rating plans filed in the states where it does business. See Industry Characteristics - Rates." SPECIAL PROGRAMS The Company's Special Programs segment is made up of five operations, all of which are concentrated in highly specialized lines of business in the property and casualty insurance field. The components are: - DPIC Companies, - Orion Specialty (formerly Connecticut Specialty through December 31, 1997), - Wm. H. McGee & Co., Inc., - the Company's 24.7% interest in Intercargo Corporation, and - the run-off operations of SecurityRe. DPIC ---- DPIC Companies ("DPIC") writes professional liability insurance for its niche markets: architects, engineers, environmental consultants, accountants and lawyers. It is the second largest underwriter of architect, engineer and environmental consultants in North America. DPIC operates in offices throughout the United States and Canada. It is headquartered in Monterey, California. Information about DPIC can be found on the Internet at http://www.dpic.com. New Organizational Structure - ---------------------------- DPIC's operations are organized to be directly aligned with its various client markets, both geographically and by profession. Since its inception, DPIC's claims operations have been set up in strategic geographical locations. In July, 1997, DPIC's underwriting operations were decentralized, linking up with its major regional claims offices to serve clients and agency representatives more efficiently and effectively. DPIC underwriting/claims offices are in New York City/Clifton, NJ; Norcross, GA; Itasca, IL; Denver, CO and Toronto, ONT; DPIC claims offices can also be found in San Francisco, CA; Newport Beach, CA, and Montreal, Quebec. Professional liability insurance covers liability arising out of alleged negligent performance of professional services. Underwriting and claims management require a high level of knowledge and expertise. To limit risk exposure, DPIC's specialized underwriters evaluate a great number of factors, including the experience of an applicant firm's professional personnel, the loss history of the firm, the employees covered, the type of work performed and the firm's utilization of loss prevention measures. DPIC actively rewards 11 firms that participate in loss prevention education, risk management and business practice improvement programs. It offers a series of client focused professional liability education programs and provides financial incentives for resolving disputes through mediation. The professional liability coverage offered by DPIC is on a "claims-made" policy form, a form which generally insures only those claims reported by the insured during the policy term. With some exceptions in Canada, DPIC's policies cap defense costs, primarily legal fees within the insured's stated policy limits. This has resulted in a favorable impact in controlling legal costs. DPIC offers general liability insurance to architect, engineer and environmental consulting firms that, in most cases, maintain their professional liability coverage with DPIC. Coverage is usually written on an occurrence basis, the industry standard, although some claims-made policies exist when warranted by DPIC's underwriting. ADR Emphasis - ------------ DPIC's specialized claims staff stresses early intervention in disputes to avoid litigation whenever mitigated loss is possible. DPIC has pioneered the use of alternative dispute resolution ("ADR"), mediation in particular, to resolve disputes promptly. Because of mediation's proven success in reducing the costs of claims-time, money, relationships - over 25% of DPIC's claim files are resolved through this technique. Additionally, DPIC has instituted a program with a selected group of panel counsel to investigate alternative fee structures and then channel more work to this group. As a result, there has been a favorable impact on DPIC's operating results. DPIC markets its products through 55 specialized agencies, each highly knowledgeable about loss prevention and risk management for the professions served. The agents are active in continuing education programs, sponsored by DPIC and their professional association Professional Liability Agents Network (PLAN) and participate extensively in their clients' professional societies. Exclusive territory assignments and extensive support from DPIC lead to an uncommon commitment to meet the insurance and loss prevention needs of the professions served. Orion Specialty - A New Unit - ---------------------------- Upon completion of the December 1997 merger of Guaranty National into a wholly-owned subsidiary of the Company, the Company formed a new business unit in January 1998, Orion Specialty Group, Inc. ("Orion Specialty"). Orion Specialty is the result of the consolidation of Connecticut Specialty Insurance Group, Inc. ("Connecticut Specialty"), the Company's program business specialist unit, and the commercial lines of Guaranty National. Orion Specialty focuses exclusively on specialty commercial insurance, utilizing three distinct underwriting divisions to allow its business partners multiple options for placement of their business. This strategic initiative by Orion Specialty creates a national commercial company capable of writing and servicing virtually every line of business in every state. Through the integration of Connecticut Specialty and Guaranty National's commercial lines, Orion Specialty gains additional capabilities and efficiencies that enable it to add more value to specialty commercial market producers and their customers. Furthermore, the integration provides Orion Specialty the opportunity for growth through leveraging its existing agency relationships to expand the geographic and coverage scope of its products. Orion Specialty maintains operations in Farmington, Connecticut and Englewood, Colorado. Contracts and Brokerage Division - -------------------------------- The Contracts and Brokerage Division of Orion Specialty serves, through approximately 70 wholesale agents, the excess and surplus lines market for a wide range of standard and nonstandard product lines and classes, including commercial liability, property, transportation and umbrella risks. While in the past the emphasis of this division's business has been commercial automobile, it is moving rapidly toward a more balanced book. The non- 12 standard commercial automobile risks are generally comprised of insurance for local and intermediate trucking, such as sand and gravel haulers; garages, such as used car dealers and automobile repair facilities; and public vehicles, such as buses and limousines. In addition to the automobile line, the Contracts and Brokerage Division offers general liability coverage for premises liability protection needed by business in higher risk classes and small artisan contractors. This division writes property coverages on risks such as vacant buildings, bars, restaurants and motor-truck cargo. It also writes commercial umbrella and excess coverage across a broad spectrum of business classes, and standard commercial package policies for small businesses in small cities and rural areas. In addition to writing through general agents, the Contracts and Brokerage Division is also an "open market" for submissions from other producers. Program Division - ---------------- The Program Division of Orion Specialty develops customized programs of insurance for affinity groups. It operates through general agents and program administrators. This division administers the operation of approximately 28 specialized programs in industries as diverse as energy, emergency services, professional services and transportation. Its lines of business include general liability, property, contract surety, directors and officers liability, professional liability, commercial auto, workers compensation and umbrella coverages. The Program Division defines a "program" as the writing of risks in a class of business not widely pursued, utilizing coverage, pricing methodologies and risk management techniques tailored to the needs of the customer. A key aspect to the business of the Program Division is the strategic alliances it has formed with what it believes are knowledgeable and well respected agents in the specialty insurance field. Each of its general agents has superior knowledge of its markets and has earned customer loyalty by providing quality services and support. To compliment the services and support provided by its producers, the Program Division adds value to its products with services ranging from loss control expertise to administrative, actuarial and legal support, from forms and filing services to risk management analysis and reports, each in a mix that best fits the particular program or customer. Alternative Risk Transfer Insurance Strategies - ---------------------------------------------- Orion Specialty's third division, ARTIS (Alternative Risk Transfer Insurance Strategies), offers an alternative market approach, allowing producers and/or their clients to participate in the underwriting risk of their insurance programs. ARTIS custom designs its alternative programs utilizing traditional captives, rent-a-captives, joint equity captives, self- insured retentions, large deductibles, portfolio transfers and finite reinsurance. While workers compensation is the largest component of its business, Artis also offers coverage in general liability, automobile liability, property, inland marine, surety, and professional liability lines of business. Orion Specialty strives to provide its customers with services ranging from loss control expertise to administrative, actuarial and legal support and from forms and filing services to risk management analysis reports, each in a mix that best fits a particular program or customer. Orion Specialty utilizes a profit-sharing approach in writing its special programs whereby a portion of the agent's compensation is tied to the 13 profitability of the program. Orion Specialty closely monitors its programs throughout their existence to ensure that profit potential is maximized. The specialty nature of Orion Specialty's business provides some insulation against the competitive pressures of the overall insurance market. Enhanced automation designed for each general agent promotes efficiency and effectiveness for both the agent and Orion Specialty. This relationship with the general agent creates a competitive advantage in the insurance marketplace and also directly impacts the cost of entry by competitors. Orion Specialty is aggressively streamlining its processes and upgrading its technology in order to better serve its customer base and expand in its strongest programs. McGee - ----- In 1995, the Company acquired Wm. H. McGee & Co., Inc. ("McGee"), a leading ocean cargo, inland marine and commercial property insurance underwriter. McGee has been in business for over 110 years. Security Insurance Company of Hartford ("Security"), a subsidiary of the Company, has been represented by McGee since 1894. McGee provides all related services in connection with this business, including policy issuance, claim settlement, accounting and placement of reinsurance. Operations are conducted in the United States, through its headquarters in New York and twenty branch offices throughout the country. Activities in Canada, Bermuda and Puerto Rico are managed by McGee's subsidiaries located in those jurisdictions and they perform substantially similar services. In the United States, McGee ranks among the top 10 writers of ocean cargo insurance and among the 20 largest writers of inland marine insurance. Ocean cargo insurance covers cargo against the perils of the sea and is usually broadened to include loss or damage to the goods while in transit until they arrive at the destination specified in the policy. Inland marine insurance covers property while being transported, property of a movable nature and property instrumental to transportation or communication. Some common examples of property covered by inland marine insurance are cargo being shipped by train, truck or airplane; mobile equipment; bridges and tunnels; radio and television transmitting equipment; personal jewelry and furs; art collections; livestock and medical equipment. Each insurer represented by McGee participates in either the United States or Canadian Inter-Office Reinsurance Agreement (the "McGee Pools"). It is through these underwriting pooling agreements that premiums and risk are allocated among the various participating insurers. The insurers participating in the McGee Pools and the percentage allocated to each insurer is reviewed and revised annually. Security is a member and clearing company in both the United States and Canadian pools. For the year ending December 31, 1997, McGee underwrote approximately $200 million of premiums on behalf of the insurers participating in the McGee Pools. The Company's participation in the United States pool was 52%, 37% and 15% in 1997, 1996 and 1995, respectively. Participation in the Canadian pool was approximately 61% in 1997, 49% in 1996 and 15% in 1995. The Company will increase its participation in the McGee Pools during 1998 to approximately 72% in both the United States and Canadian pools. 14 In addition to its long standing prominence in the ocean and inland marine markets, McGee provides innovative coverages that respond to the often distinctive exposures of the property being insured. McGee's strategy is to identify and serve those clients which require strong technical problem solving and risk management support. McGee's strong underwriting and claim capabilities allow it to tackle unusual risks, such as armored car and jewelry store chains, bringing a highly specialized resource to those markets. McGee, as an underwriting manager, does not directly solicit business from insureds but instead relies on a production force consisting of insurance brokers and agents appointed to represent the portion of the insurers' business which McGee manages. McGee is compensated for its services by the insurers it represents based upon a combination of factors, including a percentage of the premiums written, the profitability of the business written and the management services provided. Intercargo Corporation - ---------------------- The Special Programs segment also includes the Company's 24.7% interest in Intercargo Corporation ("Intercargo"). Intercargo is an insurance holding company whose subsidiaries specialize in international trade and transportation coverages. Its principal product lines are U.S. customs bonds and marine cargo insurance sold to importers and exporters through customs brokers and other service firms engaged in the international shipment of goods. Intercargo operates as an independent entity and a pro rata share of any profit or loss is reflected in the Company's consolidated financial statements, based on the Company's equity interest in Intercargo. SecurityRe Companies - -------------------- In November 1996, the Company exited the assumed reinsurance business and sold for cash the ongoing business of its subsidiary, Security Reinsurance Company ("SecurityRe"). SecurityRe primarily underwrote a diverse book of casualty business, using reinsurance intermediaries, with exposures largely concentrated in the domestic market. SecurityRe's premiums in recent years had been principally concentrated in the treaty segment reinsuring small to medium-sized regional and specialty companies in various lines of business (primarily automobile and commercial coverages). Facultative coverage was provided on an excess of loss basis for casualty and property exposures. Generally, the largest net amount insured by SecurityRe was $1,000,000. As a result of the sale, SecurityRe discontinued writing business. The Company kept the reserves with respect to the outstanding business and will continue to manage the settlement of claims arising out of that business. 15 GUARANTY NATIONAL COMPANIES Guaranty National Companies ("Guaranty National") writes nonstandard personal automobile insurance, surplus lines insurance, and specialty property and casualty coverages which are not readily available in traditional insurance markets. Information about Guaranty National Companies can be found on the Internet at http://www.gnic.com. On December 10, 1997, the Company purchased the remaining 19.7% or 2,970,000 shares of Guaranty National common stock that it did not already own for $36 per share in cash. Immediately following that purchase, Guaranty National was merged into a wholly-owned subsidiary of the Company and delisted as a publicly traded company on the New York Stock Exchange. In January 1998, the Company shifted Guaranty National's commercial insurance operations to its new unit, Orion Specialty. After that transfer, Guaranty National became substantially only a personal nonstandard automobile insurance carrier. Approximately 84% of Guaranty National's net premiums written during 1997 was derived from writing personal and commercial automobile insurance. Other types of insurance products which were sold by Guaranty National include general liability, standard multi-peril, umbrella, excess insurance and property. Guaranty National has historically focused their operations on the nonstandard markets. Nonstandard risks require specialized underwriting, claims management and other skills and experience. Approximately 7 percent of the Guaranty National net premiums written consists of standard commercial coverage. Nonstandard risks generally involve a potential for poor claims experience because of increased risk exposure. Premium levels for nonstandard risks are substantially higher than for preferred or standard risks. In personal lines, Guaranty National's loss exposure is limited by the fact that its insureds typically purchase low liability limits, often at a state's statutory minimum. The nonstandard insurance industry is also characterized by the insurer's ability to minimize its exposure to unprofitable business by effecting timely changes in premium rates and policy terms in response to changing loss and other experiences. Guaranty National's personal lines principally writes nonstandard automobile insurance, insurance (i) for drivers usually unacceptable to other insurers for, among other reasons, adverse driving or accident history, age or vehicle type, or (ii) for customers who can only afford a low down payment or are transitioning from an uninsured to an insured status. This insurance coverage is sold primarily in the State of California and the Rocky Mountain and Pacific Northwest regions and the Southeastern United States. In general, this insurance is sold through approximately 8,600 independent agents located in 28 states. Overall, Guaranty National seeks to distinguish itself from its personal lines competitors by providing a superior, highly automated and responsive level of service to its agents and insureds. In addition to high quality service, the Guaranty National personal lines business unit provides ease of payment for insureds through low monthly installments. In underwriting nonstandard automobile risks, Guaranty National sets premium rates which are substantially higher than standard rates. Policy coverage periods are generally one or six months on personal automobile policies. The business of Guaranty National is not materially dependent upon any single customer, group of customers, or group of agents. Customer service and policy processing operations are a critical part of the personal lines business unit. Operation centers are currently located in Freeport, Illinois; Denver, Colorado; Salt Lake City, Utah; and Salem, Oregon. 16 Multiple locations in multiple time zones contribute to efficient volume routing, as well as providing a convenient disaster recovery mechanism. In the customer service area, use of the Interactive Voice Response system permits efficient, automated answering of routine agent and customer questions. Colorado Casualty Insurance Company ("CCIC"), an insurance subsidiary of Guaranty National, writes primarily standard commercial lines business. CCIC writes small, standard commercial package policies. The standard commercial business is primarily written in the Rocky Mountain region, but has recently expanded to states mainly in the southeast region of the United States. CCIC has been successful in serving a niche market of approximately 600 small to medium retail agents. In addition, CCIC utilizes seven general agents as branch offices. New Acquisitions - ----------------- On December 16, 1997, Guaranty National purchased Unisun Insurance Company ("Unisun") from Michigan Mutual Insurance Company for $26,000,000 in cash and incurred acquisition expenses of $170,000. Unisun is the largest automobile insurance facility carrier in South Carolina. Total net premiums written by Unisun for 1997 were approximately $20,000,000. In November 1997, Guaranty National entered in an agreement to acquire the nonstandard private passenger automobile insurance business of North Carolina-based Strickland Insurance Group ("Strickland") for $42,600,000 in cash. Pursuant to the agreement, Guaranty National made a nonrefundable purchase price deposit of $2,000,000 to Strickland and incurred acquisition costs of $94,000 as of December 31, 1997. In 1997, Strickland had total private passenger automobile net premiums written of approximately $46,000,000. The acquisition is expected to be completed in the second quarter of 1998, subject to regulatory approval. INSURANCE INDUSTRY CHARACTERISTICS Loss Reserves - ------------- The Company establishes reserve liabilities for reported losses, incurred but not reported ("IBNR") losses, and claim settlement and administration expenses. Reserves for reported losses and loss adjustment expenses are estimates of the ultimate costs of claims reported to the Company but not settled. IBNR loss reserves are estimates for both unreported claims and additional development of previously reported claims. Reserves are based on the circumstances surrounding each claim, the Company's historical experience with losses arising from claims not yet reported and the particular experience associated with the line of business and type of risk involved. Consideration is also given to expected changes in costs for property, repairs to property, benefit changes for injured workers, medical care, and litigation and other legal costs. The Company regularly monitors the factors affecting its reserves to better control claim costs, which also provides a base of information to reevaluate reserve estimates. Reserve estimates are regularly reviewed and adjusted to consider all pertinent information as it becomes available. Such reevaluation is a normal, recurring activity that is inherent in the process of loss reserve estimation. Several methods are used for reviewing reserves, including paid and incurred loss development, and incurred claim counts and average claim costs. These methods can be subject to variability in reserve estimation for a number of reasons, including improved claims department operating procedures, accelerated claims settlement due to the use of alternate dispute resolution, and expedited resolution of civil suits in litigation. Other factors that are 17 analyzed and are considered in the determination of loss reserves include:(i) claim emergence and settlement patterns and changes in these patterns from year to year, (ii) trends in the frequency and severity of paid and incurred losses, (iii) changes in policy limits and changes in reinsurance coverages, (iv) changes in the mix and classes of business, and (v) changes in claims handling procedures. Management revises its reserve estimates as appropriate and believes that the loss and loss adjustment expense reserves of the Company's insurance subsidiaries make reasonable and sufficient provision for the ultimate cost of all losses and claims incurred. However, no assurances can be given that reserve development will not occur in the future. Accident Year Loss and Loss Adjustment Expense Analysis - ------------------------------------------------------- Accident year is a period of exposure that is used to accumulate loss and loss adjustment experience by the year in which an incident giving rise to a claim occurs. Accident year information is used for loss reserving and in establishing premium rates. The accident year loss experience is updated in subsequent calendar years until all losses and loss adjustment expenses related to that given accident year have been settled. Accident year loss ratio relates losses associated with incidents giving rise to claims occurring within a given calendar year to premiums earned during the same calendar year. Presented below are loss reserve development tables for the five years ended December 31, 1997 prepared in accident year format.
For each accident year, the following table presents premiums earned, and the provision for loss and loss adjustment expenses as a percentage of premiums earned (the "loss ratios") as established in the initial accident year and cumulative as of December 31, 1997: Loss and Loss Adjustment Expense Development ------------------------------- Accident Premiums Year Earned Initial Cumulative - -------- -------- ------- ---------- (000s omitted) 1993 $ 617,404 70.4% 68.5% 1994 691,223 69.6 69.0 1995 749,003 66.8 67.3 1996 1,300,752 67.2 67.7 1997 1,357,680 66.0 - The table set forth below indicates premiums earned, the cumulative loss ratio for each accident year, the ratio of policy acquisition costs and other insurance expenses to premiums earned (the "expense ratio"), the ratio of policyholders' dividends to premiums earned (the "policyholders' dividend ratio") and the total of the ratios (the "combined ratio") at December 31, 1997: Accident Premiums Loss Expense Policyholders' Combined Year Earned Ratio Ratio Dividend Ratio Ratio - -------- -------- ----- ------- -------------- -------- (000s omitted) 1993 $ 617,404 68.5% 26.8% 2.0% 97.3% 1994 691,223 69.0 27.0 2.1 98.1 1995 749,003 67.3 29.0 2.9 99.2 1996 1,300,752 67.7 30.1 1.8 99.6 1997 1,357,680 66.0 31.2 1.8 99.0 18 Calendar Year Loss Reserve Analysis - ----------------------------------- An analysis of the Company's calendar year loss and loss adjustment expense reserves, net of reinsurance, is presented in the following table. The 1996 current year provision includes favorable loss development for Guaranty National of $995,000 and 1996 current year payments include $144,775,000 attributable to periods prior to the consolidation of Guaranty National's results in the Company's financial statements. Year Ended December 31, ------------------------------------ 1997 1996 1995 ---- ---- ---- (000s omitted) Beginning of year ..................... $1,368,420 $ 993,978 $ 891,542 Effect of acquisitions................. 8,996 286,339 - ---------- ---------- ---------- 1,377,416 1,280,317 891,542 ---------- ---------- ---------- Provision: Current year ........................ 896,226 874,123 500,514 Prior years ......................... 9,232 8,869 11,719 ---------- ---------- ---------- 905,458 882,992 512,233 ---------- ---------- ---------- Payments: Current year ........................ 370,907 499,176 146,540 Prior years ......................... 521,240 295,713 263,257 ---------- ---------- ---------- 892,147 794,889 409,797 ---------- ---------- ---------- End of year ........................... $1,390,727 $1,368,420 $ 993,978 ========== ========== ========== Cumulative reserve development for the Company's majority-owned insurance subsidiaries (including Guaranty National for 1997 and 1996) as of December 31, 1997 for the calendar years 1992 through 1997 is shown in the table that follows: December 31, ---------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- (000s omitted) Gross liability.. $1,081,396 $1,140,403 $1,181,329 $1,274,982 $1,785,664 $1,871,711 Reinsurance recoverable.... 335,098 309,598 289,787 281,004 417,244 480,984 ---------- ---------- ---------- ---------- ---------- ---------- Net liability.... $ 746,298 $ 830,805 $ 891,542 $ 993,978 $1,368,420 $1,390,727 ========== ========== ========== ========== ========== ========== Gross re-estimated liability...... $1,155,675 $1,153,751 $1,196,821 $1,283,304 $1,805,102 $ - Re-estimated recoverable.... 333,036 297,781 293,704 280,073 427,450 - ---------- ---------- ---------- ---------- ---------- ---------- Net re-estimated liability...... $ 822,639 $ 855,970 $ 903,117 $1,003,231 $1,377,652 $ - ========== ========== ========== ========== ========== ========== Gross deficiency. $ (74,279) $ (13,348) $ (15,492) $ (8,322) $ (19,438) $ - ========== ========== ========== ========== ========== ========== 19 Cumulative reserve development, net of reinsurance, for the Company's majority-owned insurance subsidiaries (including Guaranty National for 1997 and 1996) as of December 31, 1997 for the calendar years 1987 through 1997 is shown in the table that follows: December 31, 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 - -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (000,000s omitted) Net liability for unpaid loss and loss adjustment expenses.......... $401.7 $520.3 $602.5 $595.5 $668.5 $746.3 $830.8 $891.5 $ 994.0 $1,368.4 $1,390.7 Paid (cumulative) as of: One year later .... 178.1 236.7 281.2 261.5 240.3 249.6 303.3 263.3 295.7 521.2 - Two years later.... 318.9 403.1 438.3 408.6 378.5 429.5 445.4 434.7 495.6 - - Three years later.. 414.6 488.4 526.2 493.2 484.3 514.2 543.7 553.4 - - - Four years later .. 457.2 544.4 581.9 567.1 540.3 577.5 625.7 - - - - Five years later .. 491.0 582.5 633.4 605.0 580.1 634.2 - - - - - Six years later ... 515.5 624.4 660.6 629.7 625.0 - - - - - - Seven years later.. 551.1 643.4 676.9 666.5 - - - - - - - Eight years later.. 564.0 653.8 706.7 - - - - - - - - Nine years later .. 577.8 680.6 - - - - - - - - - Ten years later ... 595.4 - - - - - - - - - - Net liability reestimated as of: One year later .... 469.1 573.6 647.6 657.1 694.9 770.6 848.1 903.3 1,002.8 1,377.7 - Two years later ... 504.8 624.3 695.2 685.7 715.0 782.3 855.0 903.0 1,003.2 - - Three years later.. 548.9 658.0 722.6 705.5 732.0 786.0 855.3 903.1 - - - Four years later .. 568.1 687.8 741.8 741.1 744.3 801.2 856.0 - - - - Five years later .. 597.1 705.5 770.4 756.5 763.7 822.6 - - - - - Six years later ... 610.1 733.8 788.3 786.6 782.5 - - - - - - Seven years later.. 637.3 747.5 812.4 802.7 - - - - - - - Eight years later.. 651.4 771.4 831.5 - - - - - - - - Nine years later .. 677.3 794.7 - - - - - - - - - Ten years later ... 700.0 - - - - - - - - - Net deficiency ...... (298.3) (274.4) (229.0) (207.3) (114.0) (76.3) (25.2) (11.6) (9.3) (9.2) -
20 The preceding loss reserve development tables indicate the aggregate year- end liability for loss and loss adjustment expenses net of reinsurance, the cu- mulative amounts paid attributable to those reserves through December 31, 1997 , the re-estimate of the aggregate liability as of December 31 of each subsequ- ent year and the cumulative development of prior years' reserves. Information is also provided on a gross basis for 1992 through 1997. Consistent with indu- stry practice, certain claims for long-term disability workers compensation benefits are carried at discounted values. At December 31, 1997 and 1996, long- term disability workers compensation loss reserves are carried at $52,907,000 and $54,832,000, respectively, in the consolidated financial statements at net present value using a statutory interest rate of 3.5%. The Company's IBNR loss and loss adjustment expense reserves and other bulk reserves for losses and loss adjustment expenses for which claim files have not been established, net of reinsurance, were $686,352,000, $690,574,000 and $508,872,000 as of December 31, 1997, 1996 and 1995, respectively. The in- crease in IBNR for 1996 includes $132,280,000 from the consolidation of Guaranty National's reserves. During 1997, the Company strengthened loss reserves and experienced development for prior years' business of $9,232,000. Adverse development for various pools and associations of $11,358,000 (other than from the McGee opera- tions), reinsurance of $12,173,000 and certain cancelled program business of $20,889,000 in 1997 was partly offset by favorable development from workers compensation of $34,348,000 and other lines of business of $840,000. Adverse development relating to the Company's pools and associations business is based on their experience, which is generally recorded as the information is reported to the Company and relates primarily to environmental reserves. The development from reinsurance relates to the Company's assumed reinsurance business. In 1996 the Company sold the renewal book of business of its reinsurance operations. The adverse development from cancelled programs is largely due to an ocean marine program cancelled in 1997 which experienced high claim frequency and severity. The favorable development from the workers compensation and other lines of business is the result of continued improvement from the application ofloss prevention and loss control procedures. Loss reserve estimates are based on forecasts of the ultimate settlement of claims and are subject to uncertainty with respect to future events. Loss reserve amounts are based on management's informed estimates and judg- ments, using data currently available. Reserve amounts and the underlying actuarial factors and assumptions are regularly analyzed and adjusted to reflect new information. The significantly decreased level of adverse development during more recent years is consistent with the strengthening of loss reserves and the strong performance of the Company's ongoing lines of business. Current operations are more focused on underwriting risks where the Company has specialized knowledge and can provide enhanced service to reduce loss costs. This concentration, and the specialized knowledge and growing experience in its selected lines of business arising from such con- centration, have enabled the Company to implement improvements in its claims administration and underwriting procedures which have enhanced the Company's ability to analyze data and project reserve trends. 21 The following table presents the differences between loss and loss adjust- ment expense reserves reported in the consolidated financial statements in accordance with generally accepted accounting principles ("GAAP"), and those reported in the combined annual statement filed with state insurance depart- ments in accordance with statutory accounting practices ("SAP"):
December 31, ---------------------- 1997 1996 ---- ---- (000s omitted) Liability on SAP basis ...................... $1,380,612 $1,357,813 Estimated salvage and subrogation recoveries recorded on a cash basis for SAP and on an accrual basis for GAAP (related to acquisition of Unisun).. (1,160) - Foreign subsidiary reserves ............... 11,275 10,607 ---------- ---------- Liability on GAAP basis, net of reinsurance.. 1,390,727 1,368,420 Reinsurance and deductible recoverables on GAAP reserves........................... 480,984 417,244 --------- --------- Liability on GAAP basis ..................... $1,871,711 $1,785,664 ========== ==========
Investments - ----------- The Company derives a significant part of its income from its investments. The investment portfolio of the Company's insurance subsidiaries must comply with applicable insurance laws and regulations of the respective states in which such companies are domiciled and other jurisdictions in which they con- duct business. Neither Orion nor any of its non-insurance subsidiaries is con- strained by investment restrictions set forth in state insurance laws. The Company maintains a diversified portfolio representing a broad spec- trum of industries and types of securities. Investments are managed to achieve a superior total return after taxes, while maintaining a proper balance of safety, liquidity, maturity and marketability. Investments are made based on long-term economic value rather than short-term market conditions. Approximate- ly 50% of the Company's fixed maturity portfolio is invested in tax advantaged securities at December 31, 1997. Except for investments in securities of the United States Government and its agencies, the Company did not have any other investments in any one issuer that exceeded $25,000,000 at December 31, 1997. 22 The Company has the ability to hold its fixed maturity investments to term since its operating cash flow and its short-term investment portfolio pro- vide the Company with substantial liquidity. Fixed maturity investments that the Company has the positive intent to hold to maturity are recorded at amortiz- ed cost. Fixed maturity investments which may be sold in response to, among other things, changes in interest rates, prepayment risk, income tax strategies , or liquidity needs are classified as available-for-sale and are carried at market value, with unrealized gains and losses reflected in stockholders' equity. Equity securities are stated at market value. Both the fixed maturities and the equity investments consist primarily of readily marketable securities. The following table shows the composition of the investment portfolio of the Company as of December 31, 1997 and 1996, and the quality ratings for the Company's fixed maturity investments. The investments shown below are listed at their cost, market and financial statement (book) values.
December 31, 1997 Cost Market Value Book Value - ----------------- ------------------ ------------------ ------------------ (000s omitted - except for percentages) Fixed Maturities: AAA ............. $ 700,796 29.5% $ 730,574 28.7% $ 725,595 28.7% AA .............. 417,005 17.5 441,247 17.3 437,564 17.3 A ............... 198,910 8.4 212,231 8.3 211,855 8.3 BBB ............. 147,392 6.2 151,384 5.9 150,857 5.9 BB .............. 73,429 3.1 76,883 3.0 76,848 3.0 B and Below ..... 137,585 5.8 145,699 5.7 145,699 5.7 Not Rated ....... 33,074 1.3 34,223 1.3 34,198 1.3 ---------- ----- ---------- ----- ---------- ----- Sub-total ..... 1,708,191 71.8 1,792,241 70.2 1,782,616 70.2 Equity Securities.. 346,597 14.6 438,501 17.2 438,501 17.2 Other Long-Term Investments ..... 94,339 4.0 94,339 3.7 94,339 3.7 Short-Term Investments ..... 228,277 9.6 228,277 8.9 228,277 8.9 ---------- ----- ---------- ----- ---------- ----- $2,377,404 100.0% $2,553,358 100.0% $2,543,733 100.0% ========== ===== ========== ===== ========== ===== December 31, 1996 Cost Market Value Book Value - ----------------- ------------------ ------------------ ------------------ (000s omitted - except for percentages) Fixed Maturities: AAA ............. $ 610,930 27.7% $ 622,076 26.9% $ 618,338 26.8% AA .............. 369,190 16.8 385,071 16.6 381,548 16.5 A ............... 170,853 7.8 176,308 7.6 175,896 7.6 BBB ............. 133,756 6.1 137,135 5.9 136,894 5.9 BB .............. 76,156 3.5 77,348 3.3 77,348 3.4 B and Below ..... 102,080 4.6 107,122 4.6 107,122 4.6 Not Rated ....... 33,688 1.5 35,003 1.5 35,003 1.5 ---------- ----- ---------- ----- ---------- ----- Sub-total ..... 1,496,653 68.0 1,540,063 66.4 1,532,149 66.3 Equity Securities.. 288,070 13.1 361,593 15.6 361,593 15.7 Other Long-Term Investments ..... 90,129 4.1 90,144 3.9 90,129 3.9 Short-Term Investments ..... 325,896 14.8 325,896 14.1 325,896 14.1 ---------- ----- ---------- ----- ---------- ----- $2,200,748 100.0% $2,317,696 100.0% $2,309,767 100.0% ========== ===== ========== ===== ========== ===== 23 Year Ended December 31, ----------------------- 1997 1996 ---- ---- Yield on average investments: Pre-tax ......... 7.0% 6.9% === === After-tax ....... 5.3% 5.4% === ===
Included in other long-term investments on December 31, 1997 were investments in limited partnerships carried at $90,791,000. The assets of these partnerships are managed by outside entities. Individual partnerships may invest in a variety of investment vehicles, including but not limited to U.S. and foreign bonds and equities, both public and private, and real estate. Such partnerships are carried at the Company's interest in the underlying net assets of the limited partnerships. The Company's portion of the partnerships' earnings or losses are recorded in net investment income in the Company's statement of earnings. Net investment income from these partnerships was $17,074,000, $15,954,000 and $9,065,000 for 1997, 1996 and 1995, respectively. The Company strives to enhance the average return of its portfolio by investing a small percentage of it in a diversified group of non-investment grade fixed maturity securities, or securities that are not rated. In the non-investment grade segment of the investment portfolio, the Company maintains a high degree of diversity, with an average investment per issuer of approximately $1,740,000 at December 31, 1997. The Company closely monitors the financial stability of issuers of securities that it owns. When conditions are deemed appropriate, the Company ceases to accrete discount, or accrue interest and dividends. In cases where the value of investments are deemed to be other than temporarily impaired, the Company recognizes losses. During 1997 provisions for such losses were $400,000 for equity securities and $2,018,000 for fixed maturity investments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Net Investment Income and Realized Investment Gains." Reinsurance - ----------- In the ordinary course of business, the Company's insurance subsidiaries enter into reinsurance contracts with other insurers which serve to provide greater diversification of business and to limit the Company's maximum loss from catastrophes, large risks or unusually hazardous risks. Ceding reinsurance reduces an insurer's operating leverage ratio. A large portion of the Company's reinsurance protection is provided by reinsurance contracts or treaties under which all risks meeting prescribed criteria are automatically covered. In other instances, reinsurance is obtained by negotiation for individual risks, or facultative reinsurance. The Company's insurance subsidiaries have certain excess-of-loss and catastrophe treaties with unaffiliated insurers or reinsurers which provide protection against a specified part or all of certain types of losses over stipulated dollar amounts arising from one or more occurrences. The amount of each risk retained by an insurer is subject to maximum limits which vary by line of business and type of coverage. Retention limits are periodically revised as the capacity of the Company's insurance subsidiaries to retain risk varies and as reinsurance prices change. Reinsurance contracts do not relieve the Company of its obligation to the policyholders. The collectibility of reinsurance is subject to the solvency of the reinsurers. The Company is very selective as to its reinsurers, placing reinsurance with only those reinsurers considered to be in sound financial condition and having satisfactory underwriting ability. Many of the Company's reinsurance agreements are subject to annual renewal as to coverage, limits and price. The financial strength of its reinsurers is continually monitored by the Company. The Company's insurance subsidiaries, to their knowledge, have no material 24 exposure to potential unrecognized losses due to reinsurers that are in known financial difficulties. The Company's insurance subsidiaries have reinsurance protection for workers compensation losses in excess of $1,500,000 up to $100,000,000. DPIC has reinsurance for 85% of losses from architect and engineer liability in excess of $1,000,000 up to $5,000,000. Policy limits greater than $5,000,000 up to $10,000,000 for DPIC are reinsured by a facultative agreement. Most of the Company's program business is protected by per event coverage for 85% of losses over $1,000,000 up to $5,000,000 and 100% of losses above $5,000,000 up to $10,000,000. Certain commercial auto and general liability program policies are also reinsured for losses in excess of $500,000 up to $1,000,000. Guaranty National has coverages for losses above $400,000 on casualty losses, $300,000 on property losses and $600,000 on catastrophe losses through December 31, 1997. In addition to the foregoing, the Company's insurance subsidiaries also maintain other reinsurance arrangements in support of their specific business needs. Government Regulation - --------------------- Similar to other insurance companies, the Company's insurance subsidiaries are subject to comprehensive regulation by insurance authorities. In particular, the Company is subject to regulation by the insurance departments of the states of incorporation of all of the Company's insurance subsidiaries. These states include California, Connecticut, Colorado, Oklahoma, Texas, Wisconsin and South Carolina. All insurance companies must file annual statements and other reports with state regulatory agencies and are subject to regular and special examinations by those agencies. Regular periodic examinations of the Company's insurance subsidiaries, covering their operations and statutory financial statements are conducted on a regular basis by the state of domicile of each insurance company and may include other states insurance departments in which they are licensed. The last periodic examinations of the Company's insurance subsidiaries were completed for periods ending from December 31, 1993 to December 31, 1996. No significant adjustments resulted from the examinations of any of the Company's insurances subsidiaries. Each of the Company's insurance subsidiaries is also subject to regulation by other jurisdictions in which it sells insurance, including Puerto Rico, certain Canadian provinces and Bermuda. States regulate the insurance business through supervisory agencies which have broad administrative powers, including powers relating to, among other things - the standards of solvency which must be met and maintained; - the licensing of insurers and their agents; - restrictions on the amount of risk which may be insured under a single policy; - the approval of premium rates; - the form and content of the insurance policy and sales literature; - the form and content of financial statements; - reserve requirements; - the imposition of monetary penalties for rules violation; and - the nature of and limitations on permitted investments. In general, such regulations are for the protection of policyholders rather than stockholders. In some instances, particularly in connection with workers compensation insurance, various states routinely require deposits of assets for the protection of policyholders and their employee claimants located in those states. As of December 31, 1997 and 1996, securities representing approximately 9% and 10%, respectively, of the book value of the Company's investment portfolio were on deposit with various state treasurers or custodians. Such deposits consist of securities of the types which comply with standards established by each state. The Company is also subject to state laws regulating insurance holding company systems. Most states have enacted legislation and adopted 25 administrative regulations affecting insurance holding companies and the acquisition of control of insurance companies, as well as transactions between insurance companies and their affiliates. The nature and extent of such legislation and regulations currently in effect vary from state to state. Most states currently require administrative approval of the acquisition of 10% or more of the outstanding shares of an insurance company incorporated in the state or the acquisition of 10% or more of an insurance holding company whose insurance subsidiary is incorporated in the state. The acquisition of 10% of such shares is deemed to be the acquisition of "control" for the purpose of most holding company statutes and requires the filing of detailed information concerning the acquiring parties and the plan of acquisition and administrative approval prior to such acquisition. Material transactions between insurance companies and affiliated members of the holding company system are generally required to be "fair and reasonable" and in some cases are subject to administrative approval. Other states, in addition to an insurance company's state of domicile, may regulate affiliated transactions and the acquisition of control of licensed insurers. The State of California, for example, presently treats certain insurance subsidiaries of the Company which are not domiciled in California as though they were domestic insurers for insurance holding company purposes. Such subsidiaries are required to comply with the holding company provisions of the California Insurance Code, certain of which provisions may be more restrictive than the comparable laws of the insurance company's state of domicile. All state jurisdictions in which the Company is authorized to transact business require participation in guaranty funds. Insurers authorized to transact business in those jurisdictions can be assessed by a state guaranty fund a percentage (usually from 1% to 2%) of direct premiums written in that jurisdiction each year to pay claims on behalf of insolvent insurers. The likelihood and amount of any future assessment cannot be estimated until after an insolvency has occurred. For the years ended December 31, 1997 and 1996 the Company's insurance subsidiaries were assessed approximately $708,000 and $543,000, respectively (net of estimated future recoveries) as a result of known insolvencies. Insurance companies are required by certain states in which they do business to participate in automobile insurance plans and workers compensation plans. These plans provide insurance on risks which are not written in the voluntary market. Participation in these plans has usually been unprofitable for the Company. A number of state legislatures and the United States Congress have for years been considering, or have now enacted, some type of legislative proposals which alter the rules for tort claims and increase the states' authority to regulate insurance companies. These initiatives have ex- panded, in some instances, the states' regulation over rates (See "Rates" below) and also have increased data reporting requirements. In recent years the state insurance regulatory framework has come under federal scrutiny, and certain state legislatures have considered or enacted laws that alter, and in many cases increase, state authority to regulate insurance companies and insurance holding company systems. The National Association of Insurance Commissioners ("NAIC") and state regulators are re-examining existing laws and regulations relating to the solvency of insurers. The NAIC has adopted risk based capital ("RBC") requirements for property and casualty insurers. RBC refers to the determination of the amount of statutory capital required for an insurer based on the risks assumed by the insurer (including, for example, investment risks, credit risks relating to reinsurance recoverables and underwriting risks) rather than just the amount of net premiums written by the insurer. A formula that applies prescribed factors to the various risk elements in an insurer's business is used to determine the minimum statutory capital requirement for the insurer. The statutory capital of each of the Company's active insurance subsidiaries at December 31, 1997 exceeds the RBC requirements. Although the federal government generally does not directly regulate the business of insurance, federal initiatives often have an impact on the 26 business in a variety of ways. There are various current, proposed and tabled federal measures which may significantly affect the Company's insurance business, including, among other proposals: - Superfund reform; - tort liability reform, including limitation on punitive damages and "loser pays" litigation expense costs; - regulatory reform concerning financial services modernization; - revocation of the antitrust exemption provided by the McCarran-Ferguson Act and the ensuing federal regulation of the business of insurance; and - suggested changes of the nation's health care system that, if enacted, might negatively affect the Company's workers compensation and automobile liability businesses The economic and competitive effects of any such proposals upon the Company would depend upon the final form such legislation might take. The Company is unable to predict what regulatory proposals may be adopted in the future or the effect any such proposals might have on the Company's businesses if adopted. Limitations on Payments from Insurance Subsidiaries - --------------------------------------------------- The principal sources of cash available to Orion are dividends, reimbursement of various administrative charges, and tax payments from its subsidiaries. The payment of dividends to Orion by its insurance subsidiaries is subject to state regulation. No state restricts dividend payments by Orion or Guaranty National to its stockholders. The ability of the Company's insurance subsidiaries to declare dividends is governed primarily by the insurance laws of such subsidiaries state of domicile. Generally, such laws currently provide that, unless prior approval is obtained, dividends of a property and casualty insurance company in any consecutive 12-month period shall not exceed the greater of its net income for the preceding calendar year or 10% of its policyholders' surplus as of the preceding December 31, determined on a statutory accounting basis. Dividends and distributions by the Company's insurance subsidiaries are also subject to a requirement that statutory policyholders' surplus be reasonable in relation to outstanding liabilities and adequate to meet the companies' financial needs following the declaration of any dividends or distributions. State insurance regulators, however, have broad discretionary authority with respect to approving the payment of dividends by insurance companies. Under current regulations, the maximum dividends permitted at December 31, 1997 for the ensuing twelve months, without prior approval, aggregated $129,342,000. Orion received $42,822,000 in the aggregate in dividends from its subsidiaries in 1997. Since it is difficult to predict future levels of statutory policyholders' surplus or earnings, the amount of dividends that could be paid in the future without prior approval cannot be determined at this time. Rates - ----- The Company's insurance subsidiaries are generally subject to regulation as to rates. Most states have insurance laws requiring that rate schedules and other information be filed with or made available to the state's regulatory authority, either directly or through a rating organization with which the insurer is affiliated. The regulatory authority may, in most states, disapprove a rate filing if it finds that the rates are inadequate, excessive or unfairly discriminatory. Rates, which are not necessarily uniform for all insurers, vary by class of business, hazard assumed and size of risk. Subject to regulatory requirements, the Company's management determines the prices charged for its policies based on a variety of factors including recent historical claims experience, inflation, competition, tax law and anticipated changes in the legal environment, both judicial and legislative. Methods for arriving at rates vary by type of business, exposure assumed and size of risk. Underwriting profitability is affected by the accuracy of these assumptions, by the willingness of insurance regulators to 27 approve changes in those rates which they control and by such other matters as underwriting selectivity and expense control. Some states have adopted open rating systems for workers compensation which permit insurers to set premium rates independently without the prior approval of the insurance commissioners. A number of other states permit insurers to deviate from standard rates for workers compensation insurance after receiving prior approval. In insuring professional liability risks DPIC is generally not limited to the standard rates of a rating organization but establishes its own rates because of the unique nature of the risks being underwritten. Ocean marine insurance rates are exempt from regulation. Nonstandard and special risks, including nonstandard automobile insurance rates, are generally not limited to the standard rates of national rating bureaus. Guaranty National is permitted to file rates which are usually higher than those charged for standard risks, reflecting the higher probability of loss. Several states have recently adopted laws or their legislatures are considering proposed laws which, among other things, limit the ability of insurance companies to effect rate increases and to cancel, reduce or not renew coverage with respect to existing policies, particularly personal auto insurance. Competition - ----------- The insurance industry is highly competitive. Over 3,000 property and casualty insurance companies write business in the United States, but most of the business is written by about 900 companies. No single company or group has more than 10% of the market. The Company's insurance subsidiaries are in competition with numerous stock and mutual property and casualty insurance companies, as well as state-run workers compensation insurance funds, many of which are substantially larger and have significantly greater resources than the Company. Competition may take the form of lower premiums, specialized products, more complete and complex product lines, greater pricing flexibility, superior service, different marketing methods, higher policyholder dividend rates or better agent compensation. Superior service and marketing methods are of particular importance in workers compensation. Competition might also come from service organizations which administer self-insured workers compensation programs. The Company relies on multiple distribution channels to market its insurance products. The Company's insurance subsidiaries sell their insurance principally through independent agents, brokers and general agents, who typically also represent one or more competing insurance companies. They are paid commissions based on premiums collected from insureds. Commission rates vary according to the type and amount of insurance sold. Some competitors in certain lines obtain their business at a lower direct cost through the use of salaried personnel rather than independent agents and brokers. Rating - ------ A.M. Best Company rates the Company's active insurance subsidiaries "A (Excellent)," and it rates Viking Insurance Company of Wisconsin and its affiliate as "A- (Excellent)." In general, A.M. Best Company's ratings are based on an analysis of the financial condition and operation of an insurance company as it relates to the industry. These ratings are not primarily designed for investors and do not constitute recommendations to buy, sell or hold any security. A.M. Best Company has upgraded the ratings of the Company's wholly-owned subsidiaries three times in the last eight years. Management believes that a significant change in its A.M. Best ratings could affect the business of the subsidiary where ratings were altered, including its relationship with its independent agents, positive in the case of an upgrade or negative in the case of a downgrade. 28 MISCELLANEOUS OPERATIONS The Company's fourth business segment consists primarily of the miscellaneous income and expense (principally interest and general and administrative expenses) of Orion Capital itself. For financial reporting purposes, the Company applies federal income taxes and benefits, as if fully utilizable, to its segments. Any consolidating elimination entries are accounted for in this fourth segment. ITEM 2. PROPERTIES The Company's executive office is located at 9 Farm Springs Road, Farmington, Connecticut. The Company's executive office facility consists of approximately 140,000 square feet and is leased at an annual rental of approximately $4,100,000. DPIC owns its office building, which consists of approximately 42,000 square feet, in Monterey, California. Guaranty National owns facilities in Englewood, Colorado; Salem, Oregon; and Freeport, Illinois. Those facilities consist, in the aggregate, of approximately 208,000 square feet. All of the other insurance operations of the Company are conducted from leased premises in or adjacent to major urban centers throughout the United States, Puerto Rico, Canada and in Bermuda. These operations, in the aggregate, occupy approximately 903,000 square feet, at an annual rental of approximately $13,650,000. The Company believes that its current facilities are suitable and adequate for their present use and anticipated requirements. ITEM 3. LEGAL PROCEEDINGS In August of 1997, several of the Company's subsidiaries were named as defendants in a class action lawsuit titled Bristol Hotel Management Corporation, et al., vs. Aetna Casualty & Surety Company, a/k/a Aetna Group, et al., which was filed in the U.S. District Court for the Southern District of Florida. The suit also named many other workers compensation insurers who did business in Florida. The lawsuit, brought on behalf of an alleged class of retrospectively rated workers compensation purchasers, claims among other allegations, a conspiracy among insurers to charge illegally high prices for workers compensation insurance, breach of contract and fraud. Since that time, additional class action lawsuits with similar allegations have been brought against various subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and Tennessee as well as many other insurers who did business in those states. The Company intends to vigorously defend these lawsuits. The Company is routinely engaged in litigation incidental to its businesses. In the judgment of the Company's management, there are no significant legal proceedings pending against the Company which, net of reserves established therefor, are likely to result in judgments for amounts that are material to the financial condition, liquidity or results of operations of Orion and its consolidated subsidiaries, taken as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. INFORMATION CONCERNING EXECUTIVE OFFICERS OF THE COMPANY The following is a summary of certain information regarding the current executive officers of Orion Capital. All officers of Orion Capital and its 29 subsidiaries serve at the pleasure of their respective Boards of Directors. W. Marston Becker, Chairman and Chief Executive Officer of Orion Capital since January 1997; Vice Chairman of the Board from March, 1996 to December 1996; President and Chief Executive Officer of the DPIC Companies from July 1994 to June 1996; and Senior Vice President of Orion Capital and the Orion Capital Companies ("OC Companies") from July 1994 to March 1996; President and Chief Executive Officer of McDonough Caperton Insurance Group, an insurance brokerage firm, from March 1987 to July 1994; age 45. Donald W. Ebbert, Jr., Executive Vice President and Chief Financial Officer of Orion Capital effective March 25, 1998; Senior Vice President - Comprehensive Risk Management of PNC Bank Corp. from 1996 to March 1998; Senior Vice President, Treasurer and Director of Investor Relations of Midlantic Corporation form 1990 to 1995; age 53. Raymond W. Jacobsen, Executive Vice President of Orion Capital since December 1997; Senior Vice President of Orion Capital from July 1994 to December 1997; Vice President of Orion from March 1990 to July 1994; Chairman of EBI since July 1996; President and Chief Executive Officer of EBI from June 1993 to July 1996; Acting President and Chief Executive Officer of Connecticut Specialty from October 1995 to November 1996; Executive Vice President of EBI from December 1989 to May 1993; Senior Vice President of the OC Companies since March 1990; age 45. James R. Pouliot, Executive Vice President of Orion Capital since December 1997; President and Chief Executive Officer of Guaranty National Corporation since December 1996; President and Chief Executive Officer of Viking Insurance Company from October 1992 to December 1996; age 44. Stephen M. Mulready, Senior Vice President of Orion Capital since December 1997; President of Orion Specialty Group, Inc., previously known as Connecticut Specialty, since November 1996; Vice President of Orion Capital from January 1997 to December 1997; Senior Vice President - Strategic Underwriting and Product Development of Travelers/Aetna Property Casualty Corporation from January 1996 to November 1996; Senior Vice President - National Commercial Accounts of Aetna Life & Casualty from 1994 to 1996; Vice President, Field Operations - National Commercial Accounts of Aetna Life & Casualty from 1991 to 1994; age 48. Thomas M. Okarma, Senior Vice President of Orion Capital since December, 1997; Vice President of Orion Capital from January 1997 to December, 1997; President and Chief Executive Officer of DPIC Companies since July 1996; Chief Claims Officer of DPIC Companies from December 1995 to June 1996; President of Professional Concepts Insurance Agency and Executive Vice President of AVA Insurance Agency Inc. from February 1989 to September 1994; age 48. Claudia F. Lindsey, Senior Vice President of Orion Capital since December 1997; Vice President of Orion Capital from January 1997 to December 1997; Vice President - Business Development of the OC Companies since September 1996; President of Strategic Marketing & Research, Inc. and Vice President of Anthem Financial from 1994 to 1996; Director, Managing Partner & Chief Financial Officer of McDonough Caperton Insurance Group from 1985 to 1994; age 42. Michael P. Maloney, Senior Vice President, General Counsel and Secretary of Orion Capital since January 1997; Vice President, General Counsel and Secretary from August 1979 to December 1996; Senior Vice President of OC Companies since March 1987; age 53. William G. McGovern, Senior Vice President and Chief Actuary of Orion Capital since December 1997; Vice President and Chief Actuary of Orion Capital from March 1990 to December 1997; Senior Vice President and Chief Actuary of OC Companies since October 1989; age 45. 30 Vincent T. Papa, Senior Vice President of Orion Capital since January 1997; Vice President and Treasurer of Orion Capital from June 1985 to December 1996; Chairman and Chief Executive Officer of McGee since September 1995; Senior Vice President of OC Companies since March 1987 and Treasurer from December 1990 to March 1996; age 51. Raymond J. Schuyler, Senior Vice President and Chief Investment Officer of Orion Capital since January 1997; Vice President-Investments from June 1984 to December 1996; Senior Vice President of OC Companies since March 1986; age 62. David B. Semeraro, Senior Vice President of Orion Capital since December 1997; Vice President of Orion Capital from January 1997 to December 1997; Vice President and Chief Information Officer of OC Companies since April 1996; Vice President - Business & Technology Solutions of Connecticut Mutual Life Insurance Company from November 1990 to April 1996; age 50. Philip H. Urban, Senior Vice President of Orion Capital since December 1997; President-Personal Lines of Guaranty National Corporation since November 1996; Senior Vice President-Personal Lines of Great American Insurance from September 1990 to October 1996; age 45. Robert T. Claiborne, Vice President, Portfolio Manager and Director of Investment Research of Orion Capital since January 1997; Assistant Vice President and Portfolio Manager, Director of Research from March 1994 to December 1996; Investment Analyst from September 1990 to March 1994; age 42. Craig A. Nyman, Vice President and Treasurer of Orion Capital since January 1997; Assistant Vice President and Assistant Treasurer from June 1988 to December 1996; Vice President and Treasurer of OC Companies since March 1996; Vice President and Assistant Treasurer of OC Companies from January 1991 to March 1996; Assistant Vice President and Assistant Treasurer of OC Companies from March 1987 to January 1991; Assistant Treasurer of OC Companies from March 1985 to March 1987; age 42. Michael L. Pautler, Vice President of Corporate Development of Orion Capital since December 1997; Senior Vice President-Finance and Treasurer of Guaranty National Corporation from September 1988 to February 1998; age 43. Kevin W. Sullivan, Vice President and Assistant Chief Investment Officer of Orion Capital since January 1997; Assistant Vice President and Assistant Chief Investment Officer from 1989 to December 1996; age 42. Susan B. Sweeney, Vice President-Finance of Orion Capital since March 2, 1998; Independent Consultant from 1997 to 1998; Vice President Planning and Analysis of Travelers Property and Casualty Corporation in Hartford, from 1996 to 1997; Managing Director, Strategic Planning Property/Casualty Finance of Aetna Life & Casualty Company from 1994 to 1996; Managing Director of Corporate Finance of Aetna Life & Casualty Company from 1991 to 1994; age 45. Peter M. Vinci, Vice President, Chief Accounting Officer and Controller of Orion Capital since December 1997; Vice President and Controller of OC Companies since January 1997; Vice President of OC Companies from July 1988 to January 1997; age 45. 31 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Principal Market. The principal market on which Orion's Common Stock is traded is the New York Stock Exchange. (b) Stock Price and Dividend Information. The table below presents the high and low market prices and dividend information for Orion's Common Stock for 1997 and 1996. Cash Stock Prices Dividends High Low Declared ---- --- --------- 1997: Quarter Ended December 31........ $51.000 $42.375 $ .16 Quarter Ended September 30....... 45.750 36.720 .16 Quarter Ended June 30............ 37.625 30.813 .16 Quarter Ended March 31........... 33.875 30.000 .14 ------ Total........................ $ .62 ====== 1996: Quarter Ended December 31........ $31.500 $25.125 $ .140 Quarter Ended September 30....... 25.938 23.938 .125 Quarter Ended June 30............ 25.500 21.313 .125 Quarter Ended March 31........... 23.875 21.250 .125 ------ Total........................ $ .515 ====== Note: Stock prices and cash dividends declared are restated for the 2- for-1 stock split of the Company's common stock issued on July 7, 1997. Cash dividends have been paid on Orion's Common stock in every quarter since the fourth quarter of 1978, when dividends were first commenced. (c) Approximate Number of Holders of Common Stock. The number of holders of record of Orion's Common Stock as of March 19, 1998 was 1,900. 32 ITEM 6. SELECTED FINANCIAL DATA The following table summarizes information with respect to the operations and financial condition of Orion and its subsidiaries. Common stock and per common share data have been restated to give effect to the 2-for-1 stock split issued on July 7, 1997 and the 5-for-4 stock split issued on November 15, 1993. All of Orion's $2.125 Preferred Stock and Adjustable Rate Preferred Stock were converted into common stock or redeemed during 1993. The Company owned slightly less than 50% of Guaranty National until the Company increased its ownership to 81% in July 1996 and 100% in December 1997. Guaranty National is included in the financial statements of the Company on a consolidated basis beginning on January 1, 1996 with recognition of minority interest expense for the portion of Guaranty National's earnings attributable to shares not owned by the Company. For 1993 through 1995 the Company's investment in Guaranty National was accounted for using the equity method.
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (000s omitted-except for per share data) Year ended December 31: Total revenues ..............$1,590,535 $1,493,449 $ 874,280 $ 780,947 $ 720,155 After-tax investment gains... 30,115 13,687 7,708 2,427 5,888 Operating earnings........... 85,691 72,944 59,914 52,818 51,100 Earnings before cumulative effect of change in accounting principles...... 115,806 86,631 67,622 55,245 56,988 Net earnings................. 115,806 86,631 67,622 55,245 68,813 Operating earnings per diluted common share ...... 3.07 2.63 2.11 1.84 1.74 Earnings per diluted common share before cumulative effect of changes in accounting principles ..... 4.15 3.12 2.38 1.93 1.94 Net earnings per common share Basic ..................... 4.24 3.16 2.41 1.94 2.37 Diluted ................... 4.15 3.12 2.38 1.93 2.34 Dividends declared- Adjustable rate preferred share ................... - - - - 1.10 $2.125 preferred share .... - - - - .12 Common share .............. .62 .51 .43 .38 .34 Weighted average number of common shares and diluted equivalents outstanding.... 27,900 27,788 28,374 28,696 29,196 As of December 31: Total cash and investments...$2,553,008 $2,321,374 $1,606,445 $1,325,241 $1,328,969 Total assets ................ 3,884,058 3,464,357 2,473,588 2,112,761 2,117,454 Total policy liabilities .... 2,443,796 2,304,402 1,596,033 1,450,835 1,412,285 Notes payable and debentures 310,228 310,904 209,148 152,382 160,372 Minority interest............ - 45,231 - - - Trust preferred securities... 125,000 - - - - Stockholders' equity......... 723,110 576,733 490,903 365,088 394,195 Common shares outstanding.... 27,606 27,538 27,906 28,082 28,744 Book value per common share..$ 26.19 $ 20.94 $ 17.59 $ 13.00 $ 13.71
33 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries (collectively the "Company") operate principally in the property and casualty insurance business. The Company reports its insurance operations in three segments. In addition, the miscellaneous income and expenses (primarily interest, general and administrative expenses and other consolidating elimination entries) of the parent company are reported as a fourth segment. The three insurance segments as of December 31, 1997 are as follows: Regional Operations - this segment includes the workers compensation insurance products and services sold by the EBI Companies ("EBI"). Special Programs - this segment comprises the following: - DPIC Companies ("DPIC"), which markets professional liability insurance; - Connecticut Specialty, a specialty insurance program writer; - Wm. H. McGee ("McGee"), an underwriting management company that specializes in ocean marine, inland marine and commercial property insurance; and - the Company's 24.7% interest in Intercargo Corporation ("Intercargo"), which sells insurance coverages for international trade. Guaranty National Companies ("Guaranty National") - this segment specializes primarily in nonstandard automobile insurance and other property and casualty insurance. The Company completed two tender offers which increased its ownership of Guaranty National from 49.5% to 81.0% in July 1996 and to 100% in December 1997. The Company has increased its ownership in Guaranty National to 100% to provide Guaranty National with additional financing options, on terms that may not be available to it as an independent entity, so that it can continue its expansion in the nonstandard personal automobile business. All revenues and expenses of Guaranty National from the beginning of 1996 have been consolidated with those of the Company. Minority interest expense has been recorded for the portion of Guaranty National's earnings that is attributable to the shares not owned by the Company in 1996 and 1997 until Guaranty National became a wholly-owned subsidiary of the Company. For 1995 the Company's investment in Guaranty National is accounted for using the equity method. In 1997, Guaranty National completed the acquisition of a nonstandard personal automobile insurance company and announced the acquisition of another. On December 16, 1997, Guaranty National purchased Unisun Insurance Company ("Unisun") from Michigan Mutual Insurance Company for $26,170,000 in cash including expenses. Unisun is the largest servicing carrier for the automobile insurance facility in South Carolina and also writes personal automobile insurance in the states of Alabama, Georgia and North Carolina. Unisun has been included in the Company's consolidated financial statements from the date of acquisition. Total net premiums written by Unisun for 1997 are approximately $20,000,000. In November 1997, Guaranty National entered into an agreement to acquire the nonstandard personal automobile insurance business of North Carolina-based Strickland Insurance Group ("Strickland") for $42,600,000 in cash. Strickland is the second largest writer of nonstandard personal automobile insurance in North Carolina and also writes business in Florida, Arkansas, Tennessee and Virginia. In 1997, Strickland had total personal automobile net premiums written of approximately $46,000,000. The Strickland acquisition is expected to be completed by the second quarter of 1998, subject to regulatory approval. The Strickland and Unisun acquisitions will permit the Company to begin writing nonstandard personal automobile insurance in the southeastern region of the United States, which is a new region for the Company. 34 Beginning in 1998, the commercial business lines of Guaranty National has merged with Connecticut Specialty to form a new company named Orion Specialty. The Company believes that the integration of the closely related operations will strengthen its commercial specialty insurance programs. Orion Specialty has dual headquarters in Connecticut and Colorado. RESULTS OF OPERATIONS The Company's insurance operations have experienced favorable trends for the past several years, as indicated by its combined ratio which has continued to improve from 103.2% in 1993 to 101.2% in 1994, 100.3% in 1995, 99.8% in 1996 and 99.7% in 1997. The Company's operating earnings (earnings after taxes excluding after-tax realized investment gains) are $85,691,000 for 1997, $72,944,000 for 1996 and $59,914,000 for 1995. On a per share diluted basis, operating earnings are $3.07, $2.63 and $2.11 for 1997, 1996 and 1995, respectively. For the five year period ended December 31, 1997, the Company's return on equity from operating earnings has averaged 13.8% per year. Net earnings are $115,806,000 for 1997, $86,631,000 for 1996 and $67,622,000 for 1995. On a per share diluted basis, net earnings are $4.15, $3.12 and $2.38 for 1997, 1996 and 1995, respectively. Net earnings for 1997 include after-tax realized investment gains of $30,115,000, or $1.08 per share, compared to $13,687,000, or $0.49 per share, in 1996 and $7,708,000 or $0.27 per share in 1995. Earnings per share has been calculated based upon a new accounting standard, SFAS No. 128, "Earnings per Share." Additionally, all common stock and per common share data presented in this document has been restated to give effect to the 2-for-1 split of the Company's common stock issued on July 7, 1997.
Earnings (loss) by segment before federal income taxes and minority interest expense are summarized as follows: 1997 1996 1995 ---- ---- ---- (000s omitted) Regional Operations .................. $ 86,807 $ 68,371 $ 57,830 Special Programs ..................... 49,700 44,052 43,241 Guaranty National..................... 56,249 35,727 4,466 -------- -------- -------- 192,756 148,150 105,537 Other ................................ (16,576) (20,794) (17,502) -------- -------- -------- $176,180 $127,356 $ 88,035 ======== ======== ======== 35 REVENUES Premiums The Company's net premiums written by segment are as follows: Percent Change -------------- 1997 1996 1995 97/96 96/95 ---- ---- ---- ----- ----- (000s omitted) Regional Operations........ $ 365,050 $ 353,041 $332,598 3.4% 6.1% Special Programs........... 436,898 489,848 424,838 (10.8) 15.3 Guaranty National.......... 565,120 491,232 - 15.0 n/a ---------- ---------- -------- $1,367,068 $1,334,121 $757,436 2.5% 76.1% ========== ========== ======== Pro forma excluding assumed reinsurance business..... $1,356,501 $1,255,118 $684,990 8.1% n/a ========== ========== ========
In November 1996, the Company sold the renewal book of business of its assumed reinsurance operation to concentrate on businesses where the Company can better service its specialized niche markets. Excluding premiums from this operation, the Company's net premiums written increased by 8.1% in 1997. The consolidation of Guaranty National increased the Company's 1996 net premiums written by $491,232,000. Excluding Guaranty National, the Company's net premiums written increased by 11.3% in 1996. Regional Operations Net premiums written for Regional Operations increased by 3.4% for 1997 and 6.1% for 1996 from EBI's selective geographic expansion and penetration, including a net increase of thirteen branch offices in 1995 through 1997. The offices were opened in territories where the Company believes it will benefit from its service-oriented approach. Additionally, the increase in net premiums written in 1997 includes approximately $26,000,000 of growth generated by a national account program started by EBI in the first quarter of 1997. The increases in net premiums written are mitigated in part by the effects of legislative reforms in certain states that have led to an increasingly competitive workers compensation marketplace with lower premium rates as well as a reduction in losses. As a result of the increasingly competitive workers compensation marketplace, the 1997 premium rates have averaged 8% lower than the 1996 levels. Special Programs Net premiums written from Special Programs are as follows: Percent Change -------------- 1997 1996 1995 97/96 96/95 ---- ---- ---- ----- ----- (000s omitted) Connecticut Specialty... $170,463 $173,724 $153,285 (1.9)% 13.3% DPIC.................... 198,765 195,546 184,130 1.7 6.2 McGee................... 57,103 41,575 14,977 37.4 177.6 -------- -------- -------- 426,331 410,845 352,392 3.8 16.6 Assumed reinsurance..... 10,567 79,003 72,446 (86.6) 9.0 -------- -------- -------- $436,898 $489,848 $424,838 (10.8)% 15.3% ======== ======== ======== 36 Excluding premiums from the assumed reinsurance business sold in November 1996, this segment's net premiums written increased 3.8% and 16.6% for 1997 and 1996, respectively. Net premiums written by DPIC for professional liability insurance, the largest special program, increased 1.7% in 1997 and 6.2% in 1996. The increase in 1997 and 1996 is primarily attributable to continued high levels of policy renewals and new business offset in part by rate reductions in a very competitive professional liability insurance market. Connecticut Specialty's net premiums written decrease of 1.9% is primarily attributable to a cancelled ocean marine program resulting in lower premiums in 1997 as compared to 1996 by $11,300,000, partly offset by increases in premiums from transportation programs, and low exposure professional liability programs. Further, net premiums written for most Connecticut Specialty programs increased in 1997 from 1996 due to higher retentions after a change in reinsurance effective May 1996. Connecticut Specialty's premiums increase of 13.3% in 1996 is attributable to higher premiums written in low exposure professional liability programs and higher retention for most programs after a change in reinsurance, partly reduced by lower premiums from its inland marine programs. Starting in 1998, Connecticut Specialty and the commercial lines of Guaranty National have merged to form Orion Specialty. On a pro forma basis, Orion Specialty's net written premiums decreased by $6,813,000 to $402,809,000 in 1997 from $409,622,000 in 1996. As noted above, this decrease is primarily due to management's efforts to eliminate under- performing programs. McGee's net premiums written increased 37.4% for 1997 and 177.6% for 1996 reflecting the Company's greater participation in the underwriting pools managed by McGee. The Company's participation in McGee's United States pool is approximately 15%, 37% and 52% in 1995, 1996 and 1997, respectively. Participation in McGee's Canadian pool is approximately 15% in 1995, 49% in 1996 and 61% in 1997. The Company has agreed to increase its rate of participation for 1998 to 71% in the United States pool and 72% in the Canadian pool. The percentage of treaty and facultative reinsurance assumed to total net premiums written for this segment is 2.4%, 16.1% and 17.1% in 1997, 1996 and 1995, respectively. This decline is due to the sale of the assumed reinsurance business. Guaranty National Net premiums written for Guaranty National are as follows: Percent Change -------------- 1997 1996 97/96 96/95 ---- ---- ----- ----- (000s omitted) Personal Lines.............. $332,774 $ 255,334 30.3% 30.4% Commercial Lines............ 140,598 157,033 (10.5) 5.9 Collateral Protection....... 91,748 78,865 16.3 46.3% -------- --------- $565,120 $ 491,232 15.0% 23.5% ======== ========= The 30.3% net premiums written growth for Personal Lines in 1997 is due to newly-enacted legislation in the state of California which requires all drivers to maintain liability insurance. This change in California law resulted in a 75% increase in the Personal Lines one-month product business to approximately $155,000,000 in 1997. 37 Commercial Lines net premiums written decreased by 10.5% in 1997 due to lower production in nonstandard business, increased competition by standard carriers in the nonstandard marketplace, and the effect of both agent and program cancellations. The 16.3% premium volume growth for Collateral Protection in 1997 comes from increased writing in mortgage fire insurance and mechanical breakdown programs. Starting in 1998, Commercial Lines and Collateral Protection will be part of Orion Specialty and Guaranty National will be comprised of Personal Lines. Guaranty National's net premiums written for 1996 were included in the Company's consolidated financial statements as a result of the Company's increase in ownership of Guaranty National to over 80% in 1996. Net premiums written for Guaranty National are $397,899,000 in 1995. The 30.4% increase for Personal Lines in 1996 is the result of Guaranty National's acquisition of Viking Insurance Company of Wisconsin in July 1995. The Commercial Lines premium increase of 5.9% in 1996, which resulted from the expansion of automobile physical damage and property programs, were partially offset by a planned reduction in commercial automobile liability premiums. The 46.3% increase in Collateral Protection for 1996 is primarily from two new products, automobile financing GAP and mortgage fire insurance. The Company's premiums earned increased 4.4% ($56,928,000) to $1,357,680,000 in 1997 and increased 73.7% ($551,749,000) to $1,300,752,000 in 1996 from $749,003,000 in 1995. Premiums earned reflect the recognition of income from the changing levels of net premium writings, as well as the inclusion of Guaranty National's premiums earned of $481,648,000 in 1996. INVESTMENT PERFORMANCE The performance of the Company's investments, including net investment income, net realized gains (losses) and unrealized appreciation (depreciation) is as follows: 1997 1996 1995 ---- ---- ---- (000s omitted) Net investment income ..................... $164,908 $145,391 $ 99,040 -------- -------- -------- Net realized gains (losses): Fixed maturities ........................ 3,986 2,067 (4,361) Equity securities ....................... 43,789 22,113 16,246 -------- -------- -------- 47,775 24,180 11,885 -------- -------- -------- Net unrealized appreciation (depreciation): Fixed maturities ........................ 40,640 (16,414) 89,932 Equity securities ....................... 18,381 18,461 34,002 -------- -------- -------- 59,021 2,047 123,934 -------- -------- -------- $271,704 $171,618 $234,859 ======== ======== ======== Net Investment Income Pre-tax net investment income is $164,908,000, $145,391,000 and $99,040,000 in 1997, 1996 and 1995, respectively. The pre-tax yields on the average investment portfolio are 7.0% in 1997, 6.9% in 1996 and 7.1% in 1995, with after-tax yields of 5.3%, 5.4% and 5.5%, respectively. Net investment income increased 13.4% in 1997 primarily due to a higher investment base and a slight increase in pre-tax investment yields. The higher investment base for 1997 reflects the proceeds from the issuance of $125,000,000 of trust preferred securities in January 1997 and the effects of positive operating cash flow. These increases have been offset in part by the July 1996 cash outlay of approximately $88,000,000 for the purchase of Guaranty National common shares. Net investment income increased 46.8% in 1996 from the inclusion of Guaranty National's net investment income of $40,089,000, as well as by increased earnings on a higher investment base from positive operating 38 cash flow. This increase occurred notwithstanding a growing portfolio of lower yielding tax-advantaged securities and the cash outlay to acquire Guaranty National common stock. The year-to-year changes in net investment income also reflect increases from limited partnership investment equity earnings of $1,120,000, or 7.0%, from 1996 to 1997 and $6,889,000, or 76.0%, from 1995 to 1996. Limited partnership earnings increased in 1996 due to higher earnings from the largest limited partnership investment and the inclusion of Guaranty National's partnership earnings. The increase in limited partnership earnings for 1997 is primarily attributable to favorable performance for a majority of the limited partnership investments partly offset by lower 1997 earnings as compared to 1996 from the largest investment. Earnings from limited partnership investments can vary considerably from year-to-year. The Company's long-term experience with limited partnership investments has been quite favorable; however, they represent only 3.6% and 3.8% of total investments at December 31, 1997 and 1996, respectively. Net investment income has also increased in both years by income generated from the deployment of operating cash flow. The carrying value of the Company's investment portfolio amounted to $2,543,733,000 at December 31, 1997 and $2,309,767,000 at December 31, 1996. Fixed maturity investments which the Company has both the positive intent and the ability to hold to maturity are recorded at amortized cost. Fixed maturity investments which may be sold in response to, among other things, changes in interest rates, prepayment risk, income tax strategies or liquidity needs are classified as available-for-sale and are carried at market value. The carrying value of fixed maturity and short-term investments is $2,010,893,000 and $1,858,045,000 at December 31, 1997 and 1996, respectively, or approximately 78.8% and 80.0% of the Company's cash and investments. The Company's investment philosophy is to achieve a superior rate of return after taxes, while maintaining a proper balance of safety, liquidity, maturity and marketability. The Company invests primarily in investment grade securities and strives to enhance the average return of its portfolio through limited investment in a diversified group of non-investment grade fixed maturity securities or securities that are not rated. The risk of loss due to default is generally considered greater for non-investment grade securities than for investment grade securities because the former, among other things, are often subordinated to other indebtedness of the issuer and are often issued by highly leveraged companies. At December 31, 1997 and 1996, the Company's investment in non-investment grade and non-rated fixed maturity securities were carried at $256,745,000 and $219,473,000, respectively. These investments represented a total of 10.1% and 9.5% of cash and investments and 6.6% and 6.3% of total assets at December 31, 1997 and 1996, respectively. The Company monitors the financial condition of the issuers of securities that it owns. When conditions are deemed appropriate, the Company ceases to accrete discounts, or accrue interest and dividends and, in cases where the value of such investments is deemed to be other than temporarily impaired, recognizes losses. The Company's non-investment grade securities are highly diversified, with an average investment per issuer of approximately $1,740,000 at December 31, 1997. The largest non-investment grade security had a carrying value of $13,159,000 at December 31, 1997. Realized Investment Gains Net realized investment gains are $47,775,000 in 1997, $24,180,000 in 1996 and $11,885,000 in 1995. Sales of equity securities have resulted in net gains of $44,189,000, $22,428,000 and $16,531,000 and sales of fixed maturity investments have resulted in net gains (losses) of $6,004,000, $3,186,000 and $(311,000) in 1997, 1996 and 1995, respectively. Realized investment gains are reduced by provisions for losses on securities deemed to be other-than- temporarily impaired. These provisions amounted to $400,000 in 1997, $315,000 39 in 1996 and $285,000 in 1995 for equity securities and $2,018,000, $1,119,000 and $4,050,000 in 1997, 1996 and 1995, respectively, for fixed maturity investments. Such provisions, based on available information at the time, are made in consideration of the decline in the financial condition of the issuers of these securities. Realized gains (losses) vary from period to period, depending on market conditions relative to the Company's investment holdings, the timing of investment sales generating gains and losses, the occurrence of events which give rise to other than temporary impairment of investments, and other factors. At December 31, 1997 the Company held equity securities with unrealized appreciation of $91,904,000 and the market value of the fixed maturities portfolio exceeds amortized cost by $84,050,000. Such amounts can vary significantly depending upon fluctuations in the financial markets. Equity securities and fixed maturities had unrealized appreciation of $18,381,000 and $40,640,000, respectively, for 1997, even after taking $50,193,000 of realized net gains excluding impairment adjustments. The increase in market values of fixed maturities during 1997 is primarily attributable to a decline in interest rates during the year. The average maturity of the Company's fixed maturities has increased from 7.1 years at December 31, 1996 to 8.1 years at December 31, 1997. EXPENSES AND OTHER Operating Ratios The following table sets forth certain ratios of insurance operating expenses to premiums earned: Year Ended December 31, ------------------------------- 1997 1996 1995 ---- ---- ---- Loss and loss adjustment expenses ....... 66.7% 67.9% 68.4% Policy acquisition and other insurance expenses............................... 31.2 30.1 29.0 ---- ---- ----- Total before policyholders' dividends.... 97.9 98.0 97.4 Policyholders' dividends ................ 1.8 1.8 2.9 ---- ---- ----- Combined ratio........................... 99.7% 99.8% 100.3% ==== ==== ===== Loss and loss adjustment expenses: Regional Operations.................... 53.7% 58.8% 62.4% Special Programs....................... 73.7 72.6 72.9 Guaranty National...................... 69.5 70.1 75.3 The decrease in the 1997 ratio of loss and loss adjustment expense to premiums earned (the "loss ratio") is attributed to improvements in both the Regional Operations and Guaranty National segments, offset in part by higher losses for Special Programs. The decrease in the 1996 loss ratio is attributable to improvements in both the Regional Operations and Special Programs segments, offset in part by the consolidation of Guaranty National in 1996. The Company's efforts to reduce its loss costs have had a positive impact on profitability. The continued improvement in the loss ratio for Regional Operations results from the favorable loss development and loss experience achieved by EBI through its service-oriented approach. EBI's service oriented approach is to work with its customers to prevent losses and reduce claim costs. The increase in the 1997 loss ratio for Special Programs is mainly attributable to losses from certain programs cancelled by Connecticut Specialty. The 1997 loss ratio increase has been partly offset by the favorable effect of a change in this segment's mix of business, particularly the lower premiums and losses from the assumed reinsurance business that the Company exited in November 1996. The improvement in the 1996 loss ratio for 40 this segment is primarily attributable to a lower loss ratio for Connecticut Specialty, both from the change in its reinsurance during 1996 and the impact on 1995 results of certain cancelled programs which had unfavorable loss experience in 1995. These improvements are offset in part by reserve strengthening for the Company's pools and associations and reinsurance business in 1997 and 1996. As discussed above, the Company formed Orion Specialty through the merger of Connecticut Specialty and the Commercial Lines of Guaranty National. On a pro forma basis, Special Programs loss ratio for 1997 would be 72.1% with restatement to include Orion Specialty. Guaranty National's loss ratio has declined due to an improvement in its Personal Lines loss ratio to 70.0% for 1997 from 71.3% for 1996 and from the more favorable effect of a change in this segments mix of business to Personal Lines. This improvement has been partly offset by an increase in the Commercial Line loss ratio from 72.1% for 1996 to 73.2% for 1997. The improvement in the Personal Lines loss ratio for 1997 is primarily attributable to lower claims frequency. This improvement has been offset in part by costs incurred to improve claim handling and reduce insurance fraud in Personal Lines and by higher estimates for losses and loss adjustment expenses for the commercial automobile line of business. The lower loss ratio for 1996 as compared to 1995 was primarily attributable to Guaranty National having significantly strengthened its loss reserves for both Personal and Commercial Lines in 1995 in response to adverse claim trends during 1995. The 1995 adverse claims trends resulted in higher than expected development due to higher claims severity in 1992 through 1994 for commercial automobile and higher claims frequency for personal automobile lines of business. Also during 1996, Personal Lines experienced lower claims severity and Commercial Lines had lower overall claims severity and frequency. The ratio of policy acquisition costs and other insurance expenses to premiums earned (the "expense ratio") is 31.2%, 30.1% and 29.0% in 1997, 1996 and 1995, respectively. Policy acquisition costs include direct costs, such as commissions, premium taxes, and salaries, that relate to and vary with the production of new and renewal business. These costs are deferred and amortized as the related premiums are earned, subject to a periodic test for recoverability. The increases in the expense ratio are attributable to the Company's continued investment in building its loss prevention competencies and the costs of expanding in new territories and changing the EBI office operations. Additionally, the increases are the result of higher commissions for EBI and Connecticut Specialty, including a change in reinsurance in 1996 which provides for lower ceding commissions. The increase for 1996 also reflects the consolidation of Guaranty National. The ratio of policyholders' dividends to premiums earned (the "dividend ratio") is 1.8%, 1.8% and 2.9% in 1997, 1996 and 1995, respectively. The decrease in the dividend ratio for 1996 results from the consolidation of premiums from Guaranty National, which does not have participating policies. The Company's consolidated combined ratio is 99.7% in 1997, 99.8% in 1996 and 100.3% in 1995. Provisions for losses and loss adjustment expenses include development of loss and loss adjustment expense reserves relating to prior accident years, which increased the calendar year combined ratio by 0.7 percentage points in both 1997 and 1996 and 1.6 percentage points in 1995. The loss ratios are adversely affected by loss development in the pools and associations, reinsurance, certain discontinued lines and program business, reduced by favorable development in the workers compensation insurance line of business from the improved application of loss prevention and loss control procedures. The Company's environmental claims principally relate to asbestos and hazardous waste, arising from certain liability business written prior to the mid 1980's, which business was never a major element of the Company's operations. Environmental claims are also received from certain reinsurance pools and associations where reserves are established based on information reported to the Company by the managers of those pools and associations. The Company discontinued its participation in these reinsurance pools and associations in the mid 1980's. 41 Establishing reserve liabilities for environmental claims is subject to significant uncertainties that make reserve estimation difficult. Legal decisions have tended to expand insurance coverage beyond the intent of the policies. The disposition of such claims often requires lengthy and costly litigation. Uncertainties as to required clean-up remedies and difficulties in identifying the responsible parties add further to the complexity of reserve estimation for these claims. In recent years, the Company has intensified its efforts to settle and close environmental claims. In recognition of these efforts, reserves have also been increased to provide for the costs related to settling claims. To help minimize the cost of losses and claims, the Company maintains a dedicated environmental claims staff which administers and continually evaluates each claim and its defense and settlement possibilities. In 1997, 1996 and 1995 (1995 excludes Guaranty National), the Company paid $6,833,000, $4,771,000 and $5,675,000, respectively, for the costs of defending and settling such claims. Payments in 1997, 1996 and 1995 related to 209, 160 and 213 claims, respectively, for the Company's direct business. Claim counts have been aggregated by year of coverage for each occurrence for which policyholders are being defended, and often include numerous claimants. As of December 31, 1997 and 1996, the Company has environmental claims- related loss and loss adjustment expense reserves, net of reinsurance recoverables, of $67,879,000 and $57,028,000, respectively. Claims counts are 551 and 632 at December 31, 1997 and 1996, respectively, for direct business written by the Company which excludes reinsurance pools and associations. Following industry practice, claim counts are generally established for each insured for each policy. For workers compensation claims, individual claimants are counted in claim counts. Changes in claims counts for 1997 and 1996 are primarily attibutable to EBI, which is not a significant component of the Company's environmental reserves. In estimating liabilities for environmental-related claims, the Company considers all pertinent information as it becomes available. The net reserve for environmental claims and IBNR increased $10,851,000 in 1997 and $22,469,000 in 1996 primarily due to higher claims reported to the Company by certain reinsurance pools and associations, which is the basis of establishing such reserve, and higher loss reserve estimates. The 1996 reserve increase also reflects the inclusion of Guaranty National. Management believes that the Company's reserves for loss and loss adjustment expenses make reasonable and sufficient provision for the ultimate cost of all losses on claims incurred. However, there can be no assurance that changes in loss trends will not result in additional development of prior years' reserves in the future. Variability in claim emergence and settlement patterns and other trends in loss experience can result in future development patterns different than expected. The Company believes that any such development will continue at the low levels experienced in recent years, considering actions that have been taken to increase reserving levels, improve underwriting standards and emphasize loss prevention and control. The Company's loss ratios in recent years, including development of prior years' losses, have compared favorably with loss ratios experienced by the industry. The Company limits both current losses and future development of losses by ceding business to reinsurers. The Company continually monitors the financial strength of its reinsurers and, to the Company's knowledge, has no material exposure with regard to potential unrecognized losses due to reinsurers having known financial difficulties. Interest Expense Interest expense is $24,704,000 in 1997, $24,687,000 in 1996 and $15,943,000 in 1995, increasing 0.1% in 1997 and 54.8% in 1996. Interest expense increased in 1996 due to the inclusion of interest on Guaranty National's $100,000,000 bank debt, and higher average debt outstanding after the issuance of $100,000,000 of Senior Notes by Orion on July 17, 1995, offset in part by the repayment of Orion's bank debt at that time. 42 Other Expenses Other expenses are $45,002,000, $42,932,000 and $24,740,000 in 1997, 1996 and 1995, respectively. The increases in both other income and other expenses for 1996 are primarily attributable to the inclusion of McGee's pool management revenue and expenses after it was acquired by the Company on June 30, 1995. Equity in Earnings of Affiliates Equity in earnings of affiliates consists of earnings of $8,619,000 for 1997, a loss of $389,000 for 1996, and includes earnings of $1,038,000 for 1995 from the Company's investment in Intercargo. The Company records its share of Intercargo's results in the subsequent quarter. The 1997 earnings reflect a pre-tax gain of $6,988,000 from Intercargo's sale of Kingsway Financial Services. In 1995, Guaranty National was a non-majority owned affiliate of the Company and was therefore accounted for using the equity method. Included in equity in net earnings of affiliates from Guaranty National was $4,466,000 in 1995. Earnings Before Federal Income Taxes and Minority Interest Expense Earnings before federal income taxes and minority interest expense are $176,180,000, $127,356,000 and $88,035,000 for 1997, 1996 and 1995, respectively. The increases in pre-tax earnings of 38.3% and 44.7% for 1997 and 1996 reflect the increase in ownership of Guaranty National and improvement in insurance operations profitability of $25,229,000 and $27,026,000 and increases in realized investment gains of $23,595,000 and $12,295,000, respectively. Minority Interest Expense Guaranty National became a majority-owned subsidiary in July 1996, and its results have been consolidated in the Company's financial statements since the beginning of 1996. In December 1997, Guaranty National became a wholly- owned subsidiary of the Company. Minority interest expense of $7,036,000 and $8,692,000 is recorded for the after-tax portion of Guaranty National's 1997 and 1996, respectively, earnings attributable to stockholders of Guaranty National other than the Company. Minority interest expense in subsidiary trust preferred securities of $6,857,000 for 1997 represents the financing cost, after the federal income tax deduction, on Orion's $125,000,000 of 8.73% trust preferred securities issued in January 1997. Federal Income Taxes Federal income taxes on pre-tax operating results and the related effective tax rates are 25.8% for 1997, 25.2% for 1996 and 23.2% for 1995. The Company's effective tax rates for 1997, 1996 and 1995 are less than the statutory tax rate of 35% primarily because of income derived from tax- advantaged securities. In October 1996 the Internal Revenue Service ("IRS") completed an examination of the Company's federal income tax returns through 1992. As described in previously issued financial statements of the Company, certain tax benefits from tax attributes existing at the date of the Company's reorganization in 1976 were not recognized pending completion of the IRS examination. Accordingly, the Company recorded a credit to capital surplus in 1996 for tax benefits of $11,900,000 with respect to the 1976 reorganization. The recording of this credit had no impact on the Company's earnings. The Company has included Guaranty National in its consolidated tax return since 1996, as a result of acquiring over 80% ownership. The liability for deferred taxes established by the Company through June 30, 1996 for its share of Guaranty National's undistributed earnings has been reversed, resulting in a reduction of $21,547,000 in the amount of goodwill recorded from the purchase of Guaranty National shares, with no effect on net income. 43 LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities decreased by $67,781,000 to $99,960,000 in 1997 from $167,741,000 in 1996 and increased $19,724,000 in 1996 from $148,017,000 in 1995. The decrease in operating cash flow for 1997 is the result of higher payments for losses, policy acquisition costs, policyholders' dividends and minority interest from subsidiary trust preferred capital securities, consistent with the Company's growth in recent years and including the payment of losses for the assumed reinsurance business the Company exited in November 1996 and certain cancelled program business. Partially offsetting these increased cash outflows are higher premiums collected, reflective of the Company's current rate of growth, as well as higher investment income collected. The increase for 1996 is attributable to including Guaranty National's cash flow in the Company's consolidated financial statements. Cash used in investment activities increased by $75,001,000 to $207,370,000 in 1997 from $132,369,000 in 1996 and decreased $56,079,000 in 1996 from $188,448,000 in 1995. Cash is used in investment activities primarily for purchases of investments and acquisition activities. Investment purchases are funded by maturities and sales of investments, as well as by the net cash from positive operating cash flows after cash provided by or used in financing activities. Cash used in acquisition activities in 1997 includes $104,429,000 for the purchase of Guaranty National common stock, $24,464,000 for the purchase of Unisun (net of cash acquired), and a $2,000,000 purchase price deposit for the 1998 planned acquisition of Strickland. The total purchase price for Strickland is $42,600,000. In July 1996 the Company purchased Guaranty National common stock for cash of $88,206,000. In June 1995 Orion paid $22,000,000 in cash plus acquisition costs to acquire McGee. Cash provided by financing activities is $105,078,000 for 1997 and $37,814,000 for 1995. Cash used in financing activities is $27,349,000 for 1996. The net proceeds from the issuance of trust preferred securities by the Company in January 1997 provided $123,026,000 of cash in 1997. Orion borrowed $12,000,000 under its bank line of credit in June 1995 to finance part of the McGee acquisition. In July 1995 Orion issued $100,000,000 of senior debt and repaid all of its outstanding bank debt. Cash used in financing activities includes dividend payments, debt repayments and payments related to the Company's common stock repurchase program. Orion has increased the quarterly dividend rate on its common stock by 15.0% in the third quarter of 1995, by an additional 8.7% and 12.0% in the first and fourth quarters of 1996, respectively, and by 14.3% in the second quarter of 1997. Orion's uses of cash consist of debt service, dividends to stockholders and overhead expenses. These cash uses are funded from existing available cash, financing transactions and receipt of dividends, reimbursement of overhead expenses and amounts in lieu of federal income taxes from Orion's insurance subsidiaries. Orion has received $42,822,000, $35,286,000 and $30,546,000 in dividends, $8,114,000, $7,410,000 and $6,232,000 for overhead expenses and federal tax payments of $9,525,000, $7,455,000 and $4,500,000 from its insurance subsidiaries in 1997, 1996 and 1995, respectively. Payments of dividends by Orion's insurance subsidiaries must comply with insurance regulatory limitations concerning stockholder dividends and capital adequacy. State insurance regulators have broad discretionary authority with respect to limitations on the payment of dividends by insurance companies. Limitations under current regulations are well in excess of Orion's cash requirements. Orion's insurance subsidiaries maintain liquidity in their investment portfolios substantially in excess of that required to pay claims and expenses. The insurance subsidiaries held cash and short-term investments of $160,444,000 and $293,477,000 at December 31, 1997 and 1996, respectively. These balances consider consolidated cash and short-term investment balances, which includes balances held by Orion. The consolidated policyholders' surplus of Orion's insurance subsidiaries is $789,036,000 and $670,572,000 at 44 December 31, 1997 and 1996, respectively. The Company's statutory operating leverage ratios of net premiums written to policyholders' surplus is 1.8:1 and 2.0:1 at December 31, 1997 and 1996, respectively. On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face value of $100,000,000 in a public offering pursuant to a shelf registration filed with the Securities and Exchange Commission in 1994. The senior notes issued are non-callable to maturity, and were sold at 99.23% of par to yield 7.36% per annum. The net proceeds from the offering were $98,113,000, of which $46,500,000 was used to repay all of Orion's debt under its bank loan agreement. The terms of Orion's indentures for its $100,000,000 of 7 1/4% Senior Notes due 2005 and its $110,000,000 of 9 1/8% Senior Notes due 2002 limit the amount of liens and guarantees by the Company, and the Company's ability to incur secured indebtedness without equally and ratably securing the senior notes. Management does not believe that these limitations unduly restrict the Company's operations or limit Orion's ability to pay dividends on its stock. At December 31, 1997 the Company is in compliance with the terms of its senior note indentures. Management believes that the Company continues to have substantial sources of capital and liquidity from the capital markets and bank borrowings. On June 2, 1995 Guaranty National entered into a $110,000,000 credit agreement (the "Credit Agreement") with several participating banks. The Credit Agreement provides for an unsecured reducing revolving credit facility, which was used to fund the Viking acquisition, to retire the outstanding balance of $29,000,000 under Guaranty National's previous revolving line of credit, and for working capital and general corporate purposes. As of December 31, 1997, the outstanding loan balance under the Credit Agreement was $100,000,000. Guaranty National had two interest rate swap agreements with banks which effectively change the interest rate exposure on $80,000,000 of this loan to a fixed rate of 6.3%. As discussed below, this loan was fully repaid with part of the net proceeds from the 7.701% Trust Preferred Securities issued in February 1998. The interest rate swap agreements were also settled at a modest gain upon the repayment of the Guaranty National loan. On January 13, 1997 Orion issued $125,000,000 of 8.73% Junior Subordinated Deferrable Interest Debentures due January 1, 2037 (the "Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory business trust sponsored by Orion. The Trust simultaneously sold $125,000,000 of 8.73% Capital Securities (the "Trust Preferred Securities") which have substantially the same terms as the Debentures. The net proceeds from the sale of the Trust Preferred Securities were used in part for the acquisition of Guaranty National common stock in December 1997. The Trust Preferred Securities may be redeemed without premium on or after January 1, 2007. On February 2, 1998 Orion issued $125,000,000 of 7.701% Junior Subordinated Debentures due April 15, 2028 to Orion Capital Trust II, a Delaware statutory business trust sponsored by the Company. Orion Capital Trust II then sold $125,000,000 of 7.701% Capital Securities, which mature on April 15, 2028, in a private placement. Approximately $100,000,000 of the net proceeds from the sale of the junior subordinated debentures were used to retire bank indebtedness of Guaranty National. The remaining net proceeds will be used for general corporate purposes. Orion agreed to register the capital securities under the Securities Act of 1933, and will file a registration statement with the Securities and Exchange Commission. The 8.73% and 7.701% Capital Securities are subordinated to all liabilities of the Company. The Company may defer interest distributions on these Capital Securities; however, during any period when such cumulative distributions have been deferred, Orion may not declare or pay any dividends or distributions on its common stock. 45 The Company issued a 2-for-1 split of its common stock on July 7, 1997 to shareholders of record on June 23, 1997. The Company has repurchased 42,916 shares, 482,228 shares and 346,362 shares of its common stock at an aggregate cost of $1,533,000, $11,148,000 and $7,183,000 in 1997, 1996 and 1995, respectively. At December 31, 1997 the Company's remaining stock purchase authorization from its Board of Directors amounted to $3,169,000. In February 1998, the Board of Directors increased the authorization for purchases of the Company's common stock by an additional $25,000,000. LEGAL PROCEEDINGS In August 1997, several of the Company's subsidiaries were named as defendants in a class action lawsuit titled Bristol Hotel Management Corporation, et al., vs. Aetna Casualty & Surety Company, which was filed in the U.S. District Court for the Southern District of Florida. The lawsuit, brought on behalf of an alleged class of retrospectively rated workers compensation purchasers, claims, among other allegations, a conspiracy among insurers to charge illegally high prices for workers compensation insurance, breach of contract and fraud. Since that time, additional class action lawsuits with similar allegations have been brought against various subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and Tennessee as well as other insurers who did business in those states. The Company intends to vigorously defend these lawsuits. The Company settled a previously disclosed complaint naming the Company, as defendant, in connection with the tender offer of Guaranty National. The settlement amount was not material to the financial condition or results of operations of the Company. Orion and its subsidiaries are routinely engaged in litigation incidental to their businesses. Management believes that there are no significant legal proceedings pending against the Company which, net of reserves established therefor, are likely to result in judgments for amounts that are material to the financial condition, liquidity or results of operations of Orion and its consolidated subsidiaries, taken as a whole. READINESS FOR YEAR 2000 The Company has taken actions to understand the nature and extent of the work required to make its systems, products and infrastructure Year 2000 compliant including assessments of the readiness of external entities which it interfaces with such as vendors, customers and others. The Company began work several years ago to prepare its products and its financial, information and other computer-based systems for the Year 2000, including replacing and/or updating systems and is utilizing both internal and external resources. The Company continues to evaluate the estimated costs associated with these efforts based on actual experience. While final cost estimates are not complete, the Company believes, based on available information, that it will be able to manage its total Year 2000 transition without any material adverse effect on its business operations, products or financial prospects. The Company has expensed $2,382,000 of Year 2000 costs through 1997 and expects to incur between $9,500,000 and $12,500,000 of additional expenses in 1998 and 1999. ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED In June 1997 the Financial Accounting Standards Board ("FASB")issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which changes the way public companies report information about segments. This statement is effective for financial statements for periods beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. The Company is in the process of evaluating the disclosure requirements. The adoption of this standard will have no impact on the Company's consolidated results of operation, financial position or cash flows. 46 In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in the financial statements. The Company will adopt this statement in first quarter of 1998. The Company is in the process of determining its preferred format. The adoption of this statement will have no impact on the Company's results of operations, financial position or cash flows. FORWARD-LOOKING STATEMENTS All statements made in this Annual Report that do not reflect historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (i) general economic and business conditions; (ii) interest rate changes; (iii) competition and regulatory environment in which the Company operates; (iv) claims frequency; (v) claims severity; (vi) medical cost inflation; (vii) increases in the cost of property repair; (viii) the number of new and renewal policy applications submitted to the Company; and (ix) other factors over which the Company has little or no control. The Company disclaims any obligation to update or to publicly announce the impact of any such factors or any revisions to any forward-looking statements to reflect future events or developments. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 47 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF MANAGEMENT The management of Orion Capital Corporation is responsible for the consolidated financial statements and the information included therein. The consolidated financial statements are fairly presented and have been prepared in accordance with generally accepted accounting principles appropriate in the circumstances, and, where necessary, include amounts based on management's informed estimates and judgments. The Company has a system of internal controls which it believes provides reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with management's policies and that the financial records are reliable for preparing financial statements. The system of internal controls includes written policies and procedures which are communicated to all appropriate personnel and updated as necessary. Compliance with the system of internal controls is continuously maintained and monitored by management. The internal audit staff of the Company evaluates and reports on the adequacy of and adherence to these controls, policies and procedures. In addition, as part of its audit of the consolidated financial statements, Deloitte & Touche LLP, the independent auditors for the Company, perform an evaluation of the system of internal controls to the extent they consider necessary to express an opinion on the consolidated financial statements. Recommendations concerning the system of internal controls are provided by both the internal auditors and Deloitte & Touche LLP, and management takes actions which are believed to be appropriate responses to these recommendations. The Audit and Information Services Committee of the Board of Directors is comprised of independent directors, and has general responsibility for oversight of financial controls and audit activities of the Company and its subsidiaries. The Audit and Information Services Committee, which reports to the Board, annually reviews the qualifications of the independent auditors and meets periodically with them, the internal auditors and management to review the plans and results of the audits. Both internal and independent auditors have free access to the Audit and Information Services Committee, without members of management present, to discuss the adequacy of the system of internal controls and any other matters which they believe should be brought to the attention of the Committee. W. Marston Becker Peter M. Vinci Chairman & Chief Executive Officer Chief Accounting Officer 48 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Orion Capital Corporation Farmington, Connecticut We have audited the accompanying consolidated balance sheets of Orion Capital Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the Index at Item 14(a)2. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in all material respects, the financial position of Orion Capital Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Hartford, Connecticut February 11, 1998 49
ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (000s omitted) ASSETS December 31, ------------------------ 1997 1996 ---- ---- Investments: Fixed maturities at amortized cost (market $322,395 - 1997 and $334,755 - 1996).......... $ 312,770 $ 326,841 Fixed maturities at market (amortized cost $1,395,421 - 1997 and $1,169,812 - 1996) ..... 1,469,846 1,205,308 Common stocks at market (cost $163,020 - 1997 and $136,631 - 1996) ......................... 245,399 209,281 Non-redeemable preferred stocks at market (cost $183,577 - 1997 and $151,439 - 1996) ......... 193,102 152,312 Other long-term investments .................... 94,339 90,129 Short-term investments ......................... 228,277 325,896 ---------- ---------- Total investments ........................... 2,543,733 2,309,767 Cash ............................................. 9,275 11,607 Accrued investment income ........................ 29,650 25,724 Investment in affiliate .......................... 31,267 22,170 Accounts and notes receivable (less allowance for doubtful accounts $3,526 - 1997 and $3,696 - 1996) ................................. 189,321 181,495 Reinsurance recoverables and prepaid reinsurance.. 622,214 517,209 Deferred policy acquisition costs ................ 147,124 136,168 Property and equipment (less accumulated depreciation $35,923 - 1997 and $33,953 - 1996). 70,773 68,763 Excess of cost over fair value of net assets acquired (less accumulated amortization $27,383 - 1997 and $25,633 - 1996) ............. 140,026 81,198 Deferred federal income taxes .................... 907 23,554 Other assets ..................................... 99,768 86,702 ---------- ---------- Total assets................................. $3,884,058 $3,464,357 ========== ========== See Notes to Consolidated Financial Statements 50 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (000s omitted - except for share data) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, ------------------------- 1997 1996 ---- ---- Liabilities: Policy liabilities - Losses ........................................ $1,476,366 $1,421,920 Loss adjustment expenses ...................... 395,345 363,744 Unearned premiums ............................. 551,590 496,249 Policyholders' dividends ...................... 20,495 22,489 ---------- ---------- Total policy liabilities .................... 2,443,796 2,304,402 Notes payable ................................... 310,228 310,904 Other liabilities ............................... 281,924 227,087 ---------- ---------- Total liabilities ........................... 3,035,948 2,842,393 ---------- ---------- Commitments and Contingencies (Notes J and K) Minority interest in subsidiary.................... - 45,231 ---------- ---------- Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely the junior subordinated debentures of the Company ...................... 125,000 - ---------- ---------- Stockholders' equity: Preferred stock, authorized 5,000,000 shares; issued and outstanding - none Common stock, $1 par value; authorized 50,000,000 shares; issued 30,675,300 shares ... 30,675 15,338 Capital surplus ................................. 152,114 158,587 Net unrealized investment gains, net of federal income taxes of $53,201 - 1997 and $31,674 - 1996 .......................................... 113,592 72,260 Net unrealized foreign exchange translation losses, net of federal income taxes (benefit) of ($786) - 1997 and $414 - 1996............... (4,398) (2,164) Retained earnings ............................... 469,512 370,793 Treasury stock, at cost(3,069,756 shares - 1997 and 3,138,230 shares - 1996) .................. (34,332) (34,980) Deferred compensation on restricted stock ....... (4,053) (3,101) ---------- ---------- Total stockholders' equity .................. 723,110 576,733 ---------- ---------- Total liabilities and stockholders' equity... $3,884,058 $3,464,357 ========== ========== See Notes to Consolidated Financial Statements 51 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (000s omitted - except for per share data) Year Ended December 31, ------------------------------- 1997 1996 1995 ---- ---- ---- Revenues: Premiums earned ................................... $1,357,680 $1,300,752 $749,003 Net investment income ............................. 164,908 145,391 99,040 Realized investment gains ......................... 47,775 24,180 11,885 Other income ...................................... 20,172 23,126 14,352 ---------- ---------- -------- Total revenues .................................. 1,590,535 1,493,449 874,280 ---------- ---------- -------- Expenses: Losses incurred ................................... 701,313 694,534 388,409 Loss adjustment expenses .......................... 204,145 188,458 123,824 Amortization of deferred policy acquisition costs . 387,165 363,547 195,481 Other insurance expenses .......................... 36,645 27,912 21,562 Dividends to policyholders ........................ 24,000 23,634 21,790 Interest expense .................................. 24,704 24,687 15,943 Other expenses .................................... 45,002 42,932 24,740 ---------- ---------- -------- Total expenses .................................. 1,422,974 1,365,704 791,749 ---------- ---------- -------- Earnings before equity in earnings of affiliates, federal income taxes and minority interest expense. 167,561 127,745 82,531 Equity in earnings (loss) of affiliates ............. 8,619 (389) 5,504 ---------- ---------- -------- Earnings before federal income taxes and minority interest expense .................................. 176,180 127,356 88,035 Federal income taxes ................................ 46,481 32,033 20,413 Minority interest expense: Subsidiary net earnings............................ 7,036 8,692 - Subsidiary trust preferred securities, net of federal income taxes...................... 6,857 - - ---------- ---------- -------- Net earnings ...................................... $ 115,806 $ 86,631 $ 67,622 ========== ========== ======== Net earnings per basic common share................ $ 4.24 $ 3.16 $ 2.41 ========== ========== ======== Net earnings per diluted common share.............. $ 4.15 $ 3.12 $ 2.38 ========== ========== ======== See Notes to Consolidated Financial Statements 52 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (000s omitted) Year Ended December 31, --------------------------------- 1997 1996 1995 ---- ---- ---- Common Stock: Balance, beginning of year................. $ 15,338 $ 15,338 $ 15,338 Stock issued in 2-for-1 common stock split. 15,337 - - --------- --------- -------- Balance, end of year....................... $ 30,675 $ 15,338 $ 15,338 ========= ========= ======== Capital surplus: Balance, beginning of year ................ $ 158,587 $ 146,658 $147,598 Issuance of common stock .................. - - 152 Exercise of stock options and issuance/ (cancellation) of restricted stock....... 508 29 (1,092) Acquisition of Guaranty National (Note B).. 8,356 - - Recognition of pre-reorganization federal income tax benefits...................... - 11,900 - Stock issued in 2-for-1 common stock split. (15,337) - - --------- --------- -------- Balance, end of year ...................... $ 152,114 $ 158,587 $146,658 ========= ========= ======== Net unrealized investment gains (losses): Balance, beginning of year ................ $ 72,260 $ 63,255 $(11,498) Change in unrealized investment gains (losses), net of taxes .................. 41,332 9,005 74,753 --------- --------- -------- Balance, end of year ...................... $ 113,592 $ 72,260 $ 63,255 ========= ========= ======== Net unrealized foreign exchange translation losses: Balance, beginning of year ................ $ (2,164) $ (3,935) $ (3,959) Change in unrealized foreign exchange translation (losses) gains, net of taxes. (2,234) 1,771 24 --------- --------- -------- Balance, end of year ...................... $ (4,398) $ (2,164) $ (3,935) ========= ========= ======== Retained earnings: Balance, beginning of year................. $ 370,793 $ 298,452 $242,908 Net earnings............................... 115,806 86,631 67,622 Dividends declared......................... (17,087) (14,290) (12,078) --------- --------- -------- Balance, end of year....................... $ 469,512 $ 370,793 $298,452 ========= ========= ======== Treasury Stock: Balance, beginning of year................. $ (34,980) $ (26,534) $(22,451) Issuance of common stock................... - - 770 Exercise of stock options and net issuance of restricted stock...................... 3,174 2,702 2,330 Acquisition of treasury stock.............. (2,526) (11,148) (7,183) --------- --------- -------- Balance, end of year....................... $ (34,332) $ (34,980) $(26,534) ========= ========= ======== Deferred compensation on restricted stock: Balance, beginning of year................. $ (3,101) $ (2,331) $ (2,848) Net issuance of restricted stock........... (1,860) (1,827) (517) Amortization of deferred compensation on restricted stock......................... 908 1,057 1,034 --------- --------- -------- Balance, end of year....................... $ (4,053) $ (3,101) $ (2,331) ========= ========= ======== See Notes to Consolidated Financial Statements 53 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (000s omitted) Year Ended December 31, ---------------------------------- 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Premiums collected ........................ $1,364,525 $1,330,319 $ 738,083 Net investment income collected ........... 140,049 127,036 91,964 Losses and loss adjustment expenses paid .. (892,147) (794,889) (409,797) Policy acquisition costs paid ............. (401,087) (387,685) (204,319) Dividends paid to policyholders ........... (25,995) (20,091) (15,495) Interest paid ............................. (23,821) (24,071) (12,530) Federal income tax payments ............... (28,380) (30,274) (18,756) Payments on subsidiary trust preferred capital securities....................... (5,092) - - Other payments ............................ (28,092) (32,604) (21,133) ---------- ---------- --------- Net cash provided by operating activities ............................ 99,960 167,741 148,017 ---------- ---------- --------- Cash flows from investing activities: Maturities of fixed maturity investments held-to-maturity ........................ 20,143 34,648 36,804 Maturities of fixed maturity investments available-for-sale ...................... 100,376 144,231 12,640 Sales of fixed maturities available-for-sale ...................... 308,339 250,858 184,501 Sales of equity securities................. 199,697 153,233 78,351 Investments in fixed maturities held-to-maturity ........................ (14,312) (8,609) (41,709) Investments in fixed maturities available-for-sale ...................... (595,946) (449,516) (278,173) Investments in equity securities .......... (204,109) (83,427) (64,450) Net sales (purchases) of short-term investments.............................. 108,507 (78,096) (83,617) Purchases of Guaranty National common stock (104,429) (88,628) - Acquisitions of Unisun in 1997 and McGee in 1995............................ (26,170) - (22,355) Effect on cash of acquisitions............. 1,706 6,794 349 Deposit for acquisition of Strickland...... (2,000) - - Other receipts (payments).................. 828 (13,857) (10,789) ---------- ---------- --------- Net cash used in investing activities ... (207,370) (132,369) (188,448) ---------- ---------- --------- Cash flows from financing activities: Net proceeds from issuance of trust preferred capital securities............. 123,026 - - Proceeds from issuance of notes payable ... - - 110,413 Proceeds from exercise of stock options ... 594 42 246 Repayment of notes payable ................ (750) (1,313) (54,500) Dividends paid to stockholders ............ (16,477) (13,648) (11,674) Dividends paid to minority stockholders.... (1,496) (1,721) - Purchases of common stock ................. (1,533) (10,743) (6,689) Other receipts............................. 1,714 34 18 ---------- ---------- --------- Net cash provided by (used in) financing activities ............................ 105,078 (27,349) 37,814 ---------- ---------- --------- Net increase (decrease) in cash ......... (2,332) 8,023 (2,617) Cash balance, beginning of year ............. 11,607 3,584 6,201 ---------- ---------- --------- Cash balance, end of year ................... $ 9,275 $ 11,607 $ 3,584 ========== ========== ========= See Notes to Consolidated Financial Statements 54 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued) (000s omitted) Year Ended December 31, ------------------------------- 1997 1996 1995 ---- ---- ---- Reconciliation of net earnings to net cash provided by operating activities: Net earnings ................................. $115,806 $ 86,631 $ 67,622 -------- -------- -------- Adjustments: Depreciation and amortization .............. 13,380 12,063 5,900 Amortization of excess of cost over fair value of net assets acquired ............. 3,159 3,096 1,533 Deferred federal income taxes .............. 4,541 9,999 (5,165) Amortization (accretion) of fixed maturity investments............. (2,562) 1,432 815 Non-cash investment income ................. (18,962) (17,778) (11,272) Equity in (earnings) loss of affiliates .... (8,619) 389 (5,504) Dividends received from affiliates ......... 342 302 2,597 Realized investment gains .................. (47,775) (24,180) (11,885) Minority interest expense in subsidiary net earnings................ 7,036 8,692 - Foreign exchange transaction adjustment .... 695 1,083 163 Other....................................... 747 952 (43) Changes in assets and liabilities (net of effects of acquiring Unisun - 1997, Guaranty National - 1996, and McGee - 1995): Decrease (increase) in accrued investment income ................................... (2,266) 1,179 (952) Decrease (increase) in accounts and notes receivable ............................... 1,423 7,497 (11,488) Increase in reinsurance recoverables and prepaid reinsurance................... (91,038) (77,999) (24,020) Increase in deferred policy acquisition costs .................................... (8,104) (20,858) (7,536) Increase in other assets ................... (10,759) (34,302) (18,405) Increase in losses ......................... 47,424 115,202 54,485 Increase in loss adjustment expenses ....... 29,629 32,363 39,168 Increase in unearned premiums............... 45,567 58,906 45,250 Increase (decrease) in policyholders' dividends................................. (1,994) 3,543 6,295 Increase (decrease) in other liabilities ... 22,290 (471) 20,459 -------- -------- -------- Total adjustments and changes ............ (15,846) 81,110 80,395 -------- -------- -------- Net cash provided by operating activities .. $ 99,960 $167,741 $148,017 ======== ======== ======== See Notes to Consolidated Financial Statements
55 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1997, 1996 and 1995 Note A - Significant Accounting Policies Basis of Financial Statement Presentation - Orion Capital Corporation ("Orion") and its majority-owned subsidiaries (collectively the "Company") operate principally in the property and casualty insurance business. The Company reports its insurance operations in three segments - Regional Operations, Special Programs and Guaranty National Corporation. Regional Operations provides workers compensation insurance products through EBI Companies. Special Programs includes: (i) DPIC Companies ("DPIC"), which markets professional liability insurance, (ii) Connecticut Specialty, which writes specialty insurance programs, (iii) Wm. H. McGee & Co., Inc. ("McGee"), an underwriting management company that specializes in ocean marine, inland marine and commercial property insurance and (iv) a 24.7% interest in Intercargo Corporation ("Intercargo") which underwrites insurance coverages for international trade. The third segment, Guaranty National Corporation ("Guaranty National"), specializes in nonstandard commercial and personal automobile insurance. The miscellaneous income and expenses (primarily interest, general and administrative expenses and other consolidating elimination entries) of the parent company are reported as a fourth segment. The consolidated financial statements and notes thereto are presented in accordance with generally accepted accounting principles ("GAAP") for property and casualty insurance companies and include the accounts of Orion and its majority-owned subsidiaries. The Company's investments in unconsolidated affiliates are accounted for using the equity method (See Note C). All material intercompany balances and transactions have been eliminated. The preparation of the Company's consolidated financial statements in conformity with GAAP requires Company management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Regulation - The Company's insurance subsidiaries are subject to comprehensive regulation by various state insurance departments including regulations limiting dividend payments to Orion and intercompany transactions. Under these regulations, the maximum dividends permitted at December 31, 1997 for the ensuing twelve months, without prior approval, aggregated $129,342,000. However, state insurance regulators have broad discretionary authority with respect to approving the payment of dividends by insurance companies. Policyholders' surplus of Orion's insurance subsidiaries determined in accordance with prescribed statutory accounting practices amounted to $789,036,000 and $670,572,000 at December 31, 1997 and 1996, respectively. Statutory net income amounted to $146,093,000, $107,866,000 and $83,842,000 for 1997, 1996 and 1995, respectively. Cash - For purposes of the consolidated statement of cash flows, the Company considers only demand deposit accounts to be cash. Investments - Fixed maturity investments include bonds, preferred stocks with mandatory redemption features, and certificates of deposit that mature more than one year after the balance sheet date. Fixed maturity investments that the Company has both the positive intent and the ability to hold to maturity are recorded at amortized cost. Fixed maturity investments which may be sold in response to, among other things, changes in interest rates, prepayment risk, income tax strategies or liquidity needs, are classified as available-for-sale and are carried at market value. Common stocks and non- redeemable preferred stocks are also carried at market value. Fluctuations in 56 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the market value of these available-for-sale securities are recorded as unrealized investment gains or losses and credited or charged to stockholders' equity. Other long-term investments principally include equity ownership interests in limited partnerships, which are recorded using the equity method of accounting. Short-term investments include certificates of deposit and commercial paper which mature within one year of the balance sheet date, money market accounts and United States Treasury Bills. Short-term investments are recorded at market value which approximates cost. Market values are generally based on quoted market prices or dealer quotes. Realized investment gains and losses, including provision for other than temporary impairment of investment securities, are recognized on the specific identification method. Deferred Policy Acquisition Costs - Costs that vary with, and are directly related to, the production of new and renewal business are deferred and amortized as the related premiums are earned. These costs primarily comprise commissions, premium taxes and salaries. The test for recoverability of such deferred costs includes the consideration of net investment income. Excess of Cost Over Fair Value of Net Assets Acquired - The excess of the cost of acquiring subsidiaries over the fair value of their net assets ("goodwill") is amortized on a straight-line basis over periods of 25 to 40 years. The Company evaluates the recoverability of goodwill from expected future cash flows, and impairments would be recognized in operating results if a permanent diminution in value were to occur. Revenue Recognition - Premiums are earned on a daily pro rata basis over the policy period. A provision is made for anticipated retrospective premium adjustments and audit premiums. Direct and assumed premiums are reduced for reinsurance ceded to other insurers. Policy Liabilities and Reinsurance - Loss and loss adjustment expense liabilities are established in consideration of individual cases for reported losses and past experience for incurred but not yet reported losses ("IBNR"). Estimated reinsurance receivables are recognized in a manner consistent with the liabilities relating to the underlying reinsured contracts. At December 31, 1997 and 1996, long-term disability workers compensation loss reserves are carried at $52,907,000 and $54,832,000, respectively, in the consolidated financial statements at net present value using a statutory interest rate of 3.5%. Policyholders' dividends on participating policies are accrued at estimated payment rates as the related premiums are earned. Participating business represented 18% and 17% of premiums in-force at December 31, 1997 and 1996, respectively. As a percent of premiums earned, participating business amounted to 18% in 1997, 16% in 1996 and 24% in 1995. Federal Income Taxes - The Company recognizes taxes payable or refundable for the current year, and deferred taxes for the future tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. Earnings Per Common Share - In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," for all periods presented. Basic earnings per share computations are based on the average number of shares of common stock outstanding during the year. Diluted earnings per share reflects the assumed exercise and conversion of all securities, including stock options. All common stock and per common 57 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) stock data presented has been restated to give effect to the 2-for-1 stock split of the Company's common stock issued on July 7, 1997. Reclassifications - The 1996 and 1995 consolidated financial statements have been reclassified to conform to the classifications used in 1997. Note B - Acquisitions On July 2, 1996, the Company completed a tender offer for 4,600,000 shares of Guaranty National common stock ("1996 GNC Purchase"). Together with the open-market purchase of 120,000 additional shares on July 17, 1996, the Company increased its ownership of Guaranty National by 31.5% from 49.5% to approximately 81%. The aggregate purchase price of approximately $88,206,000, including expenses, was paid in cash. The 1996 GNC Purchase was recorded as a step acquisition using the purchase method of accounting as of June 30, 1996. The assets and liabilities of Guaranty National were consolidated in the Company's financial statements and minority interest for approximately 19% of Guaranty's shareholders equity was recorded. Beginning in 1996, all revenues and expenses of Guaranty National have been consolidated with those of the Company, and minority interest expense has been recorded for the portion of Guaranty National's earnings that was attributable to the shares not owned by the Company. The increase in the Company's ownership in 1996 to over 80% of Guaranty National allows the inclusion of Guaranty National in Orion's consolidated federal income tax return, as well as the reversal of a deferred tax liability previously established by the Company for its share of the undistributed earnings of Guaranty National. The excess of cost over the estimated fair value of the 31.5% interest in Guaranty National's net assets acquired during 1996 was $9,080,000, after the reversal of $21,547,000 of deferred taxes, and will be amortized over 28 years, which was the remaining amortization period for goodwill recorded upon Orion's initial investment in Guaranty National. On December 10, 1997, the Company purchased the remaining 19.7% or 2,970,000 shares of Guaranty National common stock that were held by minority interest shareholders for $36 per share in cash ("1997 GNC Purchase"). Immediately following the 1997 GNC Purchase, Guaranty National was merged into a wholly-owned subsidiary of the Company and delisted as a publicly traded company on the New York Stock Exchange. As part of the merger, 450,238 outstanding stock options granted by Guaranty National were converted into 358,090 stock options of the Company, with equivalent terms as the Guaranty National options except for the exercise price, which was adjusted to reflect the difference between the then current stock prices. The 1997 GNC Purchase was recorded as a step acquisition using the purchase method of accounting. The aggregate purchase price was $116,082,000, including stock options converted of $8,356,000 and acquisition expenses of $800,000. The Company recorded the excess of the cost over the estimated fair value of the 19.7% interest in Guaranty National's net assets acquired during 1997 of $59,470,000 and eliminated the related minority interest. The excess of the cost over fair value will be amortized over 27 years, which is the remaining amortization period for goodwill recorded upon the Company's initial investment in Guaranty National. 58 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Pro forma information, as if Guaranty National was 100% owned as of the beginning of 1996, is as follows for the year ended December, 31: 1997 1996 ---- ---- Total revenues ...................... $1,590,535 $1,491,212 ========== ========== Net earnings ........................ $ 116,930 $ 93,815 ========== ========== Net earnings per diluted share....... $ 4.16 $ 3.35 ========== ========== On December 16, 1997, Guaranty National purchased Unisun Insurance Company ("Unisun") from Michigan Mutual Insurance Company for $26,000,000 in cash and incurred acquisition expenses of $170,000. Unisun is the largest automobile insurance facility carrier in South Carolina and also writes personal automobile insurance in the states of Alabama, Georgia and North Carolina. Total net premiums written by Unisun for 1997 were approximately $20,000,000. The acquisition of Unisun was accounted for as a purchase. The financial results of Unisun have been included in the Company's financial statements since the date of acquisition. The total consideration exceeded the estimated fair value of net assets of Unisun by $2,182,000, which is being amortized over 40 years. The pro forma consolidated results of the Company's operations, as if the Unisun purchase had been made as of the beginning of the year, would not be materially different than reported herein. In November 1997, Guaranty National entered into an agreement to acquire the nonstandard private passenger automobile insurance business of North Carolina-based Strickland Insurance Group ("Strickland") for $42,600,000 in cash. Pursuant to the agreement, Guaranty National made a nonrefundable purchase price deposit of $2,000,000 to Strickland and incurred acquisition costs of $94,000 as of December 31, 1997. In 1997, Strickland had total private passenger automobile net premiums written of approximately $46,000,000. The acquisition is expected to be completed in the second quarter of 1998, subject to regulatory approval. On July 18, 1995 Guaranty National acquired Viking Insurance Holdings, Inc., and its subsidiaries ("Viking"), in a business combination accounted for as a purchase. Viking is a property and casualty insurance company writing nonstandard personal automobile insurance, primarily in the state of California. The results of operations of Viking are included in Guaranty National's financial statements since the date of acquisition. The total cost of the acquisition was $97,225,000, with total cash paid of approximately $95,559,000, including acquisition expenses. The total consideration exceeded the fair value of the net assets of Viking by approximately $10,612,000, which is being amortized over 40 years. On June 30, 1995, Orion purchased all of the capital stock of McGee for $22,000,000 in cash, and incurred acquisition expenses of $355,000. McGee specializes in underwriting ocean marine, inland marine and commercial property insurance through an underwriting pool in the United States and one in Canada. The business is written by McGee on behalf of the insurance companies that comprise the pools. The Company's participation in the United States pool was approximately 15% and 37% in 1995 and 1996, respectively. Participation in the Canadian pool was 15% in 1995 and approximately 49% in 1996. The Company's rate of participation for 1997 is 52% in the United States and 61% in Canada. The acquisition was accounted as a purchase, and McGee's operations have been included in the Company's results of operations since July 1, 1995. The Company recorded $22,317,000 for the excess of cost over the estimated fair value of the net assets acquired, which is being amortized over a 30 year period. 59 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note C - Investments in Affiliates Investments in affiliates include the Company's interest in Guaranty National through December 31, 1995, and the Company's 24.7% interest in Intercargo, a publicly-held company. The Company's financial statements include the portion of Guaranty National's 1995 earnings and Intercargo's results attributable to the Company's ownership on an equity accounting basis for applicable periods. The Company records its share of Intercargo's operating results in the subsequent quarter, after Intercargo has reported its financial results. The carrying values of the Company's investment in affiliates was $31,267,000 at December 31, 1997 and $22,170,000 at December 31, 1996, with market values of $25,165,000 and $16,262,000, respectively. The carrying value included $10,530,000 and $11,022,000 of goodwill at December 31, 1997 and 1996, respectively. In August, 1997, Intercargo recognized a gain before taxes of $49,443,000 from the sale of substantially all of its interest in Kingsway Financial Services. The Company reflected its portion of the Kingsway sale by recording a gain before taxes of $6,988,000 in the fourth quarter of 1997. 60 [CAPTION] ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summarized financial information for the Company's affiliates is set forth below: Year Ended December 31, ------------------------------------- 1997 1996 1995 ---- ---- ---- (000s omitted) Revenues: Premiums earned ................ $ 56,894 $ 66,324 $ 474,534 Realized investment gains ...... - - 3,291 Investment and other income .... 56,555 5,688 38,422 ---------- ---------- ---------- 113,449 72,012 516,247 ---------- ---------- ---------- Expenses: Insurance expenses ............. 64,426 74,019 490,952 Interest and other ............. 753 785 7,452 ---------- ---------- ---------- 65,179 74,804 498,404 ---------- ---------- ---------- Earnings (loss) before equity in earnings of affiliate and federal income taxes ........... 48,270 (2,792) 17,843 Equity in earnings of affiliate .. 4,320 2,469 - Federal income (taxes) benefit ... (15,878) 225 (1,482) ---------- ---------- ---------- Net earnings (loss) ............ $ 36,712 $ (98) $ 16,361 ========== ========== ========== The Company's proportionate share, including amortization of goodwill ....................... $ 8,619 $ (389) $ 5,504 ========== ========== ==========
December 31, ----------------------- 1997 1996 ---- ---- (000s omitted) Cash and investments ............................ $ 131,791 $ 75,269 Other assets .................................... 54,000 49,560 ---------- ---------- 185,791 124,829 Policy liabilities .............................. (72,683) (57,608) Notes payable ................................... - (9,735) Other liabilities ............................... (29,185) (12,541) ---------- ---------- Stockholders' equity ............................ $ 83,923 $ 44,945 ========== ========== 61 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note D - Investments The amortized cost and estimated market values of investments in fixed maturities, equity securities and short-term investments are as follows: Gross Gross Estimated Amortized Unrealized Unrealized Market December 31, 1997 Cost Gains Losses Value - ----------------- ---------- ---------- ---------- ---------- (000s omitted) Held-to-maturity securities: United States Government and government agencies and authorities ........... $ 122,616 $ 1,795 $ (403) $ 124,008 States, municipalities and political subdivisions .... 166,895 7,598 (35) 174,458 Foreign governments ......... 50 - - 50 Corporate securities ........ 23,209 670 - 23,879 ---------- -------- -------- ---------- $ 312,770 $ 10,063 $ (438) $ 322,395 ========== ======== ======== ========== Available-for-sale securities: United States Government and government agencies and authorities ........... $ 381,747 $ 22,433 $ (2,868) $ 401,312 States, municipalities and political subdivisions .... 439,480 30,540 (151) 469,869 Foreign governments ......... 4,590 530 - 5,120 Corporate securities ........ 526,495 27,444 (4,525) 549,414 Mortgage-backed securities (exclusive of government agencies) ................ 43,109 1,032 (10) 44,131 Equity securities ........... 346,597 101,419 (9,515) 438,501 Short-term investments....... 228,277 - - 228,277 ---------- -------- -------- ---------- $1,970,295 $183,398 $(17,069) $2,136,624 ========== ======== ======== ========== December 31, 1996 - ----------------- Held-to-maturity securities: United States Government and government agencies and authorities ........... $ 119,058 $ 1,917 $ (1,131) $ 119,844 States, municipalities and political subdivisions .... 179,465 6,273 (172) 185,566 Foreign governments ......... 50 - - 50 Corporate securities ........ 28,268 1,030 (3) 29,295 ---------- -------- -------- ---------- $ 326,841 $ 9,220 $ (1,306) $ 334,755 ========== ======== ======== ========== Available-for-sale securities: United States Government and government agencies and authorities ........... $ 321,087 $ 9,553 $ (3,970) $ 326,670 States, municipalities and political subdivisions .... 395,732 19,646 (524) 414,854 Foreign governments ......... 5,855 678 - 6,533 Corporate securities ........ 407,541 14,712 (5,240) 417,013 Mortgage-backed securities (exclusive of government agencies) ................ 39,597 747 (106) 40,238 Equity securities ........... 288,070 86,171 (12,648) 361,593 Short-term investments....... 325,896 - - 325,896 ---------- -------- -------- ---------- $1,783,778 $131,507 $(22,488) $1,892,797 ========== ======== ======== ========== 62 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net investment income for the three years ended December 31, 1997 was as follows: Year Ended December 31, --------------------------------- 1997 1996 1995 ---- ---- ---- (000s omitted) Net investment income: Fixed maturities ...................... $115,823 $ 98,213 $ 69,453 Equity securities ..................... 18,389 19,901 15,410 Other long-term investments ........... 17,348 16,084 9,125 Short-term investments ................ 16,308 13,224 6,311 Accounts and notes receivable ......... 491 309 113 Other ................................. 121 310 353 -------- -------- -------- Total investment income ............. 168,480 148,041 100,765 Less investment expenses .............. 3,572 2,650 1,725 -------- -------- -------- Net investment income ............... $164,908 $145,391 $ 99,040 ======== ======== ======== Certain information concerning realized and unrealized gains (losses) for fixed maturities and equity securities is set forth below: Year Ended December 31, --------------------------------- 1997 1996 1995 ---- ---- ---- (000s omitted) Fixed maturities available-for-sale: Gross realized gains .................. $ 12,028 $ 10,257 $ 7,891 Gross realized losses ................. (7,372) (7,045) (8,372) Provision for other than temporary impairment .......................... (2,018) (1,119) (4,050) -------- -------- -------- $ 2,638 $ 2,093 $ (4,531) ======== ======== ======== Change in unrealized gains (losses) recorded in stockholders' equity .... $ 38,929 $(11,089) $ 70,317 ======== ======== ======== Equity securities: Gross realized gains .................. $ 51,492 $ 29,007 $ 17,879 Gross realized losses ................. (7,303) (6,579) (1,348) Provision for other than temporary impairment .......................... (400) (315) (285) -------- -------- -------- $ 43,789 $ 22,113 $ 16,246 ======== ======== ======== Change in unrealized gains (losses) recorded in stockholders' equity .... $ 18,381 $ 18,461 $ 34,002 ======== ======== ======== 63 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The amortized cost and estimated market values of fixed maturity and short- term investments at December 31, 1997, by contractual fiscal maturity, are shown below. Expected maturities will differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties. Fixed Maturities Fixed Maturities Held-to-Maturity Available-for-Sale ------------------ ----------------------- Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value --------- --------- ---------- ---------- (000s omitted) Due in one year or less .......... $ 67,760 $ 68,483 $ 265,333 $ 264,640 Due after one year through five years .......................... 145,228 148,456 198,210 201,574 Due after five years through ten years .......................... 46,905 49,117 247,237 260,823 Due after ten years .............. 52,877 56,339 676,552 728,391 -------- -------- ---------- ---------- 312,770 322,395 1,387,332 1,455,428 Mortgage-backed securities ....... - - 236,366 242,695 -------- -------- ---------- ---------- $312,770 $322,395 $1,623,698 $1,698,123 ======== ======== ========== ==========
Other long-term investments had aggregate carrying values of $94,339,000 at December 31, 1997 and $90,129,000 at December 31, 1996 including mortgage loans on real estate of $2,249,000 and $1,187,000, respectively. Estimated market values of mortgage loans and other long-term investments approximate their carrying values. The carrying value of the Company's investments in principal- only securities and interest-only securities totalled approximately $12,400,000, or 0.5% of total invested assets at December 31, 1997. The carrying value of securities on deposit with state regulatory authorities in accordance with statutory requirements totalled $223,423,000 and $236,328,000 at December 31, 1997 and 1996, respectively. Excluding investments in securities of the United States Government and its agencies, the Company did not have any investments in securities of any one issuer that exceeded $25,000,000. The Company had $214,000 and $2,227,000 of fixed maturity investments for which it was not accruing income for the years ended December 31, 1997 and 1996, respectively. 64 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note E - Reinsurance In the normal course of business, the Company's insurance subsidiaries reinsure certain risks, generally on an excess-of-loss or pro rata basis, with other companies to limit losses. Reinsurance does not discharge the primary liability of the original insurer. As of December 31, 1997 and 1996, recoverables for reinsurance ceded to the Company's two largest reinsurers were an aggregate of $132,797,000 and $106,168,000, respectively. As of December 31, recoverables for reinsurance ceded to the two largest McGee pool members other than the Company aggregated $54,720,000 for 1997, and $104,857,000 for 1996, and the Company had ceded balances payable to these pool members of $21,010,000 and $31,007,000, respectively. The table below illustrates the effect of reinsurance on premiums written and premiums earned:
Year Ended December 31, ------------------------------------- 1997 1996 1995 ---- ---- ---- (000s omitted-except for percentages) Direct premiums written ................ $1,521,315 $1,431,450 $ 799,284 Reinsurance assumed .................... 71,989 174,681 127,445 ---------- ---------- --------- Gross premiums written ................. 1,593,304 1,606,131 926,729 Reinsurance ceded ...................... (226,236) (272,010) (169,293) ---------- ---------- --------- Net premiums written ................... $1,367,068 $1,334,121 $ 757,436 ========== ========== ========= Percentage of amount assumed to net .... 5.3% 13.1% 16.8% ========== ========== ========= Direct premiums earned ................. $1,500,830 $1,388,893 $ 754,927 Reinsurance assumed .................... 106,072 182,482 126,552 ---------- ---------- --------- Gross premiums earned .................. 1,606,902 1,571,375 881,479 Reinsurance ceded ...................... (249,222) (270,623) (132,476) ---------- ---------- --------- Net premiums earned .................... $1,357,680 $1,300,752 $ 749,003 ========== ========== ========= Loss and loss adjustment expenses incurred recoverable from reinsurers.. $ 165,369 $ 174,344 $ 70,872 ========== ========== =========
Reinsurance recoverables and prepaid reinsurance includes prepaid reinsurance of $125,462,000 at December 31, 1997 and $86,916,000 at December 31, 1996. 65 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note F - Loss and Loss Adjustment Expense Reserves An analysis of the Company's calendar year net loss and loss adjustment expense reserves is summarized in the following table. The 1996 current year provision and payments include favorable loss development for Guaranty National of $995,000 and payments of $144,775,000 attributable to periods prior to the consolidation of Guaranty National's results in the Company's financial statements.
Year Ended December 31, ------------------------------------ 1997 1996 1995 ---- ---- ---- (000s omitted) Net balance, beginning of year ....... $1,368,420 $ 993,978 $ 891,542 Effect of acquisitions................ 8,996 286,339 - ---------- ---------- ---------- 1,377,416 1,280,317 891,542 ---------- ---------- ---------- Provision: Current year ....................... 896,226 874,123 500,514 Prior years ........................ 9,232 8,869 11,719 ---------- ---------- ---------- 905,458 882,992 512,233 ---------- ---------- ---------- Payments: Current year ....................... 370,907 499,176 146,540 Prior years ........................ 521,240 295,713 263,257 ---------- ---------- ---------- 892,147 794,889 409,797 ---------- ---------- ---------- Net balance, end of year ............. 1,390,727 1,368,420 993,978 Add reinsurance recoverables ....... 480,984 417,244 281,004 ---------- ---------- ---------- Balance, end of year ................. $1,871,711 $1,785,664 $1,274,982 ========== ========== ==========
Loss reserve estimates are based on forecasts of the ultimate settlement of claims and are subject to uncertainty with respect to future events. Loss reserve amounts are based on management's informed estimates and judgments, using data currently available. Reserve amounts and the underlying actuarial factors and assumptions are regularly analyzed and adjusted to reflect new information. Such reevaluation is a normal, recurring activity that is inherent in the process of loss reserve estimation and therefore, no assurances can be given that reserve development will not occur in the future. A substantial portion of the loss development experienced by the Company during the three years ended December 31, 1997 resulted from pools and associations, reinsurance, certain discontinued lines and program business, reduced by favorable development in workers compensation and other lines of insurance. 66 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) An analysis of the Company's loss and loss adjustment expense environmental reserves and claim counts is presented below. Claim counts (excluding reinsurance pools and associations) have been aggregated by year of coverage for each occurrence for which policyholders are being defended, and often include numerous claimants.
Year Ended December 31, ----------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- Claim Claim Claim Amount Counts Amount Counts Amount Counts ------ ------ ------ ------ ------ ------ (000s omitted for dollar amounts) Net balance, beginning of year ............. $57,028 632 $34,559 474 $20,601 467 Consolidation of Guaranty National.... - 2,817 70 - Provision ........... 17,684 24,423 19,633 Payments ............ (6,833) (4,771) (5,675) ------- ------- ------- Net balance, end of year ................ 67,879 551 57,028 632 34,559 474 Add reinsurance recoverables ...... 12,271 12,457 10,509 ------- ------- ------- Balance, end of year .. $80,150 $69,485 $45,068 ======= ======= =======
The Company's environmental claims principally relate to asbestos and hazardous waste, arising from certain liability business written prior to the mid 1980's, which business was never a major element of the Company's operations. Environmental claims are also received from certain reinsurance pools and associations where reserves are established based on information reported to the Company by the managers of those pools and associations. In view of the lines of insurance that the Company has traditionally written, environmental claims have not represented, and are not expected to represent in the future, a material portion of the Company's total claims. Establishing reserve liabilities for environmental claims is subject to significant uncertainties that make reserve estimation difficult. Legal decisions have tended to expand insurance coverage beyond the intent of the policies. The Company does not use discounting in determining its reserves for environmental claims. IBNR of $50,977,000 and $38,699,000 is included in net reserves for environmental claims at December 31, 1997 and 1996, respectively. The net reserve for environmental claims and IBNR increased $10,851,000 in 1997 and $22,469,000 in 1996 primarily due to higher claims reported to the Company by certain reinsurance pools and associations, which is the basis of establishing such reserve, and higher loss reserve estimates. The 1996 reserve increase also reflects the inclusion of Guaranty National. 67 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note G - Notes Payable On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face value of $100,000,000 ("7 1/4% Senior Notes") in a public offering. The net proceeds from the offering were approximately $98,113,000, of which $46,500,000 was used to repay Orion's debt under a bank loan agreement and the balance was used for general corporate purposes. The indentures for the 7 1/4% Senior Notes and for Orion's 9 1/8% Senior Notes due 2002 limit the amount of liens and guarantees by the Company, and the Company's ability to incur secured indebtedness without equally and ratably securing the senior notes. On June 2, 1995, Guaranty National entered into a $110,000,000 credit agreement ("Credit Agreement") with several participating banks. The Credit Agreement provided for an unsecured reducing revolving credit facility, which was used to fund the Viking acquisition, to retire the outstanding balance of $29,000,000 under Guaranty National's previous revolving line of credit, and for working capital and general corporate purposes. At both December 31, 1997 and 1996, the outstanding loan balance under the Credit Agreement was $100,000,000, with an effective interest rate of 6.27%. As discussed in Note R, this loan was fully repaid in February, 1998. As of December 31, 1997, maturities of the Company's notes payable are as follows: 1998 - $563,000; 1999 - $22,375,000; 2000 - $24,000,000; 2001 - $26,000,000; 2002 - $138,000,000; and 2005 - $100,000,000. After giving effect for the bank loan repayment, as discussed above and in Note R, the maturities of the Company's notes payable will be as follows: 1998 - $563,000; 1999 - $375,000; 2002 - $110,000,000; and 2005 - $100,000,000. Notes payable are recorded at face value less unamortized discount. The carrying value and estimated market value of notes payable consist of the following:
Estimated Carrying Value Market Value ------------------ ------------------ December 31, 1997 1996 1997 1996 ------------ ---- ---- ---- ---- (000s omitted) $110,000,000 face amount, 9 1/8% Senior Notes, due September 1, 2002 ........ $109,919 $109,906 $121,231 $120,703 $100,000,000 face amount, 7 1/4% Senior Notes, due July 15, 2005 ............ 99,371 99,310 103,160 97,660 Borrowings under loan agreement with banks (variable interest rate) ...... 100,000 100,000 100,000 100,000 Collateralized term loan - 6.5% ....... 938 1,688 938 1,696 -------- -------- -------- -------- $310,228 $310,904 $325,329 $320,059 ======== ======== ======== ========
68 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note H - Company-Obligated Mandatorily Redeemable Preferred Capital Securities of Subsidiary Trust Holding Solely the Junior Subordinated Debentures of the Company. On January 13, 1997, the Company issued $125,000,000 of 8.73% Junior Subordinated Deferrable Interest Debentures due January 1, 2037 (the "Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory business trust sponsored by Orion. The Trust simultaneously sold $125,000,000 of 8.73% Capital Securities (the "Trust Preferred Securities") which have substantially the same terms as the Debentures. The Trust Preferred Securities are subordinate to all liabilities of the Company, and may be redeemed without premium on or after January 1, 2007. The Company may defer interest distri- butions on the Trust Preferred Securities; however, during any period when such cumulative distributions have been deferred, Orion may not declare or pay any dividends or distributions on its common stock. The Company registered the Trust Preferred Securities under the Securities Act of 1933 in April 1997. The Trust is consolidated in the Company's financial statements because it is wholly-owned by the Company. The sole assets of the Trust are the Debentures issued by Orion. Orion has given its partial guarantee, which when taken to- gether with the Company's obligations under the declaration of the Trust, the Debentures, and the indenture pursuant to which the Trust Preferred Securities are issued including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Preferred Securities), provides a full and unconditional guarantee of amounts due on the Trust Preferred Securities. The carrying value and estimated market value of the Trust Preferred Securities are $125,000,000 and $137,525,000, respectively, at December 31, 1997. 69 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note I - Federal Income Taxes Orion and its wholly-owned subsidiaries file a consolidated federal income tax return, including Guaranty National from July 2, 1996. The consolidated federal income tax current provisions for 1997, 1996 and 1995 were based on the regular tax method. Substantially all federal income taxes incurred by Orion and its subsidiaries relate to domestic operations. In October 1996 the Internal Revenue Service ("IRS") completed an examination of the Company's federal income tax returns through 1992. As described in previously issued financial statements of the Company, certain tax benefits from tax attributes existing at the date of the Company's reorganization in 1976 were not recognized pending completion of the IRS examination. Accordingly, the Company recorded a credit to capital surplus in 1996 for tax benefits of $11,900,000 with respect to the 1976 quasi reorganization. The recording of this credit had no impact on the Company's earnings. The components of the provision (benefit) for federal income taxes on income from operations, and allocations of taxes (benefits) to other items for the three years ended December 31, 1997 are as follows:
Year Ended December 31, -------------------------------- 1997 1996 1995 ---- ---- ---- (000s omitted) Taxes on income from continuing operations: Current ............................... $38,248 $22,034 $25,578 Deferred .............................. 4,541 9,999 (5,165) ------- ------- ------- 42,789 32,033 20,413 Taxes allocated to stockholders'equity for: Unrealized appreciation of securities.. 22,835 1,971 40,837 Foreign exchange translation gains (losses)............................. (1,200) 954 13 Pre-reorganization income tax benefits. - (11,900) - Other.................................. (826) (386) - ------- ------- ------- $63,598 $22,672 $61,263 ======= ======= ======= Taxes on income from continuing operations in 1997 includes a tax benefit of $3,692,000 from minority interest on subsidiary trust preferred securities. 70 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The tax effects of the temporary differences comprising the Company's net deferred tax asset as of December 31, 1997 and 1996 are as follows: December 31, --------------------- 1997 1996 ---- ---- (000s omitted) Deferred tax assets: Loss reserve discounting ...................... $ 72,209 $ 69,306 Unearned premium reserves ..................... 30,065 28,183 Policyholders' dividends ...................... 7,132 7,830 Realized investment losses .................... - 2,435 Deferred income ............................... 2,055 2,226 Retiree medical benefits ...................... 4,644 5,240 Deferred compensation ......................... 7,812 4,484 Other ......................................... 17,651 11,640 -------- -------- 141,568 131,344 -------- -------- Deferred tax liabilities: Deferred policy acquisition costs ............. 51,493 47,659 Realized investment gains...................... 1,038 - Investment income ............................. 16,466 12,798 Unrealized investment gains ................... 58,378 38,131 Other ......................................... 13,286 9,202 -------- -------- 140,661 107,790 -------- -------- $ 907 $ 23,554 ======== ======== A reconciliation of expected federal income tax expense on pre-tax earnings at regular corporate rates to actual tax expense is as follows: Year Ended December 31, ------------------------------------------------ 1997 1996 1995 ---- ---- ---- Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (000s omitted-except for percentages) Expected income tax expense.. $57,971 35.0% $44,575 35.0% $30,812 35.0% Dividends-received deduction. (5,565) (3.3) (6,509) (5.1) (5,601) (6.4) Tax-exempt interest ......... (11,503) (6.9) (10,203) (8.0) (6,470) (7.3) Amortization of goodwill .... 1,058 0.6 1,042 .8 536 .6 Other ....................... 828 0.4 3,128 2.5 1,136 1.3 ------- ---- ------- ---- ------- ---- Actual income tax expense ... $42,789 25.8% $32,033 25.2% $20,413 23.2% ======= ==== ======= ==== ======= ====
71 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note J - Commitments Minimum lease commitments at December 31, 1997, with the majority having initial lease periods from one to twenty-five years, are as follows: (000s omitted) 1998 ....................................... $ 19,927 1999 ....................................... 16,802 2000 ....................................... 13,501 2001 ....................................... 9,288 2002 ....................................... 8,948 2003 and thereafter ........................ 53,121 -------- Minimum lease commitments ................ $121,587 ======== Rent expense amounted to $23,134,000, $19,824,000 and $14,112,000 for 1997, 1996 and 1995, respectively. Substantially all leases are for office space and equipment. A number of lease commitments contain renewal options ranging from one to thirty years. Note K - Contingencies In August 1997, several of the Company's subsidiaries were named as defendants in a class action lawsuit titled Bristol Hotel Management Corporation, et al., vs. Aetna Casualty & Surety Company, which was filed in the U.S. District Court for the Southern District of Florida. The lawsuit, brought on behalf of an alleged class of retrospectively rated workers compensation purchasers, claims, among other allegations, a conspiracy among insurers to charge illegally high prices for workers compensation insurance, breach of contract and fraud, Since that time, additional class action lawsuits with similar allegations have been brought against various subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and Tennessee as well as other insurers who did business in those states. The Company intends to vigorously defend these lawsuits. Orion and its subsidiaries are routinely engaged in litigation incidental to their businesses. Management believes that there are no significant legal proceedings pending against the Company which, net of reserves established therefore, are likely to result in judgments for amounts that are material to the financial condition, liquidity or results of operations of Orion and its consolidated subsidiaries, taken as a whole. 72 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note L - Stockholders' Equity and Earnings Per Common Share During 1997, the Company repurchased 42,916 shares of its common stock at an aggregate cost of $1,533,000 under the stock repurchase program authorized by the Board of Directors. The Company repurchased 482,228 shares for $11,148,000 in 1996 and 346,362 shares for $7,183,000 in 1995. Orion declared dividends on its common stock of $17,087,000, $14,290,000 and $12,078,000, or $.62, $.51 and $.43 per share in 1997, 1996 and 1995, respectively. A reconciliation of basic and diluted earnings per share ("EPS") for the three years ended December 31, 1997, is as follows: Net Average Per Share Earnings Shares Amount -------- ------- --------- (000s omitted except per shares amounts) 1997 - Basic EPS: Net earnings available to common stockholders........ $115,806 27,333 $ 4.24 ======== Stock options and awards.... - 567 -------- ------ Diluted EPS: Net earnings available to common stockholders with assumed exercises.......... $115,806 27,900 $ 4.15 ======== ====== ======== 1996 - Basic EPS: Net earnings available to common stockholders......... $ 86,631 27,400 $ 3.16 ======== Stock options and awards..... - 388 -------- ------ Diluted EPS: Net earnings available to common stockholders with assumed exercises........... $ 86,631 27,788 $ 3.12 ======== ====== ======== 1995 - Basic EPS: Net earnings available to common stockholders......... $ 67,622 28,110 $ 2.41 ======== Stock options and awards..... - 264 -------- ------ Diluted EPS: Net earnings available to common stockholders with assumed exercises........... $ 67,622 28,374 $ 2.38 ======== ====== ======== Options to purchase 2,000 shares of common stock at $47.56 per share were outstanding during 1997 but were not included in the computation of diluted earnings per share because the options' excercise price was greater than the average market price of the common shares. 73 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Effective as of September 11, 1996, Orion redeemed its old stockholder rights plan and adopted a new Stockholder Rights Plan ("Rights Plan"). Under the Rights Plan each outstanding share of common stock includes one preferred stock purchase right ("Rights"). The Rights Plan is designed to assure stockholders that they will receive equitable treatment in the event of a proposed takeover. Under the Rights Plan, each holder of a Right is entitled to buy two-hundredth of a share of Series B Junior Participating Preferred Stock. The Rights become exercisable (i) if an acquiror gains a 15% or greater beneficial ownership interest in Orion's outstanding common stock, on other than fair and favorable terms to all stockholders or (ii) following the commencement of a tender offer or exchange offer that would result in an acquiror owning 15% or more of Orion's outstanding common stock. Each Right not owned by such acquiror will enable the holder to purchase, at an initial purchase price of $100, common stock having a value of twice the Right's purchase price. In addition, under certain circumstances if Orion is involved in a merger each Right will entitle its holder to purchase, at the Right's then current purchase price, common shares of such other company having a value of twice the Right's purchase price. Note M - Employee Benefit Plans The Company maintains a Stock Savings and Profit Sharing Plan ("Plan"), qualified under Internal Revenue Code Section 401(k), for eligible employees of the Company (except for employees of Guaranty National and McGee). Employee and employer matched contributions to the savings funds are limited to the extent allowable under the Plan and federal income tax law. The Plan also provides for defined contribution savings and retirement benefits that allow the Company to make annual contributions to the Plan based on a percentage of employees' compensation and the Company's operating earnings. Employees vest in the Company's contributions over a six-year period. The Company has adopted a Surplus Benefit Plan which provides deferred benefits for those employees who received less than the full employer contribution to the Company's 401(k) plan as a result of federal tax limitations on participation in the Plan. Guaranty National has a defined contribution profit sharing plan ("Guaranty Plan"), which also qualifies under Section 401(k), for which substantially all of its employees are eligible. Guaranty National makes matching contributions to the Guaranty Plan in accordance with the limits of the Guaranty Plan and federal income tax law. Guaranty National has a non- qualified Supplemental Executive Retirement Plan ("SERP") for employees whose compensation meets a minimum requirement. The SERP provides deferred benefits for those employees who received less than the full employer contribution of the Guaranty Plan as a result of federal tax limitations on participation in the plan. 74 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) McGee maintains a Profit Sharing Plan ("McGee Plan") which is also a 401(k) plan for eligible employees of McGee. Employee and employer contributions are limited by the McGee Plan and federal income tax law. Employer contributions vest over a seven-year period. McGee has noncontributory defined benefit retirement plans covering all eligible employees, and a nonqualified supplemental retirement plan for certain key employees. At December 31, 1997 and 1996 the accumulated benefit obligation of McGee's defined benefit plan was approximately $20,252,000 and $20,620,000, and plan assets were approximately $20,845,000 and $20,695,000, respectively. As of December 31, 1997, Unisun froze its defined benefit pension plan that covered substantially all of its employees. Benefits were based on years of service and the employee's highest consecutive five years' (out of the last ten calendar years) average annual compensation. At December 31, 1997 the plan assets of $7,055,000 exceed the projected benefit obligation of $5,829,000 by $1,226,000. The Company maintains incentive plans for key employees, including the 1982 Long-Term Performance Incentive Plan ("1982 Plan"), and the Equity Incentive Plan (together the "Incentive Plans"). Orion has awarded both stock options and restricted stock to members of the Company's management under the Incentive Plans. All stock options are granted by Orion with exercise prices at fair market value at date of grant, and are intended to qualify to the maximum extent possible as incentive stock options. Stock options become exercisable from the first through fourth anniversaries of the date of grant, and expire ten years after the date of grant. Restricted stock is considered issued and outstanding when awarded. There are restrictions as to its transferability, which restrictions lapse in 25% increments over four or five year periods from the date of grant. As of December 31, 1997, the number of shares of stock reserved under the Incentive Plans is 2,094,481, of which 1,452,355 are for outstanding stock options and 215,567 and 426,559 are available for future awards under the 1982 Plan and the Equity Incentive Plan, respectively. Included in 1997 granted options were 358,090 of stock options relating to the 1997 GNC Acquisition of Guaranty National. 75 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A summary of the status of Orion's stock option plans as of December 31, 1997, 1996 and 1995 and changes during the years ending on those dates is presented below:
Year Ended December 31, ---------------------------------------------------------- 1997 1996 1995 -------------------- ----------------- ----------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- -------- ------- --------- ------- --------- Beginning of year.. 893,718 $ 18.07 588,342 $ 12.40 697,604 $ 11.67 Granted ........... 696,550 32.39 374,042 25.68 - - Cancelled.......... (33,145) 29.42 (13,856) 17.14 (10,546) 11.96 Exercised ......... (104,768) 11.41 (54,810) 9.47 (98,716) 7.28 --------- ------- ------- End of year 1,452,355 25.16 893,718 18.07 588,342 12.40 ========= ======= ======= ======= ======= ======= Exercisable at end of year ......... 646,120 $ 16.95 402,014 $ 11.48 350,360 $ 10.17 ========= ======= ======= ======= ======= ======= December 31, 1997 - ---------------------------------------------------------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Options Exercise Remaining Options Exercise Prices Outstanding Price Years Exercisable Price - ------------- ----------- -------- --------- ----------- -------- $ 5.08 - $10.00 78,272 $ 5.46 1.9 78,272 $ 5.46 10.01 - 17.50 346,713 14.80 6.0 288,313 14.47 17.51 - 25.00 363,092 21.48 8.4 197,875 21.44 25.01 - 45.03 664,278 34.89 9.3 81,660 25.83 --------- --------- 5.08 - 45.03 1,452,355 25.16 7.9 646,120 16.95 ========= ====== ==== ========= =======
76 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The weighted average fair value of options granted was $14.08 per share for 1997 and $14.58 per share for 1996. The fair value of options granted was estimated on the date of grant using the binomial option- pricing model with the following weighted-average assumptions: dividend yield of 1.5% - 1997 and 1.9% - 1996, expected volatility of 23% - 1997 and 19% - 1996, risk free interest rate of 5.5% - 1997 and 6.0% - 1996 and expected life of 7.0 years - 1997 and 7.1 years - 1996. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for stock options granted under the Incentive Plans. Accordingly, no compensation cost has been recognized for stock options awarded to employees. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement No. 123, the Company's net earnings and earnings per share for the year ended December 31, 1997 and 1996 would have been $114,934,000 or $4.12 per diluted and $86,477,000 or $3.11 per diluted share, respectively. Orion granted 57,202 shares of restricted stock at a weighted average fair value of $43.95 per share during 1997, 92,636 shares at $25.61 during 1996 and 55,030 shares at $14.03 for 1995. As of December 31, 1997, the restrictions have not lapsed on 186,294 shares of restricted stock. The fair market value of restricted stock on the date of issuance is amortized over the vesting period during which the restrictions lapse. Orion maintains a non-qualified defined benefit retirement plan for members of the Board of Directors who are not employees. On December 31, 1997, the Company terminated this plan resulting in $294,000 of benefits payments in January 1998 with the remaining accrued benefits of $438,000 to be paid with interest in future periods. Benefits are based on years of service and director fee levels at retirement. In 1995, Orion's stockholders authorized 200,000 shares for a stock option plan for non- employee directors. During 1997 and 1996 Orion granted 69,000 and 18,000 stock options, respectively, to directors at fair market value, which become exercisable one year from the date of grant and expire in ten years. The total expense for 1997, 1996 and 1995 for the above savings, retirement and pension benefit plans for employees and directors amounted to $10,882,000, $9,473,000 and $6,588,000, respectively. 77 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note N - Postretirement Medical Benefits The Company provides postretirement medical benefits to full-time employees (except for employees of Guaranty National), who have attained age 55 and have 10 years of consecutive service immediately prior to retirement with an increasing level of benefits for additional years of service up to 25. The postretirement health care plans are not funded. Recent changes to the plans for dependent coverage, coordination with other coverages and cost sharing arrangements have been reflected in the accumulated post retirement benefit obligation as of December 31, 1997. The accumulated postretirement benefit obligation of these plans included in other liabilities in the consolidated balance sheet is as follows: December 31, ---------------- 1997 1996 ---- ---- (000s omitted) Retirees ................................. $ 3,840 $ 3,864 Fully eligible active plan participants .. 524 1,352 Other active plan participants ........... 846 3,510 Unrecognized net gains ................... 8,488 4,275 ------- ------- $13,698 $13,001 ======= ======= Net postretirement benefit cost for the years ended December 31, 1997, 1996 and 1995 was $1,070,000, $1,072,000 and $1,203,000 consisting of service cost benefits earned of $936,000, $953,000 and $695,000 and interest on the accumulated postretirement benefit obligation of $640,000, $596,000 and $612,000, respectively, and amortization of unrecognized net gains of $506,000 in 1997, $477,000 in 1996 and $104,000 in 1995. The expected health care cost trend rate used as of December 31, 1997 was 15.0% for 1998 and 8.5% for 1999, decreasing linearly each year until it reaches 5% for 2006 and future years. At December 31, 1996 the expected health care cost trend rates used were 15.0% for 1997 and 8.5% for 1998, ratably reduced to 5% for 2005 and later years. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the aggregate service cost and interest cost for 1997, 1996 and 1995 by $260,000, $265,000 and $245,000, respectively, and increase the accumulated postretirement benefit obligation as of December 31, 1997 and 1996 by $477,000 and $1,075,000, respectively. A one-percentage-point decrease in the health care cost rate would decrease service and interest costs and the accumulated post retirement benefit obligation by similar amounts. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.0% at December 31, 1997 and 7.5% at December 31, 1996. 78 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note O - Industry Segment Information The Company's industry segments are described above in Note A. Guaranty National's results of operations are included on a consolidated basis for 1997 and 1996 and accounted for using the equity method for 1995. Identifiable assets of the Regional Operations and Special Programs segments are primarily allocated based on the cash flows of these segments. Financial information for the Company's segments for 1997, 1996 and 1995 is shown below:
Earnings (Loss) Before Federal Income Taxes and Minority Premiums Total Interest Identifiable Earned Revenues Expense Assets ---------- ---------- --------------- ------------ (000s omitted) 1997: Regional Operations ... $ 362,127 $ 418,028 $ 86,807 $ 972,834 Special Programs ...... 448,923 559,571 49,700 1,605,476 Guaranty National Corporation ......... 546,630 602,227 56,249 1,216,573 Other ................. - 10,709 (16,576) 89,175 ---------- ---------- --------- ---------- Total ............... $1,357,680 $1,590,535 $ 176,180 $3,884,058 ========== ========== ========= ========== 1996: Regional Operations ... $ 356,809 $ 402,015 $ 68,371 $ 910,579 Special Programs ...... 462,295 558,665 44,052 1,565,454 Guaranty National Corporation ......... 481,648 529,542 35,727 921,852 Other ................. - 3,227 (20,794) 66,472 ---------- ---------- --------- ---------- Total ............... $1,300,752 $1,493,449 $ 127,356 $3,464,357 ========== ========== ========= ========== 1995: Regional Operations.... $ 322,098 $ 362,672 $ 57,830 $ 836,089 Special Programs ...... 426,905 507,834 43,241 1,460,435 Guaranty National Corporation ......... - - 4,466 106,059 Other ................. - 3,774 (17,502) 71,005 ---------- ---------- --------- ---------- Total ............... $ 749,003 $ 874,280 $ 88,035 $2,473,588 ========== ========== ========= ==========
79 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note P - Selected Quarterly Financial Data (Unaudited) Quarterly results of operations and earnings per common share for 1997 and 1996 are summarized as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (000s omitted-except for per share data) 1997: Premiums earned ......................... $323,963 $335,226 $347,450 $351,041 Net investment income ................... 40,221 41,316 40,754 42,617 Realized investment gains ............... 15,789 8,358 5,152 18,476 Other income ............................ 4,939 5,180 5,014 5,039 -------- -------- -------- -------- Total revenues ...................... $384,912 $390,080 $398,370 $417,173 ======== ======== ======== ======== Net earnings ........................ $ 29,478 $ 25,381 $ 24,526 $ 36,421 ======== ======== ======== ======== Net earnings per basic common share ..... $ 1.08 $ 0.93 $ 0.90 $ 1.33 ======== ======== ======== ======== Net earnings per diluted common share.... $ 1.06 $ 0.91 $ 0.88 $ 1.30 ======== ======== ======== ======== 1996: Premiums earned ......................... $302,402 $319,109 $332,936 $346,305 Net investment income ................... 34,502 36,291 36,028 38,570 Realized investment gains ............... 5,365 5,761 5,480 7,574 Other income ............................ 5,522 6,011 5,940 5,653 -------- -------- -------- -------- Total revenues ...................... $347,791 $367,172 $380,384 $398,102 ======== ======== ======== ======== Net earnings ........................ $ 17,887 $ 20,573 $ 24,361 $ 23,810 ======== ======== ======== ======== Net earnings per basic common share ..... $ 0.65 $ 0.75 $ 0.89 $ 0.87 ======== ======== ======== ======== Net earnings per diluted common share ....$ 0.64 $ 0.74 $ 0.88 $ 0.86 ======== ======== ======== ========
80 ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note Q - Accounting Standards Not Yet Adopted In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131,"Disclosures About Segments of an Enterprise and Related Information", which changes the way public companies report information about segments. This statement is effective for financial statements for periods beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. The Company is in the process of evaluating the disclosure requirements. The adoption of this standard will have no impact on the Company's consolidated results of operations, financial position or cash flows. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in the financial statements. The Company will adopt this statement in the first quarter of 1998. The Company is in the process of determining its preferred format. The adoption of this statement will have no impact on the Company's results of operations, financial position or cash flows. Note R - Subsequent Events On February 2, 1998 Orion issued $125,000,000 of 7.701% Junior Subordinated Deferrable Interest Debentures due April 15, 2028 to Orion Capital Trust II, a Delaware statutory business trust sponsored by the Company. Orion Capital Trust II then sold $125,000,000 of 7.701% capital securities, which mature on April 15, 2028 ("Capital Securities") in a private placement. The Capital Securities are subordinate to all liabilities of the Company. Approximately $100,000,000 of the net proceeds from the sale of the junior subordinated debentures were used to retire bank indebtedness of Guaranty National. Orion agreed to register the Capital Securities under the Securities Act of 1933, and will file a registration statement with the Securities and Exchange Commission. 81 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Pursuant to General Instruction G(3) to this form, the information required by Part III (Items 10, 11, 12 and 13) hereof is incorporated by reference from the Company's definitive proxy statement for its Annual Meeting to be held on May 28, 1998. The Company intends to file the proxy material, which involves the election of directors, not later than 120 days after the close of the Company's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 Financial Statements: The following financial statements are included in Part II, Item 8. Page ---- Report of Management................................. 48 Independent Auditors' Report......................... 49 Orion Capital Corporation and Subsidiaries: December 31, 1997 and 1996 Consolidated Balance Sheet...................... 50-51 For the years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Earnings......... 52 Consolidated Statement of Stockholders' Equity................................... 53 Consolidated Statement of Cash Flows....... 54-55 Notes to the Consolidated Financial Statements.. 56-81 (a) 2. Financial Statement Schedules: Selected Quarterly Financial Data - for the years ended December 31, 1997, and 1996 - Included in Part II, Item 8. Page ---- Schedule I Consolidated Summary of Investments - Other than Investments in Related Parties - December 31, 1997........................ S-1 II Condensed Financial Information of Registrant - S-2, S-3, December 31, 1997, 1996 S-4, S-5, and 1995.................... S-6, S-7, 82 Schedule III Supplementary Insurance Information - December 31, 1997, 1996 and 1995.......... S-8 V Valuation and Qualifying Accounts - December 31, 1997, 1996 and 1995................... S-9 VI Supplemental Information For Property - Casualty Insurance Underwriters - December 31, 1997, 1996 and 1995............................ S-10 Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the Financial Statements or notes thereto. (a) 3. Exhibits: Exhibit 2(i) Agreement and Plan of Merger dated as of October 31, 1997 between Guaranty National Corporation and Orion; filed as Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1; filed on November 5, 1997. Exhibit 3(i) Restated Certificate of Incorporation of Orion, as amended on June 5, 1997; and as restated for filing purposes. Exhibit 3(ii) By-Laws of Orion, as amended on September 11, 1996; filed as Exhibit 3(ii) to the Company's Annual Report on Form 10-K for 1996. Exhibit 4(i) Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock of Orion, dated September 17, 1996; filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for 1996. Exhibit 4(ii) Specimen certificate representing shares of Orion's Common Stock (proof of March 27, 1989); filed as Exhibit 4(xii) to the Company's Annual Report on Form 10-K for 1988. Exhibit 4(iii) Indenture, dated as of September 8, 1992, between Orion and the Connecticut National Bank (now known as Fleet Bank Connecticut, National Association), as Trustee of Orion's 9 1/8% Senior Notes due September 1, 2002; filed as Exhibit 4(v) to the Company's Annual Report on Form 10-K for 1992. Exhibit 4(iv) Specimen certificate representing Orion's 9 1/8% Senior Notes; filed as Exhibit 4(vi) to the Company's Annual Report on Form 10-K for 1992. 83 Exhibit 4(v) Senior Debt Indenture, dated as of July 17, 1995, between Orion and the State Street Bank and Trust Company of Connecticut, National Association, as Trustee of Orion's 7 1/4% Senior Notes due July 15, 2005; filed as Exhibit 4.9 to the Company's Current Report on Form 8-K, filed on 7/14/95. Exhibit 4(vi) First Supplemental Indenture to the Senior Debt Indenture; filed as Exhibit 4.9(a) to the Company's Current Report on Form 8-K, filed on 7/14/95. Exhibit 4(vii) Specimen Certificate representing Orion's 7 1/4% Senior Notes; filed as Exhibit 4.9(b) to the Company's Current Report on Form 8-K, filed on 7/14/95. Exhibit 4(viii) Indenture, dated as of February 5, 1998, between Orion and the Bank of New York, as Trustee of Orion's 7.701% Junior Subordinated Deferrable Interest Debentures. Exhibit 4(ix) Indenture, dated as of January 13, 1997, between Orion and the Bank of New York, as Trustee of Orion's 8.73% Junior Subordinated Deferrable Interest Debentures; filed as Exhibit 4.1 to the Company's Registration Statement on Form 4 (No. 333- 21205. Exhibit 4(x) Form of Exchange Debenture Certificate representing Orion's 8.73% Junior Subordinated Deferrable Interest Debentures; filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4 (No. 333-21205), filed on February 5, 1997. Exhibit 4(xi) Certifificate of Trust of Orion Capital Trust II, dated as of February 2, 1998. Exhibit 4(xii) Certificate of Trust of Orion Capital Trust I, dated as of January 3, 1997; filed as Exhibit 4.3 to the Company's Registration Statement on Form S-4 (No. 333- 21205), filed on February 5, 1997. Exhibit 4(xiii) Declaration of Trust of Orion Capital Trust II, dated as of February 2, 1998. Exhibit 4(xiv) Declaration of Trust of Orion Capital Trust I, dated as of January 3, 1997; filed as Exhibit 4.4 to the Company's Registration Statement on Form S-4 (No. 333-21205), filed on February 5, 1997. Exhibit 4(xv) Amended and Restated Declaration of Trust of Orion Capital Trust II, dated as of February 5, 1998. Exhibit 4(xvi) Amended and Restated Declaration of Trust of Orion Capital Trust I, dated as of January 13, 1997; filed as Exhibit 4.5 to the Company's Registration Statement on Form S-4 (No. 333-21205), filed on February 5, 1997. Exhibit 4(xvii) Form of Certificate evidencing 8.73% Exchange Capital Securities of Orion Capital Trust I; filed 84 as Exhibit 4.6 to the Company's Registration Statement on Form S-4 (No. 333-21205). Exhibit 4(xviii) Capital Securities Guarantee Agreement, dated as of January 13, 1997, delivered by Orion as Guarantor and relating to the 8.73% Exchange Capital Securities; filed as Exhibit 4.7 to the Company's Registration Statement on Form S-4 (No. 333-21205). Exhibit 4(xix) Capital Securities Guarantee Agreement, dated as of February 5, 1998, delivered by Orion as Guarantor, and relating to the 7.701% Capital Securities of Orion Capital Trust II. Exhibit 4(xx) Form of Certificate evidencing 7.701% Capital Securities of Orion Capital Trust II included as part of Exhibit 4(xv). Exhibit 4(xxi) Form of Certificate representing Orion's 7.701% Junior Subordinated Deferrable Interest Debentures (filed as Exhibit A to Exhibit 4(viii)). Exhibit 10(xx) Amendment, dated February 14, 1995, to the Letter Agreement by and between Orion Capital Corporation and Intercargo Corporation; filed as Exhibit 10(xxiii) to the Company's Annual Report on Form 10-K for 1994. Exhibit 10(xxi) Second Amendment, dated August 12, 1997, to the Letter Agreement by and between Orion Capital Corporation and Intercargo Corporation. Exhibit 10(i)* Orion's Deferred Compensation Plan, as amended; filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for 1991. Exhibit 10(ii)* Orion's 1982 Long-Term Performance Incentive Plan, as amended; filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for 1996. Exhibit 10(iii)* Orion's 1994 Stock Option Plan for Non- Employee Directors; filed as Exhibit 10(iii) to the Company's Annual Report on Form 10-K for 1994. Exhibit 10(iv)* Employment Agreement between Robert B. Sanborn and Orion, dated as of March 19, 1993; filed as Exhibit 10(vi) to the Company's Annual Report on Form 10-K for 1992. Exhibit 10(v)* Amendment to Employment Agreement between Robert B. Sanborn and Orion, dated as of January 1, 1997; filed as Exhibit 10(vii) to the Company's Annual Report on Form 10-K for 1996. Exhibit 10(vii)* Employment Agreement between Raymond W. Jacobsen and Orion, as amended and restated as of December 6 1995; filed as Exhibit 10(vii) to the Company's Annual Report on Form 10-K for 1995. *Management contract or compensatory plan or arrangement. 85 Exhibit 10(viii)* Employment Agreement between W. Marston Becker and Orion, dated as of October 31, 1995; filed as Exhibit 10(viii) to the Company's Annual Report on Form 10-K for 1995. Exhibit 10(ix)* Amendment to Employment Agreement between W. Marston Becker and Orion, dated as of January 1, 1997; filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for 1996. Exhibit 10(x) Lease Agreement between Connecticut UTF, Inc., as lessor, and Security Insurance Company of Hartford ("Security"), as lessee, dated as of December 19, 1984; filed as Exhibit 10(xxxiii) to the Company's Annual Report on Form 10-K for l984. Exhibit 10(xi) Second Assignment of Lease and Agreement from Connecticut UTF, Inc. to Security, dated as of December 19, 1984; filed as Exhibit 10(xxxiv) to the Company's Annual Report on Form 10-K for 1984. Exhibit 10(xii) Purchase Money Second Mortgage from Connecticut UTF, Inc., as mortgagor, to Security, as mortgagee, dated as of December 19, 1984; filed as Exhibit 10(xxxvi) to the Company's Annual Report on Form 10-K for 1984. Exhibit 10(xiii) Purchase Money Note, in the face amount of $2,800,000, from Connecticut UTF, Inc. to Security, dated December 19, 1984; filed as Exhibit 10(xxxvi) to the Company's Annual Report on Form 10-K for l984. Exhibit 10(xiv) Guarantee from Orion to Connecticut UTF, Inc., dated as of December 19, 1984, guaranteeing the performance of Security under its lease with Connecticut UTF, Inc.; filed as Exhibit 10(xxxvii) to the Company's Annual Report on Form 10-K for 1984. Exhibit 10(xv) Form of Indemnification Agreement, dated as of June 3, 1987, between Orion and each of its Directors and Executive Officers; filed as Exhibit 10(xl) to the Company's Annual Report on Form 10-K for 1987. Exhibit 10(xvi) Rights Agreement, dated as of September 11, 1996 between Orion and ChaseMellon Shareholder Services, L.L.C., as Rights Agent; filed as Exhibit 1 to the Company's Form 8-A filed on September 20, 1996. Exhibit 10(xvii)* Orion Supplemental Benefits Plan, filed as Exhibit 10(xxv) to the Company's Annual Report on Form 10-K for 1991. *Management contract or compensatory plan or arrangement. 86 Exhibit 10(xviii) Orion's Equity Incentive Plan, dated September 11, 1996; filed as Exhibit 10(xx) to the Company's Annual Report on Form 10-K for 1996. Exhibit 10(xix) Letter Agreement, dated September 13, 1993, by and between Orion and Intercargo Corporation; filed as Exhibit 10(xxii) to the Company's Annual Report on Form 10-K for 1993. Exhibit 10(xx) Amendment, dated February 14, 1995, to the Letter Agreement by and between Orion Capital Corporation and Intercargo Corporation; filed as Exhibit 10(xxiii) to the Company's Annual Report on Form 10-K for 1994. Exhibit 10(xxi) Second Amendment, dated August 12, 1997, to the Letter Agreement by and between Orion Capital Corporation and Intercargo Corporation. Exhibit 10(xxii) Purchase Agreement by and between Sun Alliance USA Inc. and Orion, dated as of June 30, 1995; filed as Exhibit 10(xxv) to the Company's Annual Report on Form 10-K for 1995. Exhibit 11 Statement re: computation of earnings per common share. Exhibit 21 Subsidiaries of Orion. Exhibit 23 Consent of Deloitte & Touche LLP Exhibit 27 Financial Data Schedules (including restatement of prior periods for FAS No. 128 and 1997 stock split). Copies of exhibits may be obtained upon payment of a $.50 per page fee. Such requests should be made in writing to: Corporate Secretary, Orion Capital Corporation, 9 Farm Springs Road, Farmington, CT 06032. (b) Reports on Form 8-K: None. (c) Filed exhibits: See Exhibit Index 87 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORION CAPITAL CORPORATION By: /s/ W. Marston Becker March 25, 1998 ---------------------- W. Marston Becker Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Peter M. Vinci March 25, 1998 ------------------- Peter M. Vinci Vice President, Chief Accounting Officer and Controller 88 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons (including a majority of the members of the Board of Directors of the Registrant) in the capacities and on the dates indicated: Signature and Title Date - ------------------------- -------------- /s/ W. Marston Becker March 25, 1998 - -------------------------- W. Marston Becker Chairman of the Board /s/ Gordon F. Cheesbrough March 25, 1998 - ------------------------- Gordon F. Cheesbrough Director /s/ Bertram J. Cohn - ------------------------- March 25, 1998 Bertram J. Cohn Director /s/ John C. Colman March 25, 1998 - ------------------------- John C. Colman Director /s/David H. Elliott March 25, 1998 - ------------------------- David H. Elliott Director /s/ Victoria R. Fash March 25, 1998 - ------------------------- Victoria R. Fash Director /s/ Robert H. Jeffrey March 25, 1998 - ---------------------- Robert H. Jeffrey Director /s/ Warren R. Lyons March 25, 1998 - ------------------------- Warren R. Lyons Director /s/ James K. McWilliams March 25, 1998 - ------------------------- James K. McWilliams Director 89 Signature and Title Date - ------------------- ------ /s/ Ronald W. Moore March 25, 1998 - ----------------------- Ronald W. Moore Director /s/ Robert B. Sanborn March 25, 1998 - ---------------------- Robert B. Sanborn Director /s/ William J. Shepherd March 25, 1998 - ----------------------- William J. Shepherd Director /s/ John R. Thorne March 25, 1998 - ----------------------- John R. Thorne Director /s/ William B. Weaver March 25, 1998 - --------------------- William B. Weaver Director 90 EXHIBIT INDEX Exhibit 3(i) Restated Certificate of Incorporation of Orion, as amended on June 5, 1997; and as restated for filing purposes. Exhibit 4(viii) Indenture, dated as of February 5, 1998, between Orion and the Bank of New York, as Trustee of Orion's 7.701% Junior Subordinated Deferrable Interest Debentures. Exhibit 4(xi) Certifificate of Trust of Orion Capital Trust II, dated as of February 2, 1998. Exhibit 4(xiii) Declaration of Trust of Orion Capital Trust II, dated as of February 2, 1998. Exhibit 4(xv) Amended and Restated Declaration of Trust of Orion Capital Trust II, dated as of February 5, 1998. Exhibit 4(xix) Capital Securities Guarantee Agreement, dated as of February 5, 1998, delivered by Orion as Guarantor, and relating to the 7.701% Capital Securities of Orion Capital Trust II. Exhibit 4(xx) Form of Certificate evidencing 7.701% Capital Securities of Orion Capital Trust II included as part of Exhibit 4(xv). Exhibit 4(xxi) Form of Certificate representing Orion's 7.701% Junior Subordinated Deferrable Interest Debentures (filed as Exhibit A to Exhibit 4(viii)). Exhibit 10(xxi) Second Amendment, dated August 12, 1997, to the Letter Agreement by and between Orion Capital Corporation and Intercargo Corporation. Exhibit 11 Statement re: computation of earnings per common share. Exhibit 21 Subsidiaries of Orion. Exhibit 23 Consent of Deloitte & Touche. Exhibit 27 Financial Data Schedules (including restatement of prior periods for FAS No. 128 and 1997 stock split). 91
SCHEDULE I ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 1997 (000s omitted) ======================================================================== Column A Column B Column C Column D -------- -------- -------- -------- Amount Shown on Balance Type of Investment Cost Value Sheet ______________________________________________________________________________ Fixed maturities held-to-maturity: Bonds - United States Government and government agencies and authorities ............... $ 122,616 $ 124,008 $ 122,616 States, municipalities and political subdivisions .... 166,895 174,458 166,895 Foreign governments ......... 50 50 50 All other corporate bonds ... 23,209 23,879 23,209 ---------- ---------- ---------- 312,770 $ 322,395 312,770 ---------- ========== ---------- Fixed maturities available-for-sale: Bonds - United States Government and government agencies and authorities ............... 381,747 $ 401,312 401,312 States, municipalities and political subdivisions .... 439,480 469,869 469,869 Foreign governments ......... 4,590 5,120 5,120 Public utilities ............ 11,097 11,777 11,777 All other corporate bonds ... 458,828 477,930 477,930 Redeemable preferred stocks ... 99,679 103,838 103,838 ---------- ---------- ---------- 1,395,421 $1,469,846 1,469,846 ---------- ========== ---------- Equity securities: Common stocks - Public utilities ............ 3,771 $ 6,414 6,414 Banks, trusts and insurance companies ................. 23,993 63,170 63,170 Industrial, miscellaneous and all other ................. 135,256 175,815 175,815 Non-redeemable preferred stocks 183,577 193,102 193,102 ---------- ---------- ---------- 346,597 $ 438,501 438,501 ---------- ========== ---------- Mortgage loans on real estate ... 2,249 2,249 Other long-term investments ..... 92,090 92,090 Short-term investments .......... 228,277 228,277 ---------- ---------- Total investments ......... $2,377,404 $2,543,733 ========== ========== S-1 SCHEDULE II ORION CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT ORION CAPITAL CORPORATION BALANCE SHEET (000s omitted) ASSETS December 31, -------------------- 1997 1996 ---- ---- Fixed maturities held at market (cost $214 - 1997 and $347 - 1996) ........................................ $ 214 $ 347 Short-term investments ................................ 68,725 32,653 Cash .................................................. 379 320 Notes receivable and other assets ..................... 5,259 7,232 Deferred federal income taxes ......................... 9,416 23,544 Investment in subsidiaries ............................ 947,085 729,476 Excess of cost over fair value of net assets acquired.. 98,899 47,120 ---------- -------- Total assets ........................................ $1,129,977 $840,692 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities ..................................... $ 55,787 $ 35,902 Due to affiliates ..................................... 16,790 18,841 Notes payable ......................................... 209,290 209,216 ---------- -------- Total liabilities ................................... 281,867 263,959 Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely the Junior Subordinated Debentures of the Company.......................................... 125,000 - Stockholders' equity .................................. 723,110 576,733 ---------- -------- Total liabilities and stockholders' equity .......... $1,129,977 $840,692 ========== ======== See Notes to Condensed Financial Information of Registrant S-2 SCHEDULE II ORION CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT ORION CAPITAL CORPORATION STATEMENT OF EARNINGS (000s omitted) Year Ended December 31, ---------------------------- 1997 1996 1995 ---- ---- ---- Revenues: Net investment income ....................... $ 8,414 $ 1,898 $ 1,770 Realized investment losses .................. (34) (319) (800) Other income ................................ 650 650 595 -------- -------- -------- 9,030 2,229 1,565 -------- -------- -------- Expenses: Interest .................................... 18,428 17,835 15,537 General and administrative .................. 6,130 3,671 3,106 Amortization of excess of cost over fair value of net assets acquired .............. 2,022 1,867 1,470 -------- -------- -------- 26,580 23,373 20,113 -------- -------- -------- Loss before federal income taxes, equity in net earnings of subsidiaries and minority interest expense............................. (17,550) (21,144) (18,548) Federal income taxes .......................... 45,045 30,059 20,284 -------- -------- -------- Loss before equity in net earnings of subsidiaries and minority interest expense... (62,595) (51,203) (38,832) Equity in net earnings of subsidiaries ........ 185,258 137,834 106,454 Minority interest expense in subsidiary trust preferred securities, net of federal income taxes................................. 6,857 - - -------- -------- -------- Net earnings .................................. $115,806 $ 86,631 $ 67,622 ======== ======== ======== See Notes to Condensed Financial Information of Registrant S-3 SCHEDULE II ORION CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT ORION CAPITAL CORPORATION STATEMENT OF CASH FLOWS (000s omitted) Year Ended December 31, ------------------------------ 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Dividends received from subsidiaries ...... $ 42,822 $ 35,286 $ 30,546 Net investment income collected ........... 7,967 1,919 1,737 Federal income taxes received from subsidiaries ............................ 9,525 7,455 4,500 Interest paid ............................. (17,288) (17,254) (12,123) Payments on subsidiary trust preferred capital securities....................... (5,092) - - Other expenses paid ....................... (2,262) (2,046) (2,276) Other receipts ............................ 604 903 1,268 -------- -------- -------- Net cash provided by operating activities. 36,276 26,263 23,652 -------- -------- -------- Cash flows from investing activities: Investment in fixed maturity available - for-sale................................. (250) - - Sale of fixed maturity available - for-sale................................. 133 - - Sales of equity securities................. 216 - - Net sales (purchases) of short-term investments ............................. (36,052) 22,770 (42,587) Investments in subsidiaries ............... - - 4,476 Purchase of Guaranty National common stock. (104,429) (20,709) - Acquisition of McGee ...................... - - (22,355) Other payments ............................ (13) (2,588) (99) -------- -------- -------- Net cash used in investing activities ... (140,395) (527) (60,565) -------- -------- -------- Cash flows from financing activities: Net proceeds from issuance of trust preferred capital securities............. 123,026 - - Proceeds from issuance of notes payable ... - - 110,413 Proceeds from exercise of stock options.... 594 42 246 Repayment of notes payable ................ - - (54,500) Dividends paid to stockholders ............ (18,037) (14,886) (12,717) Purchases of common stock ................. (1,533) (10,558) (6,689) Other receipts (payments).................. 128 (17) (17) -------- -------- -------- Net cash provided by (used in) financing activities ............................ 104,178 (25,419) 36,736 -------- -------- -------- Net increase in cash..................... 59 317 (177) Cash balance, beginning of year ........... 320 3 180 -------- -------- -------- Cash balance, end of year ................. $ 379 $ 320 $ 3 ======== ======== ======== See Notes to Condensed Financial Statements of Registrant S-4 SCHEDULE II ORION CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT ORION CAPITAL CORPORATION STATEMENT OF CASH FLOWS - (Continued) (000s omitted) Year Ended December 31, ------------------------------ 1997 1996 1995 ---- ---- ---- Reconciliation of net earnings to net cash provided by operating activities: Net earnings ................................ $115,806 $ 86,631 $ 67,622 -------- -------- -------- Adjustments: Equity in net earnings of subsidiaries .... (185,258) (137,834) (106,454) Consolidating elimination of subsidiaries income taxes ............................ 40,057 35,530 30,941 Dividends received from subsidiaries ...... 42,822 35,286 30,546 Depreciation and amortization ............. 3,027 3,016 2,594 Deferred federal income taxes (benefit) ... 3,097 10,022 (3,881) Realized investment losses ................ 34 319 800 Amortization of discount on debt .......... 74 68 36 Change in assets and liabilities: Decrease (increase) in notes receivable and other assets ............................ 1,048 (2,235) 90 Increase (decrease) in taxes payable and other liabilities ....................... 11,618 (3,746) 7,799 Increase (decrease) in due to affiliates .. 3,951 (794) (6,441) -------- -------- -------- Total adjustments and changes ........... (79,530) (60,368) (43,970) -------- -------- -------- Net cash provided by operating activities.. $ 36,276 $ 26,263 $ 23,652 ======== ======== ======== See Notes to Condensed Financial Information of Registrant S-5
SCHEDULE II ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT Years Ended December 31, 1997, 1996 and 1995 Note A - Notes Payable Notes payable consist of the following:
Estimated Carrying Value Market Value ----------------- ----------------- December 31, 1997 1996 1997 1996 ------------ ---- ---- ---- ---- (000s omitted) $110,000,000 face amount, 9 1/8% Senior Notes, due September 1, 2002 .......... $109,919 $109,906 $121,231 $120,703 $100,000,000 face amount, 7 1/4% Senior Notes, due July 15, 2005 .............. 99,371 99,310 103,160 97,660 -------- -------- -------- -------- $209,290 $209,216 $224,391 $218,363 ======== ======== ======== ========
As of December 31, 1997, $110,000,000 of the Registrant's debt is scheduled to be repaid on September 1, 2002 and the remaining $100,000,000 is due on July 15, 2005. Note B - Expense Reimbursement and Management Fees During 1995 through 1997, the Registrant was reimbursed for payroll, office rental and other expenses incurred by it to support the operations of its insurance subsidiaries. This reimbursement of $8,114,000, $7,410,000 and $6,232,000 in 1997, 1996 and 1995, respectively, is accounted for as a reduction of general and administrative expenses. The Registrant received an investment management fee from Guaranty National of $650,000 in 1997, $650,000 in 1996 and $595,000 in 1995. S-6 SCHEDULE II ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT Years Ended December 31, 1997, 1996, and 1995 Note C - Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding Solely the Junior Subordinated Debentures of the Registrant. On January 13, 1997 the Registrant issued $125,000,000 of 8.73% Junior Subordinated Deferrable Interest Debentures due January 1, 2037 (the "Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory business trust sponsored by the Registrant. The Trust simultaneously sold $125,000,000 of 8.73% Capital Securities (the "Trust Preferred Securities") which have substantially the same terms as the Debentures. The Trust Preferred Securities are subordinate to all liabilities of the Registrant, and may be redeemed without premium on or after January 1, 2007. The Registrant may defer interest distributions on the Trust Preferred Securities; however, during any period when such cumulative distributions have been deferred, the Registrant may not declare or pay any dividends or distributions on its common stock. The Trust Preferred Securities were registered under the Securities Act of 1933 in April 1997. The trust is consolidated in the Registrant financial statements because it is wholly-owned by the Registrant. The sole assets of the Trust are the Debentures issued by the Registrant. The Registrant has provided a full and unconditional guaranty of the Trust's obligations under the Trust Preferred Securities, including all costs, expenses, debts and liabilities of the Trust. The carrying value and estimated market value of the Trust Preferred Securities is $125,000,000 and $137,525,000 at December 31, 1997. On February 2, 1998 the Registrant issued $125,000,000 of 7.701% Junior Subordinated Debentures due April 15, 2028 to Orion Capital Trust II, a Delaware statutory business trust sponsored by the Registrant. Orion Capital Trust II then sold $125,000,000 of 7.701% Capital Securities, which mature on April 15, 2028 (the "Capital Securities") in a private placement. The Capital Securities are subordinate to all liabilities of the Registrant. Approximately $100,000,000 of the net proceeds from the sale of the junior subordinated debentures were used to retire bank indebtedness of Guaranty National. The Registrant agreed to register the Capital Securities under the Securities Act of 1933, and will file a registration statement with the Securities and Exchange Commission. S-7 SCHEDULE III
ORION CAPITAL CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION (000s omitted) - ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column J Column K -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Reserve For Unpaid Dividends Amortization Deferred Losses Payable Losses of Deferred Policy- Policy and Loss to Net and Loss Policy Other holders' Acquisition Adjustment Unearned Policy- Premiums Investment Adjustment Acquisition Insurance Dividend Premiums Segment Costs Expenses Premiums holders Earned Income Expenses Costs Expenses Expenses Written (a) __________________________________________________________________________________________________________________________________ 1997: Regional Operations $ 41,379 $ 417,868 $ 85,953 $ 19,947 $ 362,127 $ 41,787 $194,444 $101,802 $13,176 $20,599 $ 365,050 Special Programs .. 54,923 1,011,339 245,492 548 448,923 68,700 331,010 141,405 10,628 3,401 436,898 Guaranty National... 50,822 442,504 220,145 - 546,630 43,613 380,004 143,958 12,841 - 565,120 Other ....... - - - - - 10,808 - - - - - -------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ---------- $147,124 $1,871,711 $551,590 $20,495 $1,357,680 $164,908 $905,458 $387,165 $36,645 $24,000 $1,367,068 ======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ========== 1996: Regional Operations $ 33,160 $ 466,022 $ 83,920 $20,489 $ 356,809 $ 38,226 $209,705 $ 91,991 $11,244 $18,523 $ 353,041 Special Programs .. 58,552 955,706 258,103 2,000 462,295 62,646 335,503 137,625 6,246 5,111 489,848 Guaranty National .. 44,456 363,936 154,226 - 481,648 39,439 337,784 133,931 10,422 - 491,232 Other ....... - - - - - 5,080 - - - - - -------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ---------- $136,168 $1,785,664 $496,249 $22,489 $1,300,752 $145,391 $882,992 $363,547 $27,912 $23,634 $1,334,121 ======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ========== 1995: Regional Operations $ 29,516 $ 460,597 $ 84,360 $16,799 $ 322,098 $ 35,750 $201,054 $ 73,544 $11,302 $17,231 $ 332,598 Spec.Programs 48,157 814,385 217,745 2,147 426,905 59,584 311,179 121,937 10,260 4,559 424,838 Other ....... - - - - - 3,706 - - - - - -------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ---------- $ 77,673 $1,274,982 $302,105 $18,946 $ 749,003 $ 99,040 $512,233 $195,481 $21,562 $21,790 $ 757,436 ======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ========== (a) Net investment income for Regional Operations and Special Programs is allocated on the basis of cash flow. S-8 SCHEDULE V ORION CAPITAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (000s omitted) =============================================================================== Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions ---------------------- (1) (2) Balance at Charged to Charged to Balance at Beginning of Costs and Other Deductions End of Description Period Expenses Accounts (a) Period _______________________________________________________________________________ 1997: Allowance for doubtful accounts- Accounts and notes receivable $3,696 Effects of acquisition 322 ------ $4,018 $1,309 $ - $1,233 $4,094 ====== ====== ====== ====== ====== 1996: Allowance for doubtful accounts- Accounts and notes receivable $3,212 Effect of acquisition 374 ------ $3,586 $1,517 $ - $1,407 $3,696 ====== ====== ====== ====== ====== 1995: Allowance for doubtful accounts- Accounts and notes receivable $1,954 $1,689 $ - $ 431 $3,212 ====== ====== ====== ====== ====== (a) Accounts written off S-9 SCHEDULE VI ORION CAPITAL CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION FOR PROPERTY-CASUALTY INSURANCE UNDERWRITERS (000s omitted) ================================================================================================================================= Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K - -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Reserve Losses and for Loss Adjustment Unpaid Expenses Incurred Amortization Paid Deferred Losses Discount Related to of Deferred Losses Affiliation Policy and Loss Deducted Net (1) (2) Policy and Loss with Acquisition Adjustment in Column Unearned Premiums Investment Current Prior Acquisition Adjustment Premiums Registrant Costs Expenses (C) Premiums Earned Income Year Year Costs Expenses Written (a) ___________________________________________________________________________________________________________________________________ 1997: Consolidated property and casualty entities $147,124 $1,871,711 $4,100 $551,590 $1,357,680 $154,100 $896,226 $9,232 $387,165 $892,147 $1,367,068 ======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ========== 1996 (b): Consolidated property and casualty entities $136,168 $1,785,664 $4,100 $496,249 $1,300,752 $140,311 $874,123 $ 8,869 $363,547 $794,889 $1,334,121 ======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ========== 1995: Consolidated property and casualty entities $ 77,673 $1,274,982 $4,100 $302,105 $ 749,003 $ 95,334 $500,514 $11,719 $195,481 $409,797 $ 757,436 ======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ========== (a) Discount deducted in Column C is computed using a statutory interest rate of 3.5% for certain workers compensation losses. (b) 1997 and 1996 amounts include Guaranty National Corporation on a consolidated basis. S-10
EX-3 2 EXHIBIT 3(i) CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF ORION CAPITAL CORPORATION Orion Capital Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and directing that said amendment be considered at the Annual Meeting of Stockholders scheduled for May 29, 1997. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the total number of shares of stock of all classes of stock that the Corporation has authority to issue be increased from thirty-five million to fifty-five million shares; and further RESOLVED, that the total number of shares of Common Stock, $1.00 par value per share, that the Corporation has authority to issue be increased from thirty million shares to fifty million shares; and further RESOLVED, that the first paragraph of Article IV of the Corporation's Restated Certificate of Incorporation ("Certificate") be amended to read in its entirety as follows: IV. STOCK The total number of shares of stock of all classes which the corporation has authority to issue is Fifty-Five Million (55,000,000) shares, of which Fifty Million (50,000,000) shares shall be Common Stock, with a par value of One Dollar ($1.00) per share, and Five Million (5,000,000) shares shall be Preferred Stock, with a par value of One Dollar ($1.00) per share; and further RESOLVED, that the proposed amendment to the Certificate be submitted, with any changes of from, which counsel may deem to be necessary, to a vote of the stockholders of the Corporation at the Annual meeting of Stockholders to be held on May 29, 1997 for the purpose of considering and voting upon the adoption of the proposed amendment; and further RESOLVED, that, if the proposed amendment shall be adopted by the stockholders, the proper officers of the Corporation be, and they hereby are, authorized and directed, in the name and on behalf of the corporation, to execute, deliver and file for record such articles of amendment, and such other documents and instruments, and to do and perform such other acts and things as shall be necessary, convenient or proper to effect the amendment of the Certificate so proposed and accepted. SECOND: That, pursuant to resolutions of the Board of Directors, the Annual Meeting of Stockholders of the Corporation was duly called and held, upon notice in accordance with the provisions of Section 222 of the General Corporation law of the State of Delaware, at which meting the necessary number of shares as required by statute and by the Corporation's Restated Certificate of Incorporation were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Corporation has caused this Certificate to be signed by W. Marston Becker, its Chairman and Chief Executive Officer, this 4th day of June, 1997. By: /s/ W. Marston Becker ---------------------- Chairman and Chief Executive Officer /s/ Judy S. Spitzer - -------------------- Assistant Secretary - 2 - EX-4 3 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ORION CAPITAL CORPORATION ------------------------------------------------------ INDENTURE Dated as of February 5, 1998 ------------------------------------------------------ THE BANK OF NEW YORK as Trustee ------------------------------------------------------ $129,000,000 7.701% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS....................................................1 SECTION 1.01. DEFINITIONS.................................................1 ARTICLE II SECURITIES....................................................11 SECTION 2.01. FORMS GENERALLY............................................11 SECTION 2.02. EXECUTION AND AUTHENTICATION...............................11 SECTION 2.03. FORM AND PAYMENT...........................................12 SECTION 2.04. LEGENDS....................................................12 SECTION 2.05. GLOBAL SECURITY............................................12 SECTION 2.06. INTEREST...................................................14 SECTION 2.07. TRANSFER AND EXCHANGE......................................14 SECTION 2.08. REPLACEMENT SECURITIES.....................................16 SECTION 2.09. TREASURY SECURITIES........................................16 SECTION 2.10. TEMPORARY SECURITIES.......................................16 SECTION 2.11. CANCELLATION...............................................17 SECTION 2.12. DEFAULTED INTEREST.........................................17 SECTION 2.13. CUSIP NUMBERS..............................................18 ARTICLE III PARTICULAR COVENANTS OF THE COMPANY...........................18 SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.................18 SECTION 3.02. OFFICES FOR NOTICES AND PAYMENTS, ETC......................19 SECTION 3.03. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE....................................................19 SECTION 3.04. PROVISION AS TO PAYING AGENT...............................19 SECTION 3.05. CERTIFICATE TO TRUSTEE.....................................20 SECTION 3.06. COMPLIANCE WITH CONSOLIDATION PROVISIONS...................20 SECTION 3.07. LIMITATION ON DIVIDENDS....................................21 SECTION 3.08. COVENANTS AS TO ORION CAPITAL TRUST II.....................21 SECTION 3.09. PAYMENT OF EXPENSES........................................22 SECTION 3.10. PAYMENT UPON RESIGNATION OR REMOVAL........................22 ARTICLE IV SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE...............................................23 SECTION 4.01. SECURITYHOLDERS' LISTS.....................................23 SECTION 4.02. PRESERVATION AND DISCLOSURE OF LISTS.......................23 SECTION 4.03. REPORTS OF THE COMPANY.....................................24 SECTION 4.04. REPORTS BY THE TRUSTEE.....................................25 ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT..............................................26 SECTION 5.01. EVENTS OF DEFAULT..........................................26 SECTION 5.02. PAYMENT OF SECURITIES ON DEFAULT; SUIT THEREFOR............27 SECTION 5.03. APPLICATION OF MONEYS COLLECTED BY TRUSTEE.................29 SECTION 5.04. PROCEEDINGS BY SECURITYHOLDERS.............................30 SECTION 5.05. PROCEEDINGS BY TRUSTEE.....................................31 SECTION 5.06. REMEDIES CUMULATIVE AND CONTINUING.........................31 SECTION 5.07. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF SECURITYHOLDERS............................31 SECTION 5.08. NOTICE OF DEFAULTS.........................................32 SECTION 5.09. UNDERTAKING TO PAY COSTS...................................32 ARTICLE VI CONCERNING THE TRUSTEE........................................33 SECTION 6.01. DUTIES AND RESPONSIBILITIES OF TRUSTEE.....................33 SECTION 6.02. RELIANCE ON DOCUMENTS, OPINIONS, ETC.......................34 SECTION 6.03. NO RESPONSIBILITY FOR RECITALS, ETC........................35 SECTION 6.04. TRUSTEE, AUTHENTICATING AGENT, PAYING AGENTS, TRANSFER AGENTS OR REGISTRAR MAY OWN SECURITIES...........35 SECTION 6.05. MONEYS TO BE HELD IN TRUST.................................35 SECTION 6.06. COMPENSATION AND EXPENSES OF TRUSTEE.......................35 SECTION 6.07. OFFICERS' CERTIFICATE AS EVIDENCE..........................36 SECTION 6.08. CONFLICTING INTEREST OF TRUSTEE............................36 SECTION 6.09. ELIGIBILITY OF TRUSTEE.....................................37 SECTION 6.10. RESIGNATION OR REMOVAL OF TRUSTEE..........................37 SECTION 6.11. ACCEPTANCE BY SUCCESSOR TRUSTEE............................38 SECTION 6.12. SUCCESSION BY MERGER, ETC..................................39 SECTION 6.13. LIMITATION ON RIGHTS OF TRUSTEE AS A CREDITOR..............39 SECTION 6.14. AUTHENTICATING AGENTS......................................39 ARTICLE VII CONCERNING THE SECURITYHOLDERS................................40 SECTION 7.01. ACTION BY SECURITYHOLDERS..................................40 SECTION 7.02. PROOF OF EXECUTION BY SECURITYHOLDERS......................41 SECTION 7.03. WHO ARE DEEMED ABSOLUTE OWNERS.............................41 SECTION 7.04. SECURITIES OWNED BY COMPANY DEEMED NOT OUTSTANDING...............................................42 SECTION 7.05. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND...............42 ARTICLE VIII SECURITYHOLDERS' MEETINGS.....................................42 SECTION 8.01. PURPOSE OF MEETINGS........................................42 SECTION 8.02. CALL OF MEETINGS BY TRUSTEE................................43 SECTION 8.03. CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS.............43 SECTION 8.04. QUALIFICATIONS FOR VOTING..................................43 SECTION 8.05. REGULATIONS................................................44 SECTION 8.06. VOTING.....................................................45 ARTICLE IX AMENDMENTS....................................................46 SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.........................46 SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS............................47 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT; EFFECT OF SUPPLEMENTAL INDENTURES...................................48 SECTION 9.04. NOTATION ON SECURITIES.....................................48 SECTION 9.05. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE FURNISHED TRUSTEE...................................48 ARTICLE X CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.............49 SECTION 10.01. COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS...........49 SECTION 10.02. SUCCESSOR CORPORATION TO BE SUBSTITUTED FOR COMPANY...................................................49 SECTION 10.03. OPINION OF COUNSEL TO BE GIVEN TRUSTEE....................50 ARTICLE XI SATISFACTION AND DISCHARGE OF INDENTURE.......................50 SECTION 11.01. DISCHARGE OF INDENTURE....................................50 SECTION 11.02. DEPOSITED MONEYS AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST BY TRUSTEE................51 SECTION 11.03. PAYING AGENT TO REPAY MONEYS HELD.........................51 SECTION 11.04. RETURN OF UNCLAIMED MONEYS................................51 SECTION 11.05. DEFEASANCE UPON DEPOSIT OF MONEYS OR U.S. GOVERNMENT OBLIGATIONS....................................51 SECTION 11.06. REINSTATEMENT.............................................53 ARTICLE XII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS.................................................53 SECTION 12.01. INDENTURE AND SECURITIES SOLELY CORPORATE OBLIGATIONS...............................................53 ARTICLE XIII MISCELLANEOUS PROVISIONS......................................53 SECTION 13.01. SUCCESSORS................................................53 SECTION 13.02. OFFICIAL ACTS BY SUCCESSOR CORPORATION....................53 SECTION 13.03. SURRENDER OF COMPANY POWERS...............................54 SECTION 13.04. ADDRESS FOR NOTICES, ETC..................................54 SECTION 13.05. GOVERNING LAW.............................................54 SECTION 13.06. EVIDENCE OF COMPLIANCE WITH CONDITIONS Precedent.................................................54 SECTION 13.07. BUSINESS DAYS.............................................55 SECTION 13.08. TRUST INDENTURE ACT TO CONTROL............................55 SECTION 13.09. TABLE OF CONTENTS, HEADINGS, ETC..........................55 SECTION 13.10. EXECUTION IN COUNTERPARTS.................................55 SECTION 13.11. SEPARABILITY..............................................55 SECTION 13.12. ASSIGNMENT................................................55 SECTION 13.13. ACKNOWLEDGMENT OF RIGHTS..................................56 ARTICLE XIV CONDITIONAL RIGHT TO SHORTEN MATURITY; PREPAYMENT OF SECURITIES -- NO SINKING FUND..............................56 SECTION 14.01. SPECIAL EVENT PREPAYMENT..................................56 SECTION 14.02. OPTIONAL PREPAYMENT BY COMPANY............................56 SECTION 14.03. NO SINKING FUND...........................................57 SECTION 14.04. NOTICE OF PREPAYMENT; SELECTION OF SECURITIES.............57 SECTION 14.05. PAYMENT OF SECURITIES CALLED FOR PREPAYMENT...............58 SECTION 14.06. CONDITIONAL RIGHT TO SHORTEN MATURITY.....................58 ARTICLE XV SUBORDINATION OF SECURITIES...................................59 SECTION 15.01. AGREEMENT TO SUBORDINATE..................................59 SECTION 15.02. DEFAULT ON SENIOR INDEBTEDNESS............................59 SECTION 15.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY......................60 SECTION 15.04. SUBROGATION...............................................61 SECTION 15.05. TRUSTEE TO EFFECTUATE SUBORDINATION.......................62 SECTION 15.06. NOTICE BY THE COMPANY.....................................62 SECTION 15.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS..............................................63 SECTION 15.08. SUBORDINATION MAY NOT BE IMPAIRED.........................63 ARTICLE XVI EXTENSION OF INTEREST PAYMENT PERIOD..........................64 SECTION 16.01. EXTENSION OF INTEREST PAYMENT PERIOD......................64 SECTION 16.02. NOTICE OF EXTENSION.......................................65 EXHIBIT A Form of Security; Trustee's Certificate of Authentication...........................................A-1 CROSS-REFERENCE TABLE* of provisions of Trust Indenture Act of 1939 with Indenture dated as of February 5, 1998 between Orion Capital Corporation and The Bank of New York, as Trustee: ACT SECTION INDENTURE SECTION 310(a)(1) ........................................... 6.09 (a)(2) ........................................... 6.09 310(a)(3) ........................................... N/A (a)(4) ........................................... N/A 310(a)(5) ........................................... N/A 310(b) ........................................... 6.10, 6.11 310(c) ........................................... N/A 311(a) and (b) ........................................... 6.13 311(c) ........................................... N/A 312(a) ........................................... 4.01, 4.02(a) 312(b) and (c) ........................................... 4.02 313(a) ........................................... 4.04 313(b)(1) ........................................... 4.04 313(b)(2) ........................................... 4.04 313(c) ........................................... 4.04 313(d) ........................................... 4.04 314(a) ........................................... 4.03 314(b) ........................................... N/A 314(c)(1) and (2)........................................... 6.07 314(c)(3) ........................................... N/A 314(d) ........................................... N/A 314(e) ........................................... 6.07 314(f) ........................................... N/A 315(a)(c) and (d)........................................... 6.01 315(b) ........................................... 5.08 315(e) ........................................... 5.09 316(a)(1) ........................................... 5.07 316(a)(2) ........................................... N/A 316(a) last sentence........................................ 2.09 316(b) ........................................... 9.02 317(a) ........................................... 5.05 317(b) ........................................... 6.05 318(a) ........................................... 13.08 - ------------------ * This Cross-Reference Table does not constitute part of the Indenture as executed and shall not affect the interpretation of any of its terms or provisions. THIS INDENTURE, dated as of February 5, 1998, between Orion Capital Corporation, a Delaware corporation (hereinafter sometimes called the "Company"), and The Bank of New York, a New York banking corporation, as trustee (hereinafter sometimes called the "Trustee"). W I T N E S S E T H : In consideration of the premises, and the purchase of the Securities by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Securities, as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITIONS. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or which are by reference therein defined in the Securities Act, shall (except as herein otherwise expressly provided or unless the context otherwise requires) have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this Indenture as originally executed. The following terms have the meanings given to them in the Declaration: (i) Clearing Agency; (ii) Delaware Trustee; (iii) Depository; (iv) Capital Security Certificate; (v) Property Trustee; (vi) Administrative Trustees; (vii) Direct Action; and (viii) Purchase Agreement. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles and the term "generally accepted accounting principles" means such accounting principles as are generally accepted at the time of any computation. 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. Headings are used for convenience of reference only and do not affect interpretation. The singular includes the plural and vice versa. "Additional Interest" shall have the meaning set forth in the Registration Rights Agreement. "Additional Sums" shall have the meaning set forth in Section 2.06(c). "Adjusted Treasury Rate" shall mean, with respect to any prepayment date pursuant to Section 14.02, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such prepayment date plus 0.30%. "Adverse Tax Consequence" shall have the meaning set forth in the definition of Tax Event. "Affiliate" shall mean, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding the power to vote 20% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 20% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, and (d) a partnership in which the specified Person is a general partner; provided, however, that Intercargo Corporation shall not be deemed to be an Affiliate of the Company or Orion Capital Trust II. "Authenticating Agent" shall mean any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 6.14. "Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" shall mean either the Board of Directors of the Company or any duly authorized committee of the Board of Directors. "Board Resolution" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" shall mean, with respect to any series of Securities, any day other than a Saturday or a Sunday or a day on which banking institutions in The City of New York, New York are authorized or required by law or executive order to close. "Capital Securities" shall mean undivided beneficial interests in the assets of Orion Capital Trust II which rank pari passu with the Common Securities issued by Orion Capital Trust II; provided, however, that if an Event of Default has occurred and is continuing, no payments in respect of distributions on, or payments upon liquidation, prepayment or otherwise with respect to, the Common Securities shall be made until the holders of the Capital Securities shall be paid in full the distributions and the liquidation, prepayment and other payments to which they are entitled. References to "Capital Securities" shall include collectively any Initial Capital Securities and Exchange Capital Securities. "Capital Securities Guarantee" shall mean any guarantee that the Company may enter into with Orion Capital Trust II or other Persons that operates directly or indirectly for the benefit of holders of Capital Securities of Orion Capital Trust II and shall include an Initial Capital Securities Guarantee and an Exchange Capital Securities Guarantee with respect to the Initial Capital Securities and the Exchange Capital Securities, respectively. "Commission" shall mean 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 Indenture 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" shall mean undivided beneficial interests in the assets of Orion Capital Trust II which rank pari passu with Capital Securities issued by Orion Capital Trust II; provided, however, that if an Event of Default has occurred and is continuing, no payments in respect of Distributions on, or payments upon liquidation, prepayment or otherwise with respect to, the Common Securities shall be made until the holders of the Capital Securities shall be paid in full the Distributions and the liquidation, prepayment and other payments to which they are entitled. "Common Securities Guarantee" shall mean any guarantee that the Company may enter into with any Person or Persons that operates directly or indirectly for the benefit of holders of Common Securities. "Common Stock" shall mean the Common Stock, par value $1.00 per share, of the Company or any other class of stock resulting from changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. "Company" shall mean Orion Capital Corporation, a Delaware corporation, and, subject to the provisions of Article X, shall include its successors and assigns. "Company Request" or "Company Order" shall mean a written request or order signed in the name of the Company by the Chairman, a Vice Chairman, the Chief Executive Officer, the President, a Vice President (however designated), the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Comparable Treasury Issue" shall mean the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the Remaining Life that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Remaining Life. "Comparable Treasury Price" shall mean, with respect to any prepayment date pursuant to Section 14.01, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such prepayment date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such prepayment date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Quotations. "Compounded Interest" shall have the meaning set forth in Section 16.01. "Conditional Tax Redemption Event" shall have the meaning set forth in Section 14.06. "Custodian" shall mean any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "Declaration" shall mean the Amended and Restated Declaration of Trust of Orion Capital Trust II, dated as of February 5, 1998. "Default" shall mean any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Deferred Interest" shall have the meaning set forth in Section 16.01. "Definitive Securities" shall mean those Securities issued in fully registered certificated form but not Securities issued in global form. "Depositary" shall mean, with respect to Securities of any series, for which the Company shall determine that such Securities will be issued as a Global Security, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Exchange Act or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to Section 2.05(d). "Dissolution Event" shall mean the liquidation of the Trust pursuant to the Declaration, and the distribution of the Securities held by the Property Trustee to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. "Event of Default" shall mean any event specified in Section 5.01, continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exchange Capital Securities" shall mean 7.701% Capital Securities (liquidation amount $1,000 per security) of Orion Capital Trust II, issued pursuant to an Exchange Offer. "Exchange Capital Securities Guarantee" shall mean the Capital Securities Guarantee Agreement, issued pursuant to an Exchange Offer. "Exchange Offer" shall mean the offer that may be made pursuant to the Registration Rights Agreement (i) by the Company to exchange Exchange Securities for Initial Securities and to exchange an Exchange Capital Securities Guarantee for an Initial Capital Securities Guarantee and (ii) by Orion Capital Trust II to exchange Exchange Capital Securities for Initial Capital Securities. "Exchange Securities" shall mean the Company's 7.701% Junior Subordinated Deferrable Interest Debentures due April 15, 2028, issued pursuant to an Exchange Offer, as authenticated and issued under this Indenture. "Extension Period" shall have the meaning set forth in Section 16.01. "Global Securities" shall mean those Securities issued in global form, and "Global Security" shall mean the Security executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "Indebtedness for Money Borrowed" shall mean any obligation of, or any obligation guaranteed by, the Company for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments. "Indenture" shall mean this instrument as originally executed or, if amended as herein provided, as so amended. "Initial Capital Securities" shall mean 7.701% Capital Securities (liquidation amount $1,000 per security) of Orion Capital Trust II. "Initial Capital Securities Guarantee" shall mean the Capital Securities Guarantee Agreement, dated February 5, 1998, between the Company and The Bank of New York, as guarantee trustee. "Initial Securities" shall mean the Company's 7.701% Junior Subordinated Deferrable Interest Debentures due April 15, 2028, as authenticated and issued under this Indenture. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended. "Investment Company Event" shall mean that the Company shall have received an opinion of an independent counsel experienced in practice under the Investment Company Act, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in Investment Company Act Law"), there is more than an insubstantial risk that Orion Capital Trust II is or will be considered an "investment company" which is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after February 5, 1998. "Interest Payment Date" shall have the meaning set forth in Section 2.06. "Non Book-Entry Capital Securities" shall have the meaning set forth in Section 2.05. "Officers" shall mean any of the Chairman, a Vice Chairman, the Chief Executive Officer, the President, a Vice President (however designated), the Secretary or an Assistant Secretary of the Company. "Officers' Certificate" shall mean a certificate signed by two Officers and delivered to the Trustee. "Opinion of Counsel" shall mean a written opinion of counsel, who may be an employee of the Company, and who shall be acceptable to the Trustee. "Optional Prepayment Price" shall mean the greater of (i) 100% of the principal amount to be prepaid or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal to be prepaid and interest thereon discounted to the prepayment date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in either case, accrued and unpaid interest thereon to the date of prepayment and any Additional Sums. "Orion Capital Trust II" or "Trust" shall mean Orion Capital Trust II, a Delaware business trust created for the purpose of issuing its undivided beneficial interests in connection with the issuance of Securities under this Indenture. "Other Debentures" shall mean only those junior subordinated debentures issued by the Company from time to time and sold to trusts to be established by the Company (if any), which are in each case similar to Orion Capital Trust II. "Other Guarantees" shall mean all guarantees to be issued by the Company with respect to capital securities (if any) and issued to other trusts, or to any trustee of such trusts or other entities affiliated with the Company that are financing vehicles of the Company. The term "outstanding" when used with reference to Securities, shall, subject to the provisions of Section 7.04, mean, as of any particular time, all Securities authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except (a)...Securities theretofore cancelled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation; (b)...Securities, or portions thereof, for the payment or prepayment of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided that, if such Securities, or portions thereof, are to be prepaid prior to maturity thereof, notice of such prepayment shall have been given as in Article XIV provided or provision satisfactory to the Trustee shall have been made for giving such notice; and (c)...Securities in lieu of or in substitution for which other Securities shall have been authenticated and delivered pursuant to the terms of Section 2.08 unless proof satisfactory to the Company and the Trustee is presented that any such Securities are held by bona fide holders in due course. "Person" shall mean any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security shall mean 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 2.08 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Prepayment Price" shall mean the Optional Prepayment Price or the Special Event Prepayment Price, as the context requires. The term "principal office of the Trustee", or other similar term, shall mean the principal office of the Trustee, at which at any particular time its corporate trust business shall be administered. "Property Trustee" shall have the same meaning as set forth in the Declaration. "Purchase Agreement" shall mean the Purchase Agreement dated February 2, 1998 among the Company, Orion Capital Trust II and the Initial Purchasers as defined therein. "Quotation Agent" shall mean the Reference Treasury Dealer. "Reference Treasury Dealer" shall mean (i) Donaldson, Lufkin & Jenrette Securities Corporation and its successors; provided, however, that if the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by the Trustee after consultation with the Company. "Reference Treasury Dealer Quotations" shall mean, with respect to each Reference Treasury Dealer and any prepayment date pursuant to Section 14.01, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such prepayment date. "Registration Rights Agreement" shall mean the Registration Rights Agreement, dated as of February 5, 1998, by and among the Company, Orion Capital Trust II and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "Regular Record Date" with respect to the payment of interest installments on the Securities, shall mean the fifteenth day preceding the relevant Interest Payment Date. If a Regular Record Date is not a Business Day, such Regular Record Date shall be deemed to be the next preceding Business Day. "Remaining Life" shall mean the period from the prepayment date pursuant to Section 14.01 to the Stated Maturity. "Responsible Officer," when used with respect to the Trustee, shall mean the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the cashier, any assistant cashier, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Security" shall mean Securities that bear or are required to bear the legends set forth in Exhibit A hereto. "Rule 144A" shall mean Rule 144A under the Securities Act, as such Rule may be amended from time to time, or under any similar rule or regulation hereafter adopted by the Commission. "Securities" shall mean, collectively, the Initial Securities and the Exchange Securities. "Securities Act" shall mean the Securities Act of 1933 as amended. "Securityholder", "holder of Securities", or other similar terms, shall mean any person in whose name at the time a particular Security is registered on the register kept by the Company or the Trustee for that purpose in accordance with the terms hereof. "Security Register" shall mean (i) prior to a Dissolution Event, the list of holders kept by a Securities registrar or provided to the Trustee pursuant to Section 4.01, as the case may be and (ii) following a Dissolution Event, any security register maintained by a security registrar for the securities appointed by the Company following the execution of a supplemental indenture providing for transfer procedures as provided for in Section 2.07(a). "Senior Indebtedness" shall mean with respect to the Company, (i) the principal, premium, if any, and interest in respect of (A) Indebtedness for Money Borrowed and (B) indebtedness evidenced by securities, notes, debentures, bonds or other similar instruments issued by the Company, (ii) all capital lease obligations of the Company, (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any conditional sale or title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations, contingent or otherwise of the Company in respect of any letter of credit, banker's acceptance, security purchase facilities or similar credit transaction, (v) all obligations in respect of interest rate swap, cap or other agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements, (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise and (vii) all obligations of the type referred to in clauses (i) through (vi) above of other persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Junior Subordinated Debentures and (2) any indebtedness between or among the Company or its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to (a) any other Orion Capital Trust or a trustee of such trust and (b) any other trust, or of a trustee of such trust, or of a partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a "financing entity") in connection with the issuance by such a financing entity of preferred securities or other securities that rank pari passu with, or junior to, the Capital Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. "Special Event" shall mean either an Investment Company Event or a Conditional Tax Redemption Event, as the case may be. "Special Event Adjusted Treasury Rate" means, with respect to any prepayment date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such prepayment date plus (i) 1.55% if such prepayment date occurs on or prior to February 1, 1999 and (ii) 0.50% in all other cases. "Special Event Prepayment Price" shall mean, with respect to any prepayment of the Securities pursuant to Section 14.01 hereof, an amount in cash equal to the greater of (i) 100% of the principal amount thereof or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest thereon discounted to the prepayment date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period) at the Special Event Adjusted Treasury Rate plus, in each case, accrued and unpaid interest thereon, including Compounded Interest, Additional Interest and Additional Sums, if any, to the date of such prepayment. "Stated Maturity" shall mean April 15, 2028, or such other date to which the maturity of the Securities is changed pursuant to the right of the Company to shorten the stated maturity pursuant to the provisions of Section 14.06. "Subsidiary" shall mean with respect to any Person, (i) any corporation at least a majority of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. For the purposes of this definition, "voting stock" means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. "Tax Event" shall mean the receipt by Orion Capital Trust II and the Company of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after February 5, 1998, or, as a result of a final determination, as evidenced by the execution of a Form 870 AD, arising from an audit or examination by the Internal Revenue Service, there is more than an insubstantial risk that (i) Orion Capital Trust II is, or will be within 90 days of the date of such opinion, subject to United States Federal income tax with respect to income received or accrued on the Securities, (ii) interest payable by the Company on the Securities is not, or within 90 days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes, or (iii) Orion Capital Trust II is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges (each of the circumstances referred to in clauses (i), (ii) and (iii) being referred to herein as an "Adverse Tax Consequence"). "Tax Event Maturity Shortening" shall have the meaning specified in Section 14.06. "Trustee" shall mean the Person identified as "Trustee" in the first paragraph hereof, and, subject to the provisions of Article VI hereof, shall also include its successors and assigns as Trustee hereunder. The term "Trustee" as used with respect to a particular series of the Securities shall mean the trustee with respect to that series. "Trust Indenture Act of 1939" shall mean the Trust Indenture Act of 1939 as in force at the date of execution of this Indenture, except as provided in Section 9.03. "Trust Securities" shall mean the Capital Securities and the Common Securities, collectively. "U.S. Government Obligations" shall mean securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clauses (i) or (ii) are not callable or prepayable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. ARTICLE II SECURITIES SECTION 2.01. FORMS GENERALLY. The Securities and the Trustee's certificate of authentication shall be substantially in the form set forth in Exhibit A, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issued in denominations of $1,000 and integral multiples thereof. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a Company Order, authenticate for original issue up to, and the aggregate principal amount of Securities outstanding at any time may not exceed $129,000,000 aggregate principal amount of the Securities; except as provided in Sections 2.07, 2.08, 2.10 and 14.05. The series of Securities to be initially issued hereunder shall be the Initial Securities. SECTION 2.03. FORM AND PAYMENT. Except as provided in Section 2.05, the Securities shall be issued in fully registered certificated form without interest coupons. Principal of and premium, if any, and interest on the Securities issued in certificated form will be payable, the transfer of such Securities will be registrable and such Securities will be exchangeable for Securities bearing identical terms and provisions at the office or agency of the Company maintained for such purpose under Section 3.02; provided, however, that payment of interest with respect to Securities may be made at the option of the Company (i) by check mailed to the holder at such address as shall appear in the Security Register or (ii) by transfer to an account maintained by the Person entitled thereto, provided that proper transfer instructions have been received in writing by the relevant record date. Notwithstanding the foregoing, so long as the holder of any Securities is the Property Trustee, the payment of the principal of and premium, if any, and interest (including Compounded Interest and Additional Sums, if any) on such Securities held by the Property Trustee will be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.04. LEGENDS. (a)...Except as permitted by subsection (b) of this Section 2.04 or as otherwise determined by the Company in accordance with applicable law, each Security shall bear the applicable legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth on Exhibit A hereto. (b)...The Company shall issue and the Trustee shall authenticate Exchange Securities in exchange for Initial Securities accepted for exchange in the Exchange Offer, which Exchange Securities shall not bear the legends required by subsection (a) above, in each case unless the holder of such Initial Securities is either (A) a broker-dealer who purchased such Initial Securities 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 or (C) a Person who is an affiliate (as defined in Rule 144 under the Securities Act) of the Company. SECTION 2.05. GLOBAL SECURITY. (a)...In connection with a Dissolution Event, ..................(i) if any Capital Securities are held in book-entry form, the related Definitive Securities shall be presented to the Trustee (if an arrangement with the Depositary has been maintained) by the Property Trustee in exchange for one or more Global Securities (as may be required pursuant to Section 2.07) in an aggregate principal amount equal to the aggregate principal amount of all such outstanding Securities, to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Administrative Trustees; the Company upon any such presentation shall execute one or more Global Securities in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with this Indenture; and payments on the Securities issued as a Global Security will be made to the Depositary; and ..................(ii) if any Capital Securities are held in certificated form, the related Definitive Securities may be presented to the Trustee by the Property Trustee and any Capital Security certificate which represents Capital Securities other than Capital Securities in book-entry form ("Non Book-Entry Capital Securities") will be deemed to represent beneficial interests in Securities presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Capital Securities until such Capital Security certificates are presented to the Security registrar for transfer or reissuance, at which time such Capital Security certificates will be cancelled and a Security, registered in the name of the holder of the Capital Security certificate, with an aggregate principal amount equal to the aggregate liquidation amount of the Capital Security certificate cancelled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with this Indenture. Upon the issuance of such Securities, Securities with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been cancelled. (b)...The Global Securities shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon; provided, that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and prepayments. Any endorsement of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee, in accordance with applicable procedures established by the Depositary. (c)...The Global Securities may be transferred, in whole but not in part, only to another nominee of the Depositary, or to a successor Depositary selected or approved by the Company or to a nominee of such successor Depositary. (d)...If at any time the Depositary notifies the Company that it is unwilling or unable to continue as Depositary or the Depositary has ceased to be a clearing agency registered under the Exchange Act, and a successor Depositary is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, the Company will execute, and the Trustee, upon written notice from the Company, will authenticate and make available for delivery Definitive Securities, in authorized denominations and in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security. If there is an Event of Default, the Depositary shall have the right to exchange the Global Securities for Definitive Securities. In addition, the Company may at any time determine that the Securities shall no longer be represented by a Global Security. In the event of such an Event of Default or such a determination, the Company shall execute, and subject to Section 2.07, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and make available for delivery Definitive Securities, in authorized denominations and in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security. Upon the exchange of the Global Security for such Definitive Securities, in authorized denominations, the Global Security shall be cancelled by the Trustee. Such Definitive Securities issued in exchange for the Global Security shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Securities to the Depositary for delivery to the Persons in whose names such Definitive Securities are so registered. SECTION 2.06. INTEREST. (a)...Each Security will bear interest at the rate of 7.701% per annum (the "Coupon Rate") from the most recent date to which interest has been paid or, if no interest has been paid, from February 5, 1998, until the principal thereof becomes due and payable, and on any overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded semi-annually, payable (subject to the provisions of Article XVI) semi-annually in arrears on April 15 and October 15 of each year (each, an "Interest Payment Date") commencing on April 15, 1998, to the Person in whose name such Security or any predecessor Security is registered on the books of the Company, at the close of business on the Regular Record Date for such interest installment. (b)...Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period less than six months, the actual months elapsed and the actual days elapsed in a partial month in such period. In the event that any Interest Payment Date falls on a day that is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. (c)...During such time as the Property Trustee is the holder of any Securities, the Company shall pay any additional amounts on the Securities as may be necessary in order that the amount of Distributions then due and payable by Orion Capital Trust II on the outstanding Trust Securities shall not be reduced as a result of any additional taxes, duties and other governmental charges to which the Trust has become subject as a result of a Tax Event ("Additional Sums"). SECTION 2.07. TRANSFER AND EXCHANGE. (a)...TRANSFER RESTRICTIONS. The Initial Securities, and those Exchange Securities with respect to which any Person described in Section 2.04(b)(A), (B) or (C) is the beneficial owner, may not be transferred except in compliance with any legend contained in Exhibit A unless otherwise determined by the Company in accordance with applicable law. Upon any distribution of the Securities following a Dissolution Event, the Company and the Trustee shall enter into a supplemental indenture pursuant to Section 9.01 to provide for the transfer restrictions and procedures with respect to the Securities substantially similar to those contained in the Declaration to the extent applicable in the circumstances existing at such time. (b)...GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Trustee's request. All Definitive Securities and Global Securities issued upon any registration of transfer or exchange of Definitive Securities or Global Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Securities or Global Securities surrendered upon such registration of transfer or exchange. No service charge shall be made to a holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. 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 30 days before the day of mailing of a notice of prepayment or any notice of selection of Securities for prepayment under Article XIV hereof 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. Prior to due presentment for the registration of a transfer of any Security, the Trustee, any agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and premium, if any, and interest on such Securities, and neither the Trustee, any agent nor the Company shall be affected by notice to the contrary. (c)...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 contemplated 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 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 represented by a Global Security indicated in such Officers' Certificate as having been properly tendered and (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 Stated Maturity of the Global Security for the Exchange Securities is less than the principal amount at Stated 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 Securities to the holders thereof as indicated in such Officers' Certificate. SECTION 2.08. REPLACEMENT SECURITIES. (a)...If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. An indemnity bond must be supplied by the Securityholder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss that any of them may suffer if a Security is replaced. The Company or the Trustee may charge for its expenses in replacing a Security. (b)...Every replacement Security is an obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Securities duly issued hereunder. (c)...The provisions of this Section 2.08 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement of mutilated, destroyed, lost or stolen Securities. SECTION 2.09. TREASURY SECURITIES. In determining whether the holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee actually knows to be so owned shall be so considered. SECTION 2.10. TEMPORARY SECURITIES. Pending the preparation of Definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Securities that are printed, lithographed, typewritten, mimeographed or otherwise reproduced, 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 conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company shall cause Definitive Securities to be prepared without unreasonable delay. The Definitive Securities shall be printed, lithographed or engraved, or provided by any combination thereof, or in any other manner permitted by the rules and regulations of any applicable securities exchange, all as determined by the Officers executing such Definitive Securities. 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 maintained by the Company for such purpose pursuant to Section 3.02 hereof, 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 make available for delivery, in exchange therefor the same aggregate principal amount of Definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as Definitive Securities. SECTION 2.11. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return the cancelled Securities to the Company in accordance with its normal practices (subject to the record retention requirement of the Exchange Act) unless the Company directs them to be returned to it. The Company may not issue new Securities to replace Securities that have been prepaid or paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. Any interest on any Security that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the holder on the relevant Regular Record Date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (a) or clause (b) below: (a)...The Company may make payment of any Defaulted Interest on Securities to the Persons in whose names such 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 such 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 not be more than 30 nor 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 Securityholder at his or her address as it appears in the Security Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such special record date and shall be no longer payable pursuant to the following clause (b). (b)...The Company may make payment of any Defaulted Interest on any Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. SECTION 2.13. 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 prepayment as a convenience to Securityholders; 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 prepayment and that reliance may be placed only on the other identification numbers printed on the Securities, and any such prepayment shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. ARTICLE III PARTICULAR COVENANTS OF THE COMPANY SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of the Securityholders that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on the Securities at the place, at the respective times and in the manner provided herein. Except as provided in Section 2.03, each installment of interest on the Securities may be paid by mailing checks for such interest payable to the order of the Securityholder entitled thereto, as it may appear in the Securities register. The Company further covenants to pay any and all amounts including, without limitation, Additional Interest, if any, on the dates and in the manner required under the Registration Rights Agreement. SECTION 3.02. OFFICES FOR NOTICES AND PAYMENTS, ETC. So long as any of the Securities remains outstanding, the Company will maintain in The City of New York, New York, an office or agency where the Securities may be presented for payment, an office or agency where the Securities may be presented for registration of transfer and for exchange as in this Indenture provided and an office or agency where notices and demands to or upon the Company in respect of the Securities or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, any such office or agency for all of the above purposes shall be the office or agency of The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust Administration. In case the Company shall fail to maintain any such office or agency in The City of New York, New York, or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the principal corporate trust office of the Trustee. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside The City of New York, New York where the Securities may be presented for registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in the City of New York, New York, for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof. SECTION 3.03. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 3.04. PROVISION AS TO PAYING AGENT. (a)...If the Company shall appoint a paying agent other than the Trustee with respect to the Securities, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provision of this Section 3.04, ..................(i) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest on the Securities (whether such sums have been paid to it by the Company or by any other obligor on the Securities) in trust for the benefit of the holders of the Securities; ..................(ii) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities) to make any payment of the principal of and premium or interest on the Securities when the same shall be due and payable; and ..................(iii) that it will at any time during the continuance of any such failure, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by it as such paying agent. (b)...If the Company shall act as its own paying agent, it will, on or before each due date of the principal of and premium, if any, or interest on the Securities, set aside, segregate and hold in trust for the benefit of the holders of the Securities a sum sufficient to pay such principal, premium or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Securities) to make any payment of the principal of and premium, if any, or interest on the Securities when the same shall become due and payable. (c)...Anything in this Section 3.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to the Securities hereunder, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust for any such Securities by the Trustee or any paying agent hereunder, as required by this Section 3.04, such sums to be held by the Trustee upon the trusts herein contained. (d)...Anything in this Section 3.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.04 is subject to Sections 11.03 and 11.04. SECTION 3.05. CERTIFICATE TO TRUSTEE. The Company will deliver to the Trustee on or before 120 days after the end of each fiscal year in each year, commencing with the first fiscal year ending after the date hereof, so long as Securities are outstanding hereunder, an Officers' Certificate, one of the signers of which shall be the principal executive, principal financial or principal accounting officer of the Company, stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any Default by the Company in the performance of any covenants contained herein, stating whether or not they have knowledge of any such Default and, if so, specifying each such Default of which the signers have knowledge and the nature thereof. SECTION 3.06. COMPLIANCE WITH CONSOLIDATION PROVISIONS. The Company will not, while any of the Securities remains outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other Person unless the provisions of Article X hereof are complied with. SECTION 3.07. LIMITATION ON DIVIDENDS. If at any time (i) there shall have occurred any event of which the Company has actual knowledge that (a) is or with the giving of notice or the lapse of time, or both, would constitute an Event of Default and (b) which the Company shall not have taken reasonable steps to cure, (ii) Securities are held by the Property Trustee and the Company shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee, or (iii) the Company shall have given notice of its election of the exercise of its right to extend the interest payment period pursuant to Section 16.01 and any such extension shall be continuing, then the Company will not, and will not permit any Subsidiary to, ..................(i) declare or pay any dividends or distributions on, or prepay, 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 or repurchase or prepay any debt securities of the Company (including any Other Debentures) 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 (including Other Guarantees) 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 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 prepayment or repurchase of any such rights pursuant thereto, (c) payments under the Capital Securities Guarantee, (d) as a direct result of, and only to the extent necessary to avoid the issuance of fractional shares of the Company's capital stock following, a reclassification of the Company's capital stock or the exchange or the conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (e) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, and (f) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans. SECTION 3.08. COVENANTS AS TO ORION CAPITAL TRUST II. In the event Securities are issued to Orion Capital Trust II or a trustee of such trust in connection with the issuance of Trust Securities by Orion Capital Trust II, for so long as any of such Trust Securities remains outstanding, the Company will (i) directly or indirectly maintain 100% ownership of the Common Securities of Orion Capital Trust II; provided, however, that any successor of the Company, permitted pursuant to Article X, may succeed to the Company's ownership of such Common Securities, (ii) use its reasonable efforts to cause Orion Capital Trust II (a) to remain a business trust, except in connection with a distribution of Securities, the redemption of all of the Trust Securities of Orion Capital Trust II or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (b) to continue to be treated as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes, and (iii) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an individual beneficial interest in the Securities. SECTION 3.09. PAYMENT OF EXPENSES. In connection with the offering, sale and issuance of the Securities to Orion Capital Trust II and in connection with the sale of the Trust Securities by Orion Capital Trust II, 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 6.06; (b)...pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of Orion Capital Trust II, the offering, sale and issuance of the Trust Securities (including commissions to the initial purchasers in connection therewith), the fees and expenses of the Property Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust; (c)...be primarily and fully liable for any indemnification obligations arising with respect to the Declaration; (d)...pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust; and (e)...pay all other fees, expenses, debts and obligations (other than payments of principal of, and premium, if any, or interest on the Trust Securities) related to Orion Capital Trust II. SECTION 3.10. PAYMENT UPON RESIGNATION OR REMOVAL. Upon termination of this Indenture or the removal or resignation of the Trustee, unless otherwise stated, the Company shall pay to the Trustee all amounts accrued and owing to the date of such termination, removal or resignation. Upon termination of the Declaration or the removal or resignation of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to Section 5.7 of the Declaration, the Company shall pay to the Delaware Trustee or the Property Trustee, as the case may be, all amounts accrued and owing to the date of such termination, removal or resignation. ARTICLE IV SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 4.01. SECURITYHOLDERS' LISTS. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee: (a)...on a semi-annual basis on each Regular Record Date for the Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Securityholders as of such record date; (b)...at such other times as the Trustee may request in writing, within 30 Business 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 Business Days prior to the time such list is furnished, except that, no such lists need be furnished so long as the Trustee is in possession thereof by reason of its acting as Security registrar; and (c)...the Company hereby appoints the Trustee as Securities registrar. SECTION 4.02. PRESERVATION AND DISCLOSURE OF LISTS. (a)...The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of the Securities (1) contained in the most recent list furnished to it as provided in Section 4.01 or (2) received by it in the capacity of Securities registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in Section 4.01 upon receipt of a new list so furnished. (b)...In case three or more holders of Securities (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Securities or with holders of all Securities with respect to their rights under this Indenture and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within 5 Business Days after the receipt of such application, at its election, either: ..................(i) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02; or ..................(ii) inform such applicants as to the approximate number of holders of all Securities whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within 5 Business Days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of all Securities or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c)...Each and every holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Securities in accordance with the provisions of subsection (b) of this Section 4.02, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b). SECTION 4.03. REPORTS OF THE COMPANY. (a)...The Company covenants and agrees to file with the Trustee, within 15 Business Days after the date on which the Company files the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. (b)...The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c)...The Company covenants and agrees to transmit by mail to all holders of Securities, as the names and addresses of such holders appear upon the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 4.03 as may be required by rules and regulations prescribed from time to time by the Commission. (d)...Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (e)...So long as is required for an offer or sale of the Securities to qualify for an exemption under Rule 144A under the Securities Act, the Company shall, upon request, provide the information required by clause (d)(4) thereunder to each Holder and to each beneficial owner and prospective purchaser of Securities identified by any holder of Restricted Securities, unless such information is furnished to the Commission pursuant to Section 13 or 15(d) of the Exchange Act. SECTION 4.04. REPORTS BY THE TRUSTEE. (a)...The Trustee shall transmit to Securityholders 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. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall on or before each February 4 following the date of this Indenture, commencing February 4, 1999, deliver to Securityholders a brief report which complies with the provisions of such Section 313(a). (b)...A copy of each such report shall, at the time of such transmission to Securityholders, be filed by the Trustee with each stock exchange, if any, upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange. ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT SECTION 5.01. EVENTS OF DEFAULT. One or more of the following events of default shall constitute an Event of Default hereunder (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): (a)...default in the payment of any interest upon any Security or any Other Debentures when it becomes due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms hereof or, in the case of any Other Debenture, the indenture related thereto, shall not constitute a default in the payment of interest for this purpose; or (b)...default in the payment of all or any part of the principal of (or premium, if any, on) any Security or any Other Debentures as and when the same shall become due and payable either at maturity, upon prepayment, by declaration of acceleration of maturity or otherwise; or (c)...default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach 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 and stating that such notice is a "Notice of Default" hereunder; or (d)...a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or all or substantially all of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (e)...the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or all or substantially all of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due. If an Event of Default with respect to Securities at the time outstanding occurs and is continuing, then in every such case the Trustee or the holders of not less than 25% in principal amount of the Securities at the time outstanding may declare the principal amount of all Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the holders of the outstanding Securities), and upon any such declaration the same shall become immediately due and payable. The foregoing provisions, however, are subject to the condition that if, at any time after the principal of the Securities shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, (i) the Company shall pay or shall deposit with the Trustee a sum sufficient to pay (A) all matured installments of interest upon all the Securities and the principal of and premium, if any, on any and all Securities which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest specified in the Securities to the date of such payment or deposit) and (B) such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and (ii) any and all Events of Default under the Indenture shall have been cured, waived or otherwise remedied as provided herein, then, in every such case, the holders of a majority in principal amount of the Securities at the time outstanding, by written notice to the Company and to the Trustee, may rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the holders of the Securities shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the holders of the Securities shall continue as though no such proceeding had been taken. SECTION 5.02. PAYMENT OF SECURITIES ON DEFAULT; SUIT THEREFOR. The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon any of the Securities as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Securities as and when the same shall have become due and payable, whether at maturity of the Securities or upon prepayment or by declaration of acceleration of maturity or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Securities, the whole amount that then shall have become due and payable on all such Securities for principal and premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law and, if the Securities are held by Orion Capital Trust II or a trustee of such trust, without duplication of any other amounts paid by Orion Capital Trust II or a trustee in respect thereof) upon the overdue installments of interest at the rate borne by the Securities; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Securities and collect in the manner provided by law out of the property of the Company or any other obligor on the Securities wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Securities under Title 11, United States Code, or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or other obligor upon the Securities, or to the creditors or property of the Company or such other obligor, 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 pursuant to the provisions of this Section 5.02, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Securities and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Securityholders allowed in such judicial proceedings relative to the Company or any other obligor on the Securities, or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. Nothing herein contained shall be construed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder 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 Securityholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Securities, may be enforced by the Trustee without the possession of any of the Securities, or the production thereof in any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Securities. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Securities, and it shall not be necessary to make any holders of the Securities parties to any such proceedings. SECTION 5.03. APPLICATION OF MONEYS COLLECTED BY TRUSTEE. Any moneys collected by the Trustee shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the Securities in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of all amounts due to the Trustee under Section 6.06, including the costs and expenses of collection applicable to the Securities and reasonable compensation to the Trustee, its agents, attorneys and counsel, and of all other expenses and liabilities incurred, and all advances made, by the Trustee except as a result of its negligence or bad faith; Second: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article XV; Third: In case the principal of the outstanding Securities in respect of which moneys have been collected shall not have become due and be unpaid, to the payment of the amounts then due and unpaid upon Securities for principal of (and premium, if any) and interest on the Securities, in respect of which or for the benefit of which money has been collected, ratably, without preference of priority of any kind, according to the amounts due on such Securities for principal (and premium, if any) and interest, respectively; and Fourth: To the Company. SECTION 5.04. PROCEEDINGS BY SECURITYHOLDERS. No holder of any Security shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Securities specifying such Event of Default, as hereinbefore provided, and unless also the holders of not less than 25% in principal amount of the Securities at the time outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action, suit or proceeding, and during such 60 days the holders of a majority in principal amount of the Securities at the time outstanding do not give a direction to the Trustee inconsistent with the request, it being understood and intended, and being expressly covenanted by the taker and holder of every Security with every other taker and holder and the Trustee, that no one or more holders of Securities 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 holder of Securities, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities. Notwithstanding any other provisions in this Indenture, however, the right of any holder of any Security to receive payment of the principal of (premium, if any) and interest on such Security, on or after the same shall have become due and payable, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of such holder and by accepting a Security hereunder it is expressly understood, intended and covenanted by the taker and holder of every Security with every other such taker and holder and the Trustee, that no one or more holders of Securities shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other Securities, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. The Company and the Trustee acknowledge that pursuant to the Declaration, the holders of Capital 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 5.05. PROCEEDINGS BY TRUSTEE. In case an Event of Default occurs with respect to Securities and is continuing, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. SECTION 5.06. REMEDIES CUMULATIVE AND CONTINUING. Except as provided in the last paragraph of Section 2.08, all powers and remedies given by this Article V to the Trustee or to the Securityholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to the Securities, and no delay or omission of the Trustee or of any holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 5.04, every power and remedy given by this Article V or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. SECTION 5.07. Direction of Proceedings and Waiver of Defaults by MAJORITY OF SECURITYHOLDERS. The holders of a majority in principal amount of the Securities at the time outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that (subject to the provisions of Section 6.01) the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed would be unjustly prejudicial to the holders not taking part in such direction or if the Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors or trustees, executive committee, or a trust committee of directors or trustees and/or Responsible Officers, shall determine that the action or proceedings so directed would involve the Trustee in personal liability. Prior to any declaration accelerating the Stated Maturity of the Securities, the holders of a majority in principal amount of the Securities at the time outstanding may on behalf of the holders of all of the Securities waive any past Default or Event of Default and its consequences except a Default (a) in the payment of principal of or premium, if any, or interest on any of the Securities or (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Security affected; provided, however, that if the Securities are held by the Property Trustee, such waiver or modification to such waiver shall not be effective until the holders of a majority in aggregate liquidation amount of Trust Securities shall have consented to such waiver or modification to such waiver; provided, further, that if the consent of the holder of each outstanding Security is required, such waiver shall not be effective until each holder of the Trust Securities shall have consented to such waiver. Upon any such waiver, the Default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Securities shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Whenever any Default or Event of Default hereunder shall have been waived as permitted by this Section 5.07, said Default or Event of Default shall for all purposes of the Securities and this Indenture be deemed to have been cured and to be not continuing. SECTION 5.08. NOTICE OF DEFAULTS. The Trustee shall, within 90 days after the occurrence of a Default with respect to the Securities mail to all Securityholders, as the names and addresses of such holders appear upon the Security register, notice of all Defaults known to the Trustee, unless such Defaults shall have been cured before the giving of such notice (the term "Defaults" for the purpose of this Section 5.08 being hereby defined to be the events specified in clauses (a), (b), (c), (d) and (e) of Section 5.01, not including periods of grace, if any, provided for therein, and irrespective of the giving of written notice specified in clause (c) of Section 5.01); and provided that, except in the case of Default in the payment of the principal of or premium, if any, or interest on any of the Securities, the Trustee shall be protected in withholding such notice if and so long as the board of directors of the Trustee, the executive committee thereof, 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 Securityholders; and provided further, that in the case of any Default of the character specified in Section 5.01(c), no such notice to Securityholders shall be given until at least 60 days after the occurrence thereof but shall be given within 90 days after such occurrence. SECTION 5.09. UNDERTAKING TO PAY 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 and expenses, 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 5.09 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder or group of Securityholders holding in the aggregate more than 10% in principal amount of the Securities outstanding at the time outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security against the Company on or after the same shall have become due and payable. ARTICLE VI CONCERNING THE TRUSTEE SECTION 6.01. DUTIES AND RESPONSIBILITIES OF TRUSTEE. With respect to the holders of the Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) 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 man would exercise or use under the circumstances in the conduct of his own affairs. 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 (a)...prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: ..................(i) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and ..................(ii) in the absence of bad faith on the part of the Trustee, the 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 Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provision 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)...the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c)...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 the Securityholders pursuant to Section 5.07, 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. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. SECTION 6.02. RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise provided in Section 6.01: (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, consent, order, bond, note, debenture 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, direction, order or demand of the Company mentioned herein may be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c)...the Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d)...the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e)...the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (that has not been cured or waived), to exercise such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (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, consent, order, approval, bond, debenture, coupon or other paper or document, unless requested in writing to do so by the holders of a majority in principal amount of the Securities at the time outstanding; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding; 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 (including any Authenticating Agent) or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care. SECTION 6.03. NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained herein and in the Securities (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be taken as the statements of the Company, and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company of any Securities or the proceeds of any Securities authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture. SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or REGISTRAR MAY OWN SECURITIES. The Trustee or any Authenticating Agent or any paying agent or any transfer agent or any Security registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent, transfer agent or Security registrar. SECTION 6.05. MONEYS TO BE HELD IN TRUST. Subject to the provisions of Section 11.04, all moneys received by the Trustee or any paying agent shall, until used or applied as herein provided, be held in trust for the purpose for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee and any paying agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by the Chairman of the Board of Directors, the President or a Vice President or the Treasurer or an Assistant Treasurer of the Company. SECTION 6.06. COMPENSATION AND EXPENSES OF TRUSTEE. The Company, as borrower, covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed to in writing between the Company and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify each of the Trustee or any predecessor Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any and all loss, damage, claim, liability or expense including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company under this Section 6.06 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustee in its capacity as such, except funds held in trust for the benefit of the holders of particular Securities. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(d) or Section 5.01(e), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services of the Trustee as provided for herein are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture. SECTION 6.07. OFFICERS' CERTIFICATE AS EVIDENCE. Except as otherwise provided in Sections 6.01 and 6.02, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof is herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. SECTION 6.08. CONFLICTING INTEREST OF TRUSTEE. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 6.09. ELIGIBILITY OF TRUSTEE. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia or a corporation or other Person permitted to act as trustee by the Commission authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000) and subject to supervision or examination by federal, state, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 6.09 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. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.10. SECTION 6.10. RESIGNATION OR REMOVAL OF TRUSTEE. (a)...The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof to the holders of the Securities at their addresses as they shall appear on the Security register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee or trustees by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 60 days after the mailing of such notice of resignation to the affected Securityholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Securityholder who has been a bona fide holder of a Security for at least six months may, subject to the provisions of Section 5.09, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b)...In case at any time any of the following shall occur: ..................(i) the Trustee shall fail to comply with the provisions of Section 6.08 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Security or Securities for at least six months, or ..................(ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Securityholder, or ..................(iii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 5.09, any Securityholder 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. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c)...The holders of a majority in principal amount of the Securities at the time outstanding may at any time remove the Trustee and nominate a successor trustee, which shall be deemed appointed as successor trustee unless within 10 days after such nomination the Company objects thereto or if no successor trustee shall have been so appointed and shall have accepted appointment within 30 days after such removal, in which case the Trustee so removed or any Securityholder, upon the terms and conditions and otherwise as in subsection (a) of this Section 6.10 provided, may petition any court of competent jurisdiction for an appointment of a successor trustee. (d)...Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 6.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.11. SECTION 6.11. ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee appointed as provided in Section 6.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, 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, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 6.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring trustee thereunder. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 6.06. No successor trustee shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 6.08 and eligible under the provisions of Section 6.09. Upon acceptance of appointment by a successor trustee as provided in this Section 6.11, the Company shall mail notice of the succession of such trustee hereunder to the holders of Securities at their addresses as they shall appear on the Security register. If the Company fails to mail such notice within 10 Business Days after the acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. SECTION 6.12. SUCCESSION BY MERGER, ETC. 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 without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which the Securities or this Indenture elsewhere provides that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.13. LIMITATION ON RIGHTS OF TRUSTEE AS A CREDITOR. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. SECTION 6.14. AUTHENTICATING AGENTS. There may be one or more Authenticating Agents appointed by the Trustee upon the request of the Company with power to act on its behalf and subject to its direction in the authentication and delivery of Securities issued upon exchange or registration of transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Securities; provided, that the Trustee shall have no liability to the Company for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Securities. Any such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States or of any state or territory thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least $50,000,000 and being subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.14 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 an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 6.14 without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination 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 any Authenticating Agent shall cease to be eligible under this Section 6.14, the Trustee may, and upon the request of the Company shall, promptly appoint a successor Authenticating Agent eligible under this Section 6.14, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all Securityholders as the names and addresses of such holders appear on the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein. The Company, as borrower, agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee. ARTICLE VII CONCERNING THE SECURITYHOLDERS SECTION 7.01. ACTION BY SECURITYHOLDERS. Whenever in this Indenture it is provided that the holders of a specified percentage in principal amount of the Securities at the time outstanding may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Securities voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article VIII, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders. If the Company shall solicit from the Securityholders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the outstanding Securities shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 7.02. PROOF OF EXECUTION BY SECURITYHOLDERS. Subject to the provisions of Section 6.01, 6.02 and 8.05, proof of the execution of any instrument by a Securityholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Securities shall be proved by the Security Register or by a certificate of the Security registrar. The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. The record of any Securityholders' meeting shall be proved in the manner provided in Section 8.06. SECTION 7.03. WHO ARE DEEMED ABSOLUTE OWNERS. Prior to due presentment for registration of transfer of any Security, the Company, the Trustee, any Authenticating Agent, any paying agent, any transfer agent and any Security registrar may deem the person in whose name such Security shall be registered upon the Security Register to be, and may treat him as, the absolute owner of such Security (whether or not such Security shall be overdue) for the purpose of receiving payment of or on account of the principal of and premium, if any, and, subject to Section 2.06, interest on such Security and for all other purposes; and neither the Company nor the Trustee nor any Authenticating Agent nor any paying agent nor any transfer agent nor any Security registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon his order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security. SECTION 7.04. SECURITIES OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining whether the holders of the requisite principal amount of Securities at the time outstanding have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Company or any other obligor on the Securities or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Securities which the Trustee actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 7.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Securities and that the pledgee is not the Company or any such other obligor or person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 7.05. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.01, of the taking of any action by the holders of the percentage in principal amount of the Securities at the time outstanding specified in this Indenture in connection with such action, any holder of a Security (or any Security issued in whole or in part in exchange or substitution therefor) the serial number of which is shown by the evidence to be included in the Securities the holders of which have consented to such action may, by filing written notice with the Trustee at the principal office of the Trustee and upon proof of holding as provided in Section 7.02, revoke such action so far as concerns such Security (or so far as concerns the principal amount represented by any exchanged or substituted Security). Except as aforesaid any such action taken by the holder of any Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Security, and of any Security issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon such Security or any Security issued in exchange or substitution therefor. ARTICLE VIII SECURITYHOLDERS' MEETINGS SECTION 8.01. PURPOSE OF MEETINGS. A meeting of Securityholders may be called at any time and from time to time pursuant to the provisions of this Article VIII for any of the following purposes: (a)...to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any Default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article V; (b)...to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VI; (c)...to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.02; or (d)...to take any other action authorized to be taken by or on behalf of the holders of any specified principal amount of such Securities at the time outstanding under any other provision of this Indenture or under applicable law. SECTION 8.02. CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time call a meeting of Securityholders to take any action specified in Section 8.01, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of the Securityholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Securities at their addresses as they shall appear on the Securities Register. Such notice shall be mailed not less than 20 nor more than 180 days prior to the date fixed for the meeting. SECTION 8.03. CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS. In case at any time the Company pursuant to a resolution of the Board of Directors, or the holders of at least 10% in principal amount of the Securities at the time outstanding, shall have requested the Trustee to call a meeting of Securityholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place in the Borough of Manhattan, The City of New York for such meeting and may call such meeting to take any action authorized in Section 8.01, by mailing notice thereof as provided in Section 8.02. SECTION 8.04. QUALIFICATIONS FOR VOTING. To be entitled to vote at any meeting of Securityholders a Person shall (a) be a holder of one or more Securities or (b) a Person appointed by an instrument in writing as proxy by a holder of one or more Securities. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 8.05. REGULATIONS. (a)...Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. (b)...The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 8.03, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting. (c)...Subject to the provisions of Section 8.04, at any meeting each holder of Securities or proxy therefor shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the Person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.02 or 8.03 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. (d)...The Persons entitled to vote a majority in principal amount of the outstanding Securities shall constitute a quorum for a meeting of holders of Securities; provided, however, that if any action is to be taken at such meeting with respect to a consent, waiver, request, demand, notice, authorization, direction or other action which may be given by the holders of not less than a specified percentage in principal amount of the outstanding Securities, the Persons holding or representing such specified percentage in principal amount of the outstanding Securities will constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of holders of Securities, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.02, except that such notice need be given only once not less than five days prior the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the outstanding Securities which shall constitute a quorum. (e)...Except as limited by the first proviso to the first paragraph of Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the holders of a majority in principal amount of the outstanding Securities; provided, however, that, except as limited by the first proviso to the first paragraph of Section 9.02, any resolution with respect to any consent, waiver, request, demand, notice, authorization, direction or other action which this Indenture expressly provides may be given by the holders of not less than a specified percentage in principal amount of the outstanding Securities may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid only by the affirmative vote of the holders of not less than such specified percentage in principal amount of the outstanding Securities. (f)...Any resolution passed or decision taken at any meeting of holders of Securities duly held in accordance with this Section shall be binding on all the holders of Securities whether or not present or represented at the meeting. SECTION 8.06. VOTING. The vote upon any resolution submitted to any meeting of holders of Securities shall be by written ballots on which shall be subscribed the signatures of such holders or of their representatives by proxy and the serial number or numbers of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.02. The record shall show the serial numbers of the Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. The holders of the Initial Securities and the Exchange Securities shall vote for all purposes as a single class. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE IX AMENDMENTS SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS. The Company and the Trustee may from time to time and at any time amend this Indenture, without the consent of the Securityholders, for one or more of the following purposes: (a)...to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article X hereof; (b)...to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the Securityholders as the Board of Directors and the Trustee shall consider to be for the protection of the Securityholders, and to make the occurrence, or the occurrence and continuance, of a Default in any of such additional covenants, restrictions or conditions a Default or an Event of Default permitting the enforcement of all or any of the remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition, such amendment may provide for a particular period of grace after Default (which period may be shorter or longer than that allowed in the case of other Defaults) or may provide for an immediate enforcement upon such Default or may limit the remedies available to the Trustee upon such Default; (c)...to provide for the issuance under this Indenture of Securities in coupon form if allowed by law (including Securities registrable as to principal only) and to provide for exchangeability of such Securities with the Securities issued hereunder in fully registered form and to make all appropriate changes for such purpose; (d)...to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture; provided that any such action shall not materially adversely affect the interests of the holders of the Securities; (e)...to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities; (f)...to make provision for transfer procedures, certification, book-entry provisions, the form of restricted securities legends, if any, to be placed on Securities, and all other matters required pursuant to Section 2.07 or otherwise necessary, desirable or appropriate in connection with the issuance of Securities to holders of Capital Securities in the event of a distribution of Securities by Orion Capital Trust II following a Dissolution Event; (g)...to qualify or maintain qualification of this Indenture under the Trust Indenture Act; or (h)...to make any change that does not adversely affect the rights of any Securityholder in any material respect. The Trustee is hereby authorized to join with the Company in the execution of any supplemental indenture to effect such amendment, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any amendment to this Indenture authorized by the provisions of this Section 9.01 may be executed by the Company and the Trustee without the consent of the holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 9.02. SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS. (a)...With the consent (evidenced as provided in Section 7.01) of the holders of a majority in principal amount of the Securities at the time outstanding, the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time amend this Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the holders of the Securities; provided, however, that no such amendment shall without the consent of the holders of each Security then outstanding and affected hereby (i) extend the Stated Maturity of any Security, or reduce the rate or extend the time of payment of interest thereon (except as contemplated by Article XVI), or reduce the principal amount thereof, or reduce any amount payable on prepayment thereof, or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that provided in the Securities, or impair or affect the right of any Securityholder to institute suit for payment thereof, or (ii) reduce the aforesaid percentage of Securities the holders of which are required to consent to any such amendment to this Indenture; provided, however, that if the Securities are held by Orion Capital Trust II, such amendment shall not be effective until the holders of a majority in liquidation amount of Trust Securities shall have consented to such amendment; provided, further, that if the consent of the holder of each outstanding Security is required, such amendment shall not be effective until each holder of the Trust Securities shall have consented to such amendment. (b)...Upon the request of the Company accompanied by a copy of a resolution of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any supplemental indenture affecting such amendment, and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. (c)...Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, prepared by the Company, setting forth in general terms the substance of such supplemental indenture, to the Securityholders as their names and addresses appear upon the Security Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. (d)...It shall not be necessary for the consent of the Securityholders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT; EFFECT OF SUPPLEMENTAL INDENTURES. Any supplemental indenture executed pursuant to the provisions of this Article IX shall comply with the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article IX, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Securities shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.04. NOTATION ON SECURITIES. Securities authenticated and delivered after the execution of any supplemental indenture affecting such series pursuant to the provisions of this Article IX may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Securities then outstanding. SECTION 9.05. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE FURNISHED TRUSTEE. (a)...The Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article IX. (b)...The Trustee may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article is authorized or permitted by, and conforms to, the terms of this Article and that it is proper for the Trustee under the provisions of this Article to join in the execution thereof. ARTICLE X CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE SECTION 10.01. COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other Person (whether or not affiliated with the Company, as the case may be), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or lease of the property of the Company or its successor or successors as an entirety, or substantially as an entirety, to any other Person (whether or not affiliated with the Company or its successor or successors) authorized to acquire and operate the same; provided, that (a) the Company is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, conveyance, transfer or lease of property is made is a Person organized and existing under the laws of the United States or any State thereof or the District of Columbia, and (b) upon any such consolidation, merger, sale, conveyance, transfer or lease, the due and punctual payment of the principal of (and premium, if any) and interest on the Securities according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the Person formed by such consolidation, or into which the Company shall have been merged, or by the Person which shall have acquired such property, and (c) after giving effect to such consolidation, merger, sale, conveyance, transfer or lease, no Default or Event of Default shall have occurred and be continuing. SECTION 10.02. SUCCESSOR CORPORATION TO BE SUBSTITUTED FOR COMPANY. In case of any such consolidation, merger, conveyance or transfer and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of (and premium, if any) and interest on all of the Securities and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, such successor Person shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the Company thereupon shall be relieved of any further liability or obligation hereunder or upon the Securities. Such successor Person thereupon may cause to be signed, and may issue either in its own name or in the name of Orion Capital Corporation, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee or the Authenticating Agent; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee or the Authenticating Agent for authentication, and any Securities which such successor Person thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. 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. SECTION 10.03. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale, conveyance, transfer or lease, and any assumption, permitted or required by the terms of this Article X, complies with the provisions of this Article X. ARTICLE XI SATISFACTION AND DISCHARGE OF INDENTURE SECTION 11.01. DISCHARGE OF INDENTURE. When (a) the Company shall deliver to the Trustee for cancellation all Securities theretofore authenticated (other than any Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.08) and not theretofore cancelled, or (b) all the Securities not theretofore cancelled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for prepayment within one year under arrangements satisfactory to the Trustee for the giving of notice of prepayment, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay on the Stated Maturity or upon prepayment all of the Securities (other than any Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.08) not theretofore cancelled or delivered to the Trustee for cancellation, including principal (and premium, if any) and interest due or to become due to the Stated Maturity or prepayment date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal (or premium, if any) or interest on the Securities (1) theretofore repaid to the Company in accordance with the provisions of Section 11.04, or (2) paid to any State or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect except for the provisions of Sections 2.02, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof, which shall survive until such Securities shall mature and be paid. Thereafter, Sections 6.06, 6.10 and 11.04 shall survive, and the Trustee, on demand of the Company accompanied by any Officers' Certificate and an Opinion of Counsel, to the effect that all conditions to the satisfaction and discharge of this Indenture have been satisfied, and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture, the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Securities. SECTION 11.02. DEPOSITED MONEYS AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST BY TRUSTEE. _ Subject to the provisions of Section 11.04, all moneys and U.S. Government Obligations deposited with the Trustee pursuant to Sections 11.01 or 11.05 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Securities for the payment of which such moneys or U.S. Government Obligations have been deposited with the Trustee, of all sums due and to become due thereon for principal (premium, if any) and interest. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 11.05 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the holders of outstanding Securities. SECTION 11.03. PAYING AGENT TO REPAY MONEYS HELD. Upon the satisfaction and discharge of this Indenture all moneys then held by any paying agent of the Securities (other than the Trustee) shall, upon written demand of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 11.04. RETURN OF UNCLAIMED MONEYS. Any moneys deposited with or paid to the Trustee or any paying agent for payment of the principal of (or premium, if any, on) or interest on Securities and not applied but remaining unclaimed by the holders of Securities for two years after the date upon which the principal of (or premium, if any, on) or interest on such Securities, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee or such paying agent on written demand; and the holder of any of the Securities shall thereafter look only to the Company for any payment which such holder may be entitled to collect and all liability of the Trustee or such paying agent with respect to such moneys shall thereupon cease. SECTION 11.05. DEFEASANCE UPON DEPOSIT OF MONEYS OR U.S. GOVERNMENT OBLIGATIONS. The Company shall be deemed to have been Discharged (as defined below) from its obligations with respect to the Securities on the 123rd day after the applicable conditions set forth below have been satisfied with respect to the Securities: (a) The Company shall have deposited or caused to be deposited irrevocably with the Trustee or the Defeasance Agent (as defined below) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide, not later than one Business Day before the due date of any payment, money in an amount, or (iii) a combination of (i) and (ii), sufficient, in the opinion (with respect to (ii) and (iii)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee and the Defeasance Agent, if any, to pay and discharge each installment of principal of (and premium, if any) and interest on the outstanding Securities on the dates such installments of principal, premium or interest are due; (b) if the Securities are then listed on any national securities exchange, the Company shall have delivered to the Trustee and the Defeasance Agent, if any, an Opinion of Counsel to the effect that the exercise of the option under this Section 11.05 would not cause such Securities to be delisted from such exchange; (c) no Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit; and (d) the Company shall have delivered to the Trustee and the Defeasance Agent, if any, an Opinion of Counsel to the effect that holders of the Securities will not recognize income, gain or loss for United States federal income tax purposes as a result of the exercise of the option under this Section 11.05 and will be subject to United States federal income tax in the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised, and such opinion shall be accompanied by a private letter ruling to that effect received from the United States Internal Revenue Service or a revenue ruling pertaining to a comparable form of transaction to that effect published by the United States Internal Revenue Service. "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Securities and to have satisfied all the obligations under this Indenture relating to the Securities (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of holders of Securities to receive, from the trust fund described in clause (1) above, payment of the principal of (and premium, if any) and the interest on the Securities when such payments are due; (B) the Company's obligations with respect to the Securities under Sections 2.07, 2.08, 5.02 and 11.04; and (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder. "Defeasance Agent" means another financial institution which is eligible to act as Trustee hereunder and which assumes all of the obligations of the Trustee necessary to enable the Trustee to act hereunder. In the event such a Defeasance Agent is appointed pursuant to this Section, the following conditions shall apply: (a) The Trustee shall have approval rights over the document appointing such Defeasance Agent and the document setting forth such Defeasance Agent's rights and responsibilities; and (b) The Defeasance Agent shall provide verification to the Trustee acknowledging receipt of sufficient money and/or U.S. Government Obligations to meet the applicable conditions set forth in this Section 11.05. SECTION 11.06. REINSTATEMENT. If the Trustee or any Defeasance Agent is unable to apply any money in accordance with Section 11.05 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section ll.05 until such time as the Trustee or any Defeasance Agent is permitted to apply all such money in accordance with Section 11.05. ARTICLE XII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 12.01. INDENTURE AND SECURITIES SOLELY CORPORATE OBLIGATIONS. No recourse for the payment of the principal of (or premium, if any) or interest on any Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture, or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor Person to the Company, either directly or through the Company, any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. ARTICLE XIII MISCELLANEOUS PROVISIONS SECTION 13.01. SUCCESSORS. All the covenants, stipulations, promises and agreements in this Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. SECTION 13.02. OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 13.03. SURRENDER OF COMPANY POWERS. The Company by instrument in writing executed by authority of 2/3 (two-thirds) of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company, and thereupon such power so surrendered shall terminate both as to the Company and as to any successor Person. SECTION 13.04. ADDRESS FOR NOTICES, ETC. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Securities on the Company may be given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee for the purpose) to the Company, 9 Farm Springs Road, Farmington, CT 06032, Attention: Michael P. Maloney, Esq., Senior Vice President, General Counsel and Secretary. Any notice, direction, request or demand by any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of the Trustee, The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York, 10286, Attention: Corporate Trust Administration. SECTION 13.05. GOVERNING LAW. This Indenture and each Security shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State, without regard to conflicts of laws principles thereof. SECTION 13.06. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that in the opinion of the signers all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (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 such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 13.07. BUSINESS DAYS. In any case where the date of payment of principal of (or premium, if any) or interest on the Securities will not be a Business Day, the payment of such principal of (or premium, if any) or interest on the Securities need not be made on such date but may be made on the next succeeding Business Day, with the same force and effect as if made on the date of payment and no interest shall accrue for the period from and after such date. SECTION 13.08. TRUST INDENTURE ACT TO CONTROL. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included in this Indenture by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such required provision shall control. SECTION 13.09. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 13.10. EXECUTION IN COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 13.11. SEPARABILITY. In case any one or more of the provisions contained in this Indenture or in the Securities shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture or of the Securities, but this Indenture and the Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 13.12. ASSIGNMENT. The Company will have the right at all times to assign any of its rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, provided that, in the event of any such assignment, the Company will remain liable for all such obligations. Subject to the foregoing, the Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties hereto. SECTION 13.13. ACKNOWLEDGMENT OF RIGHTS. The Company acknowledges that, with respect to any Securities held by Orion Capital Trust II or a trustee of such Trust, if the Property Trustee of such Trust fails to enforce its rights under this Indenture as the holder of the Securities held as the assets of Orion Capital Trust II, any holder of Capital Securities may institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property 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 Capital 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 Capital Securities of such holder on or after the respective due date specified in the Securities. ARTICLE XIV CONDITIONAL RIGHT TO SHORTEN MATURITY; PREPAYMENT OF SECURITIES -- NO SINKING FUND SECTION 14.01. SPECIAL EVENT PREPAYMENT. If a Special Event has occurred and is continuing, then the Company shall have the right, upon (i) not less than 45 days written notice to the Trustee and (ii) not less than 30 days nor more than 60 days written notice to the Securityholders, to prepay the Securities, in whole (but not in part), at any time within 90 days following the occurrence of such Special Event, at the Special Event Prepayment Price. Following a Special Event, the Company shall take such action as is necessary promptly to determine the Special Event Prepayment Price, including without limitation the appointment by the Company of a Quotation Agent. The Special Event Prepayment Price shall be paid prior to 12:00 noon, New York City time, on the date of such prepayment or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Special Event Prepayment Price by 10:00 a.m., New York City time, on the date such Special Event Prepayment Price is to be paid. SECTION 14.02. OPTIONAL PREPAYMENT BY COMPANY. Subject to the provisions of this Article XIV, the Company shall have the right to prepay the Securities, in whole or in part, at any time and from time to time, at the optional prepayment price equal to the Optional Prepayment Price. If the Securities are only partially prepaid pursuant to this Section 14.02, the Securities to be prepaid will be chosen PRO RATA or by lot or by any other method utilized by the Trustee; provided that, as to Securities registered as a Global Security at the time of prepayment, the Depositary shall determine, in accordance with its procedures, the principal amount of such Securities held by each holder of a Security to be prepaid. The Optional Prepayment Price shall be paid prior to 12:00 noon, New York City time, on the date of such prepayment or at such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Optional Prepayment Price by 10:00 a.m., New York time, on the date such Optional Prepayment Price is to be paid. SECTION 14.03. NO SINKING FUND. The Securities are not entitled to the benefit of any sinking fund. SECTION 14.04. NOTICE OF PREPAYMENT; SELECTION OF SECURITIES. In case the Company shall desire to exercise the right to prepay all, or, as the case may be, any part of the Securities in accordance with their terms, it shall fix a date for prepayment and shall mail a notice of such prepayment at least 30 and not more than 60 days prior to the date fixed for prepayment to the holders of Securities so to be prepaid as a whole or in part at their last addresses as the same appear on the Security Register. Such mailing shall be by first class mail. 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, failure to give such notice by mail or any defect in the notice to the holder of any Security designated for prepayment as a whole or in part shall not affect the validity of the proceedings for the prepayment of any other Security. Each such notice of prepayment shall specify the CUSIP number of the Securities to be prepaid, the date fixed for prepayment, the prepayment price at which the Securities are to be prepaid (or the method by which such prepayment price is to be calculated), the place or places of payment that payment will be made upon presentation and surrender of the Securities, that interest accrued to the date fixed for prepayment will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be prepaid will cease to accrue. If less than all the Securities are to be prepaid the notice of prepayment shall specify the numbers of the Securities to be prepaid. In case any Security is to be prepaid in part only, the notice of prepayment shall state the portion of the principal amount thereof to be prepaid and shall state that on and after the date fixed for prepayment, upon surrender of such Security, a new Security or Securities in principal amount equal to the unprepaid portion thereof will be issued. Prior to 10:00 a.m., New York City time, on the prepayment date specified in the notice of prepayment given as provided in this Section, the Company will deposit with the Trustee or with one or more paying agents an amount of money sufficient to prepay on the prepayment date all the Securities so called for prepayment at the appropriate Prepayment Price, together with accrued interest to the date fixed for prepayment. The Company will give the Trustee notice not less than 45 days prior to the prepayment date as to the aggregate principal amount of Securities to be prepaid and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Securities or portions thereof (in integral multiples of $1,000, except as otherwise set forth in the applicable form of Security) to be prepaid. SECTION 14.05. PAYMENT OF SECURITIES CALLED FOR PREPAYMENT. If notice of prepayment has been given as provided in Section 14.04, the Securities or portions 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 Prepayment Price, together with interest accrued to the date fixed for prepayment (subject to the rights of holders of Securities on the close of business on a Regular Record Date in respect of an Interest Payment Date occurring on or prior to the prepayment date), and on and after said date (unless the Company shall default in the payment of such Securities at the Prepayment Price, together with interest accrued to said date) interest on the Securities or portions of Securities so called for prepayment shall cease to accrue. On presentation and surrender of such Securities at a place of payment specified in said notice, the said Securities or the specified portions thereof shall be paid and prepaid by the Company at the applicable Prepayment Price, together with interest accrued thereon to the date fixed for prepayment (subject to the rights of holders of Securities on the close of business on a Regular Record Date in respect of an Interest Payment Date occurring on or prior to the prepayment date). Upon presentation of any Security prepaid in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations, in principal amount equal to the unprepaid portion of the Security so presented. SECTION 14.06. CONDITIONAL RIGHT TO SHORTEN MATURITY. If a Tax Event occurs, then the Company will have the right, prior to the termination of the Trust, either (i) to shorten the Stated Maturity of the Securities to the minimum extent required, but not to a date earlier than April 15, 2018 such that, in the written opinion of counsel experienced in such matters delivered to the Company, after shortening the Stated Maturity, interest paid on the Securities shall be deductible for federal income tax purposes (the action referred to above being referred to herein as a "Tax Event Maturity Shortening") or (ii) to prepay the Securities. The circumstances under which the Company has the right to prepay the Securities in connection with a Tax Event is referred to herein as a "Conditional Tax Redemption Event" and, since a Conditional Tax Redemption Event is deemed to be a Special Event, the Securities shall then be subject to prepayment in accordance with the provisions of Section 14.01. ARTICLE XV SUBORDINATION OF SECURITIES SECTION 15.01. AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and each holder of Securities issued hereunder likewise covenants and agrees, that the Securities shall be issued subject to the provisions of this Article XV; and each holder of a Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of (and premium, if any) and interest on all Securities issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of the Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article XV shall prevent the occurrence of any Default or Event of Default hereunder. SECTION 15.02. DEFAULT ON SENIOR INDEBTEDNESS. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness, or in the event that the maturity of any Senior Indebtedness has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including prepayment) of or premium, if any, or interest on the Securities. In the event of the acceleration of the maturity of the Securities, then no payment shall be made by the Company with respect to the principal (including prepayments) of or premium, if any, or interest on the Securities until the holders of all Senior Indebtedness outstanding at the time of such acceleration shall receive payment in full of all amounts due in respect of such Senior Indebtedness (including any amounts due upon acceleration). In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 15.02, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent of the amounts due in respect of such Senior Indebtedness and only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing, within 90 days of such payment, of the amounts then due and owing on such Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of such Senior Indebtedness. SECTION 15.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal (and premium, if any) or interest on the Securities; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Securityholders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XV, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Securityholders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Securityholders or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all amounts in respect of Senior Indebtedness is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all amounts due in respect of such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. For purposes of this Article XV, the words "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, the payment of which is subordinated at least to the extent provided in this Article XV with respect to the Securities to the payment of Senior Indebtedness that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. 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, conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Article X of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 15.03 if such other Person shall, as a part of such consolidation, merger, sale, conveyance, transfer or lease, comply with the conditions stated in Article X of this Indenture. Nothing in Section 15.02 or in this Section 15.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.05 of this Indenture. SECTION 15.04. SUBROGATION. Subject to the payment in full of all amounts due in respect of Senior Indebtedness, the rights of the Securityholders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the Securityholders or the Trustee would be entitled except for the provisions of this Article XV, and no payment over pursuant to the provisions of this Article XV to or for the benefit of the holders of such Senior Indebtedness by Securityholders or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Securities, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XV are and are intended solely for the purposes of defining the relative rights of the holders of the Securities, on the one hand, and the holders of such Senior Indebtedness, on the other hand. Nothing contained in this Article XV or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holders of the Securities, the obligation of the Company, which is 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 is intended to or shall affect the relative rights of the holders of the Securities and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness of the Company, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Security from exercising all remedies otherwise permitted by applicable law upon a Default under this Indenture, subject to the rights, if any, under this Article XV of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article XV, the Trustee, subject to the provisions of Article VI of this Indenture, and the Securityholders shall be entitled conclusively to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Securityholders, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XV. SECTION 15.05. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Securityholder by such Securityholder's acceptance thereof authorizes and directs the Trustee on such Securityholder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XV and appoints the Trustee such Securityholder's attorney-in-fact for any and all such purposes. SECTION 15.06. NOTICE BY THE COMPANY. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article XV. Notwithstanding the provisions of this Article XV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article XV, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 15.06 at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within three Business Days prior to such date. The Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled conclusively to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee on behalf of such holder), to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XV, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XV, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Upon any payment or distribution of assets of the Company referred to in this Article XV, the Trustee and the Securityholders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Securityholders, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of 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 XV. SECTION 15.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XV, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Article VI of this Indenture, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to Securityholders, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XV or otherwise. Nothing in this Article XV shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.06. SECTION 15.08. SUBORDINATION MAY NOT BE IMPAIRED. No right of any present or future holder of any Senior Indebtedness of the Company 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 otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the Securityholders, without incurring responsibility to the Securityholders and without impairing or releasing the subordination provided in this Article XV or the obligations hereunder of the holders of the Securities to the holders of such Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. ARTICLE XVI EXTENSION OF INTEREST PAYMENT PERIOD SECTION 16.01. EXTENSION OF INTEREST PAYMENT PERIOD. (a) So long as no Event of Default has occurred and is continuing, 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 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (as set forth in Section 16.02(c)) (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 16.01, will bear interest thereon at the Coupon Rate 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 Additional Sums and Compounded Interest (together, "Deferred 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 immediately preceding the end of the Extension Period. (b) During any such Extension Period, the Company may not, and may not permit any Subsidiary to, (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 (including Other Debentures) 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 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 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 prepayment or repurchase of any such rights pursuant thereto, (c) payments under the Capital Securities Guarantee, (d) as a direct result of, and only to the extent necessary to avoid the issuance of fractional shares of the Company's capital stock following, 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 of common stock related to the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans). None of the Company's Subsidiaries will be prohibited from declaring and paying cash distributions with respect to its capital stock or from making payments with respect to its debt securities. (c) Before the termination of any such Extension Period, the Company may further 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 Stated Maturity. Upon the termination of any Extension Period and the payment of all Deferred Interest then due, the Company may elect to commence 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 16.02. NOTICE OF EXTENSION. (a) If the Property Trustee is the only registered holder of the Securities at the time the Company selects an Extension Period, the Company shall give written notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extension Period at least 5 Business Days before the earlier of (i) the next succeeding date on which distributions on the Trust Securities issued by Orion Capital Trust II are payable, or (ii) the date the Trust is required to give notice of the record date, or the date such Distributions are payable, to any national securities exchange or to holders of the Capital Securities issued by the Trust, but in any event at least 5 Business Days before such record date. (b) If the Property Trustee is not the only holder of the Securities at the time the Company selects an Extension Period, the Company shall give the holders of the Securities and the Trustee written notice of its selection of such Extension Period at least 10 Business Days before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to any national securities exchange. (c) The semi-annual period in which any notice is given pursuant to paragraphs (a) or (b) of this Section 16.02 shall be counted as one of the 10 semi-annual periods permitted in the maximum Extension Period permitted under Section 16.01. There is no limitation on the number of times that the Company may elect to begin an Extension Period. The Bank of New York hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. ORION CAPITAL CORPORATION By: /s/ Michael P. Maloney Name: Michael P. Maloney, Esq. Title:__Senior Vice President, General Counsel and Secretary THE BANK OF NEW YORK, as Trustee By: Name:Walter N. Gitlin Title:Vice President EXHIBIT A [IF THE SECURITY IS A GLOBAL SECURITY, INSERT: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY 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 DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS (A) THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND (B) ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] THIS SECURITY HAS 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 NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO 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) EXCEPT (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) PURSUANT TO OFFERS AND SALES TO NON-U.S. 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 SECURITY 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, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF 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 THE COMPANY, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE COMPANY. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE 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. No. CUSIP No. ORION CAPITAL CORPORATION 7.701% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE DUE APRIL 15, 2028 Orion Capital Corporation, a Delaware corporation (the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to The Bank of New York, as Property Trustee, or registered assigns, the principal sum of $129,000,000 on April 15, 2028 (the "Stated Maturity"), unless the Stated Maturity is shortened under certain circumstances described herein or this Debenture is previously prepaid, and to pay interest on the outstanding principal amount hereof from February 5, 1998, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on April 15 and October 15 of each year, commencing April 15, 1998, at the rate of 7.701% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded semi-annually. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. In the event that any date on which the principal of (or premium, if any) or interest on this Security is payable is not a Business Day, then payment payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the Regular Record Date for such interest installment, which shall be the 15th day preceding the relevant interest payment date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the holders on such Regular Record Date and may 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 to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the holders of Securities not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as maybe required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and interest on this Security shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by (i) check mailed to the holder at such address as shall appear in the Security Register or (ii) by transfer to an account maintained by the Person entitled thereto, provided that proper written transfer instructions have been received by the relevant record date. Notwithstanding the foregoing, so long as the Holder of this Security is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Security will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Security is unsecured and, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of 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 or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby 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. This Security shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Security are continued on the reverse side hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. ORION CAPITAL CORPORATION By:___________________________ Name: Title: (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. Dated:___________________________ THE BANK OF NEW YORK, as Trustee By:/s/ Walter N. Gitlin Authorized Signatory (FORM OF REVERSE OF SECURITY) This Security is one of the Securities of the Company (herein sometimes referred to as the "Securities"), specified in the Indenture, all issued or to be issued under and pursuant to an Indenture, dated as of February 5, 1998 (the "Indenture"), duly executed and delivered between the Company and The Bank of New York, as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Securities. Upon the occurrence and continuation of a Special Event, the Company shall have the right to prepay this Security in whole (but not in part) at the Special Event Prepayment Price. "Special Event Prepayment Price" shall mean, with respect to any prepayment of the Securities following a Special Event, an amount in cash equal to the greater of (i) 100% of the principal amount thereof or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest thereon discounted to the prepayment date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period) at the Special Event Adjusted Treasury Rate, plus, in each case, any accrued and unpaid interest thereon, including Compounded Interest, Additional Interest and Additional Sums, if any, to the date of such prepayment. In addition, the Company shall have the right to prepay this Security, in whole or in part, at any time (an "Optional Prepayment"), at the Optional Prepayment Price equal to the greater of (i) 100% of the principal amount to be prepaid or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal to be prepaid and interest thereon discounted to the prepayment date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in either case, accrued and unpaid interest thereon to the date of prepayment and any Additional Sums. The Special Event Prepayment Price and the Optional Prepayment Price, as the case requires, shall be paid prior to 12:00 noon, New York time, on the date of such prepayment or at such earlier time as the Company determines, provided, that the Company shall deposit with the Trustee an amount sufficient to pay the applicable Prepayment Price by 10:00 a.m., New York City time, on the date such Prepayment Price is to be paid. Any prepayment pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice. If the Securities are only partially prepaid by the Company pursuant to an Optional Prepayment, the Securities to be prepaid will be chosen by lot or by any other method utilized by the Trustee; provided that, as to Securities registered as a Global Security at the time of prepayment, the Depositary shall determine the particular Securities to be prepaid in accordance with its procedures. In the event of prepayment of this Security in part only, a new Security or Securities for the unprepaid portion hereof will be issued in the name of the holder hereof upon the cancellation hereof. If a Tax Event occurs, then the Company will have the right, prior to the termination of the Trust, either (i) to shorten the Stated Maturity of this Security to the minimum extent, but not earlier than April 15, 2018, such that, in the written opinion of counsel experienced in such matters delivered to the Company, after shortening the Stated Maturity, interest paid on the Securities shall be deductible for federal income tax purposes or (ii) to prepay the Securities. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Securities may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of a majority in principal amount of the Securities at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the holders of the Securities; provided, however, that no such supplemental indenture shall, without the consent of each holder of Securities then outstanding and affected thereby, (i) extend the Stated Maturity of any Securities, or reduce the principal amount thereof, or reduce any amount payable on prepayment thereof, or reduce the rate or extend the time of payment of interest thereon (subject to Article XVI of the Indenture), or make the principal of, or interest or premium on, the Securities payable in any coin or currency other than U.S. dollars, or impair or affect the right of any holder of Securities to institute suit for the payment thereof, or (ii) reduce the aforesaid percentage of Securities, the holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the holders of a majority in principal amount of the Securities at the time outstanding affected thereby, on behalf of all of the holders of the Securities, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a Default in the payment of the principal of or premium, if any, or interest on any of the Securities or a Default in respect of any covenant or provision under which the Indenture cannot be modified or amended without the consent of each holder of Securities then outstanding. Any such consent or waiver by the holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future holders and owners of this Security and of any Security issued in exchange heretofore or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Security at the time and place and at the rate and in the money herein prescribed. As long as no Event of Default has occurred and is continuing, 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 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (an "Extension Period"), during which Extension Period no interest shall be due and payable, provided that no Extension Period may extend beyond the Stated Maturity of the Securities. At the end of the Extension Period, the Company shall pay all interest then accrued and unpaid, together with deferred 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 10 consecutive semi-annual periods, including the first semi-annual period during such Extension Period, or extend beyond the Stated Maturity 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 has agreed that, if at any time (i) there shall have occurred any event of which the Company has actual knowledge that (a) is, or with the giving of notice or the lapse of time, or both, would be, an Event of Default and (b) in respect of which the Company shall not have taken reasonable steps to cure, (ii) if such Securities are held by Orion Capital Trust I, the Company shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee, or (iii) the Company shall have given notice of its election of the exercise of its right to extend the interest payment period and any such extension shall be continuing, then the Company will not, and will not permit any Subsidiary to, (i) declare or pay any dividends or distributions on, or prepay, 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 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 or any Subsidiary of the Company if such guarantee ranks pari passu or junior in right of payment to the Securities ther 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 Capital Securities Guarantee, (d) as a direct result of, and only to the extent necessary to avoid the issuance of fractional shares of the Company's capital stock following, 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 of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees or any of the Company's dividend reinvestment plans. None of the Company's Subsidiaries will be prohibited from declaring and paying cash distributions with respect to its capital stock or from making payments with respect to its debt securities. The Company will have the right at any time to dissolve Orion Capital Trust II 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 $1,000.00 and any integral multiple thereof. As provided in the Indenture and subject to the transfer restrictions limitations as may be contained herein and therein from time to time, this Security is transferable by the holder hereof on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the 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 and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Security, the Company, the Trustee, any paying agent and the registrar may deem and treat the holder hereof as the absolute owner hereof (whether or not this Security shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or premium, if any, or interest on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. EX-4 4 CERTIFICATE OF TRUST OF ORION CAPITAL TRUST II The undersigned, being all the Administrative Trustees, the sole Delaware Trustee and the sole Property Trustee of Orion Capital Trust II, desiring to form a business trust pursuant to the Delaware Business Trust Act, 12 Del. Ch. ss.ss. 3801 et seq., hereby certify as follows: 1. Name: The name of the business trust being created hereby is Orion Capital Trust II (the "Trust"). 2. Delaware Trustee. The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware are as follows: The Bank of New York (Delaware) White Clay Center Route 273 Newark, Delaware 19711 3. Property Trustee. The name and business address of the Property Trustee of the Trust are as follows: The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 4. Effective Date. This Certificate of Trust shall be effective as of its filing. IN WITNESS WHEREOF, the undersigned, being all the Administrative Trustees, the sole Delaware Trustee and the sole Property Trustee of the Trust, have executed this Certificate of Trust. DATED: February 2, 1998 THE BANK OF NEW YORK (DELAWARE) Not in its individual capacity but solely as Delaware Trustee By:/s/Walter N. Gitlin Name:Walter N. Gitlin Title:Authorized Signatory THE BANK OF NEW YORK Not in its individual capacity but solely as Property Trustee By:/s/ Walter N. Gitlin Name:Walter N. Gitlin Title:Vice President /s/ Marston Becker W. Marston Becker, not in his individual capacity but solely in his capacity as Administrative Trustee /s/ Craig A. Nyman Craig A. Nyman, not in his individual capacity but solely in his capacity as Administrative Trustee /s/ Michael P. Maloney Michael P. Maloney, Esq., not in his individual capacity but solely in his capacity as Administrative Trustee EX-4 5 ----------------------------------------- AMENDED AND RESTATED DECLARATION OF TRUST ORION CAPITAL TRUST II DATED AS OF FEBRUARY 5, 1998 ----------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I INTERPRETATION AND DEFINITIONS....................................1 SECTION 1.1 Definitions...................................................1 ARTICLE II TRUST INDENTURE ACT..............................................9 SECTION 2.1 Trust Indenture Act; Application..............................9 SECTION 2.2 Lists of Holders of Securities................................9 SECTION 2.3 Reports by the Property Trustee..............................10 SECTION 2.4 Periodic Reports to Property Trustee.........................10 SECTION 2.5 Evidence of Compliance with Conditions Precedent.............10 SECTION 2.6 Events of Default; Waiver....................................10 SECTION 2.7 Event of Default; Notice.....................................12 ARTICLE III ORGANIZATION...................................................12 SECTION 3.1 Name.........................................................12 SECTION 3.2 Office.......................................................13 SECTION 3.3 Purpose......................................................13 SECTION 3.4 Authority....................................................13 SECTION 3.5 Title to Property of the Trust...............................13 SECTION 3.6 Powers and Duties of the Administrative Trustees.............13 SECTION 3.7 Prohibition of Actions by the Trust and the Trustees...................................................16 SECTION 3.8 Powers and Duties of the Property Trustee....................17 SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee...........................................19 SECTION 3.10 Certain Rights of Property Trustee..........................21 SECTION 3.11 Delaware Trustee............................................23 SECTION 3.12 Not Responsible for Recitals or Issuance of Securities................................................23 SECTION 3.13 Duration of Trust...........................................24 SECTION 3.14 Mergers.....................................................24 ARTICLE IV SPONSOR.........................................................25 SECTION 4.1 Sponsor's Purchase of Common Securities......................25 SECTION 4.2 Responsibilities of the Sponsor..............................25 SECTION 5.1 Right to Proceed.............................................26 ARTICLE V TRUSTEES.........................................................26 SECTION 5.1 Number of Trustees; Appointment of Co-Trustee................26 SECTION 5.2 Delaware Trustee.............................................27 SECTION 5.3 Property Trustee; Eligibility................................27 SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware Trustee Generally.............................28 SECTION 5.5 Administrative Trustees......................................28 SECTION 5.6 Delaware Trustee.............................................29 SECTION 5.7 Appointment, Removal and Resignation of Trustees.............29 SECTION 5.8 Vacancies among Trustees.....................................31 SECTION 5.9 Effect of Vacancies..........................................31 SECTION 5.10 Meetings....................................................31 SECTION 5.11 Delegation of Power.........................................31 SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business...............................................32 SECTION 5.13 Undertaking for Costs.......................................32 ARTICLE VI DISTRIBUTIONS...................................................32 SECTION 6.1 Distributions................................................32 ARTICLE VII ISSUANCE OF SECURITIES.........................................33 SECTION 7.1 General Provisions Regarding Securities......................33 SECTION 7.2 Execution and Authentication.................................33 SECTION 7.3 Form and Dating..............................................34 SECTION 7.4 Registrar and Paying Agent...................................36 SECTION 7.5 Paying Agent to Hold Money in Trust..........................36 SECTION 7.6 Replacement Securities.......................................37 SECTION 7.7 Outstanding Capital Securities...............................37 SECTION 7.8 Capital Securities in Treasury...............................37 SECTION 7.9 Temporary Securities.........................................38 SECTION 7.10 Cancellation................................................39 SECTION 7.11 CUSIP Numbers...............................................39 ARTICLE VIII DISSOLUTION OF TRUST..........................................39 SECTION 8.1 Dissolution of Trust.........................................39 ARTICLE IX TRANSFER OF INTERESTS...........................................40 SECTION 9.1 Transfer of Securities.......................................40 SECTION 9.2 Transfer Procedures and Restrictions.........................41 SECTION 9.3 Deemed Security Holders......................................50 SECTION 9.4 Book Entry Interests.........................................50 SECTION 9.5 Notices to Clearing Agency...................................50 SECTION 9.6 Appointment of Successor Clearing Agency.....................51 ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS............................................51 SECTION 10.1 Liability...................................................51 SECTION 10.2 Exculpation.................................................51 SECTION 10.3 Fiduciary Duty..............................................52 SECTION 10.4 Indemnification.............................................53 SECTION 10.5 Outside Businesses..........................................56 ARTICLE XI ACCOUNTING......................................................57 SECTION 11.1 Fiscal Year.................................................57 SECTION 11.2 Certain Accounting Matters..................................57 SECTION 11.3 Banking.....................................................57 SECTION 11.4 Withholding.................................................58 ARTICLE XII AMENDMENTS AND MEETINGS........................................58 SECTION 12.1 Amendments..................................................58 SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent............................................60 ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE.......................................................61 SECTION 13.1 Representations and Warranties of Property Trustee....................................................61 SECTION 13.2 Representations and Warranties of Delaware Trustee....................................................62 ARTICLE XIV REGISTRATION RIGHTS............................................63 SECTION 14.1 Registration Rights Agreement; Additional Interest...................................................63 ARTICLE XV MISCELLANEOUS...................................................65 SECTION 15.1 Notices.....................................................65 SECTION 15.2 Governing Law...............................................66 SECTION 15.3 Intention of the Parties....................................66 SECTION 15.4 Headings....................................................66 SECTION 15.5 Successors and Assigns......................................66 SECTION 15.6 Partial Enforceability......................................67 SECTION 15.7 Counterparts................................................67 CROSS-REFERENCE TABLE* SECTION OF TRUST INDENTURE ACT SECTION OF OF 1939, AS AMENDED DECLARATION 310(a) 5.3(a) 310(c) Inapplicable 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(f) Inapplicable 315(a) 3.9(b) 315(c) 3.9(a) 315(d) 3.9(a) 316(a) Annex I 316(c) 3.6(a) - ------------------- * This Cross-Reference Table does not constitute part of the Declaration and shall not affect the interpretation of any of its terms or provisions. AMENDED AND RESTATED DECLARATION OF TRUST OF ORION CAPITAL TRUST II February 5, 1998 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of February 5, 1998, by the Trustees (as defined herein), the Sponsor (as defined herein) and by the Holders (as defined herein), from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration. WHEREAS, the Delaware Trustee and the Sponsor established Orion Capital Trust II (the "Trust"), a statutory business trust formed under the Business Trust Act (as defined herein) pursuant to a Declaration of Trust dated as of February 2, 1998 (the "Original Declaration"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on February 2, 1998 for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Debentures of the Debenture Issuer (each as hereinafter defined); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration. NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration fully amend and restate the Original Trust Agreement so as to 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 interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1 DEFINITIONS. Unless the context otherwise requires: (a) Capitalized terms used in this Declaration but not defined in the preamble above or elsewhere herein have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration (including Annex I hereto and Exhibit A hereto) as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or the context otherwise requires; (f) a term defined in the Indenture (as defined below) has the same meaning when used in this Declaration unless otherwise defined in this Declaration or the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "ADDITIONAL INTEREST" means the additional interest referred to in Article XIV. "ADMINISTRATIVE TRUSTEE" has the meaning set forth in Section 5.1. "AFFILIATE" shall mean, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding the power to vote 20% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 20% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, and (d) a partnership in which the specified Person is a general partner; provided, however, that Intercargo Corporation shall not be deemed to be an Affiliate of the Company or Orion Capital Trust II. "AGENT" means any Paying Agent or Registrar. "AUTHORIZED OFFICER" of a Person means any other Person that is authorized to legally bind such former Person. "BOOK ENTRY INTEREST" means a beneficial interest in a Global Certificate registered in the name of a Clearing Agency or its nominee, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "BUSINESS DAY" means any day other than a Saturday or a Sunday or a day on which banking institutions in The City of New York, New York are authorized or required by law or executive order to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code ss. 3801 et seq., as it may be amended from time to time or any successor legislation. "CAPITAL 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). "CAPITAL SECURITIES" has the meaning specified in Section 7.1(a). "CAPITAL SECURITIES GUARANTEE" means the guarantee agreement dated as of February 5, 1998 of the Sponsor in respect of the Capital Securities. "CLEARING AGENCY" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Capital Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Capital Securities. "CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "CLOSING TIME" means the "Closing Time" under the Purchase Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "COMMISSION" means the United States Securities and Exchange Commission as from time to time constituted, or if any time after the execution of this Declaration such Commission is not existing and performing the duties now assigned to it under applicable Federal securities laws, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning specified in Section 7.1(a). "COMMON SECURITIES GUARANTEE" means the guarantee agreement dated as of February 5, 1998 of the Sponsor in respect of the Common Securities. "COMPANY INDEMNIFIED PERSON" means (a) any Administrative Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrative Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates. "CORPORATE TRUST OFFICE" means the office of the Property Trustee at which the corporate trust business of the Property Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holders of Securities. "DEBENTURE ISSUER" means Orion Capital Corporation, a Delaware corporation, or any successor entity resulting from any consolidation, amalgamation, merger or other business combination, in its capacity as issuer of the Debentures under the Indenture. "DEBENTURE TRUSTEE" means The Bank of New York, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "DEBENTURES" means the 7.701% Junior Subordinated Deferrable Interest Debentures due April 15, 2028 of the Debenture Issuer issued pursuant to the Indenture (including, as applicable, those Debentures issued upon consummation of the Exchange Offer). "DEFAULT" means an event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "DEFINITIVE CAPITAL SECURITIES" has the meaning set forth in Section 7.3(c). "DELAWARE TRUSTEE" has the meaning set forth in Section 5.2. "DIRECT ACTION" has the meaning set forth in Section 3.8(e). "DISTRIBUTION" means a distribution payable to Holders of Securities in accordance with Section 6.1. "DTC" means The Depository Trust Company, the initial Clearing Agency. "EVENT OF DEFAULT" in respect of the Securities means an Event of Default (as defined in the Indenture) that has occurred and is continuing in respect of the Debentures. "EXCHANGE OFFER" means the exchange offer (including any private exchange offer) contemplated in Section 2(a) of the Registration Rights Agreement. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "EXCHANGE AGENT" has the meaning set forth in Section 7.4(a). "EXCHANGE CAPITAL SECURITIES" has the meaning set forth in Section 7.1(a). "EXCHANGE DEBENTURES" means the Debentures issued upon consummation of the Exchange Offer. "FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section 10.4(b). "GLOBAL CAPITAL SECURITIES" means the Regulation S Global Capital Securities, the Rule 144A Global Capital Securities and the Unrestricted Global Capital Securities. "GLOBAL CERTIFICATES" means certificates for Capital Securities registered in the name of a Clearing Agency or its nominee. "HOLDER" means a Person in whose name a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "INDEMNIFIED PERSON" means a Company Indemnified Person or a Fiduciary Indemnified Person. "INDENTURE" means the Indenture, dated as of February 5, 1998, among the Debenture Issuer and the Debenture Trustee, as amended from time to time. "INITIAL CAPITAL SECURITIES" means 7.701% Capital Securities (liquidation amount $1,000 per Security) of the Trust issued at the Closing Time. "INITIAL DEBENTURES" means the Debentures as authenticated and issued under the Indenture at the Closing Time. "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "ISSUE DATE" shall have the meaning set forth in Section 14.1. "LEGAL ACTION" has the meaning set forth in Section 3.6(a)(vii). "LIKE AMOUNT" has the meaning set forth in Annex I. "LIQUIDATION AMOUNT" with respect to any Security means the amount designated as such with respect thereto in Annex I hereto. "MAJORITY IN LIQUIDATION AMOUNT" means, with respect to the Trust Securities, except as provided in the terms of the Capital Securities or by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "OFFERING MEMORANDUM" has the meaning set forth in Section 3.6(a)(ii)(A). "OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate signed by the Chairman, a Vice Chairman, the Chief Executive Officer, the President, a Vice President (however designated), or the Secretary or an Assistant Secretary of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that each officer signing the 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 Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" means a written opinion of counsel, who may be an employee of the Sponsor, and who shall be acceptable to the Property Trustee. "PARTICIPANTS" has the meaning set forth in Section 7.3(b). "PAYING AGENT" has the meaning specified in Section 7.4. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PROPERTY TRUSTEE" has the meaning set forth in Section 5.3(a). "PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section 3.8(c). "PURCHASE AGREEMENT" means the Purchase Agreement for the initial offering and sale of Capital Securities. "QIBS" means qualified institutional buyers as defined in Rule 144A. "QUORUM" means a majority of the Administrative Trustees or, if there are only two Administrative Trustees, both of them. "REGISTRAR" has the meaning set forth in Section 7.4. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of February 5, 1998, by and among Orion Capital Corporation, the Trust and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "REGISTRATION STATEMENT" has the meaning given to such term in the Securities Act, and the regulations promulgated thereunder. "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 CAPITAL SECURITY" has the meaning set forth in Section 7.3(a). "RELATED PARTY" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESPONSIBLE OFFICER," when used with respect to the Property Trustee, means the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the cashier, any assistant cashier, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer or assistant officer of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED DEFINITIVE CAPITAL SECURITIES" has the meaning set forth in Section 7.3(c). "RESTRICTED CAPITAL SECURITY" means a Capital Security required by Section 9.2 to contain a Restricted Securities Legend. "RESTRICTED SECURITIES LEGEND" has the meaning set forth in Section 9.2. "RULE 3A-5" means Rule 3a-5 under the Investment Company Act, or any successor rule or regulation. "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. "RULE 144A GLOBAL CAPITAL SECURITY" has the meaning set forth in Section 7.3(a). "SECURITIES" or "TRUST SECURITIES" means the Common Securities and the Capital Securities (including, as applicable, those Capital Securities issued upon consummation of the Exchange Offer). "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "SECURITIES GUARANTEES" means the Common Securities Guarantee and the Capital Securities Guarantee. "SPECIAL EVENT" has the meaning set forth in the Indenture. "SPONSOR" means Orion Capital Corporation, a Delaware corporation, or any successor entity resulting from any merger, consolidation, amalgamation or other business combination, in its capacity as sponsor of the Trust. "SUCCESSOR DELAWARE TRUSTEE" has the meaning set forth in Section 5.7(a). "SUCCESSOR ENTITY" has the meaning set forth in Section 3.14(b). "SUCCESSOR PROPERTY TRUSTEE" has the meaning set forth in Section 5.7(a). "SUCCESSOR SECURITIES" has the meaning set forth in Section 3.14(b). "SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii). "TAX EVENT MATURITY SHORTENING" has the meaning set forth in the Indenture. "10% IN LIQUIDATION AMOUNT" means, with respect to the Trust Securities, except as provided in the terms of the Capital Securities or by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% of the aggregate Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "TREASURY REGULATIONS" means the income tax regulations, including temporary regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" or "TRUSTEES" means each Person who has signed this Declaration as a trustee (including the Property Trustee, the Delaware Trustee and each Administrative Trustee), so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "UNRESTRICTED GLOBAL CAPITAL SECURITY" has the meaning set forth in Section 9.2(b). ARTICLE II TRUST INDENTURE ACT SECTION 2.1 TRUST INDENTURE ACT; APPLICATION. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by ss.ss. 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (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 2.2 LISTS OF HOLDERS OF SECURITIES. (a) Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide the Property Trustee, unless the Property Trustee is Registrar for the Securities, with a list (i) within 14 days after each record date for payment of Distributions, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("List of Holders") as of such record date, provided that neither the Sponsor nor the Administrative Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in a List of Holders given to it or which it receives in its capacity as Paying Agent (if acting in such capacity), provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with its obligations under ss.ss. 311(a), 311(b) and 312(b) of the Trust Indenture Act SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE. On or before February 5 of each year, commencing February 5, 1999, the Property Trustee shall provide to the Holders of the Capital Securities such reports as are required by ss. 313 of the Trust Indenture Act, if any, in the form and in the manner provided by ss. 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of ss. 313(d) of the Trust Indenture Act. SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE. Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as are required by ss. 314 (if any) and the compliance certificate required by ss. 314 of the Trust Indenture Act in the form, in the manner and at the times required by ss. 314 of the Trust Indenture Act. SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent provided for in this Declaration that relate to any of the matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to ss. 314(c)(1) of the Trust Indenture Act may be given in the form of an Officers' Certificate. SECTION 2.6 EVENTS OF DEFAULT; WAIVER. (a) The Holders of a Majority in Liquidation Amount of Capital Securities may, by vote, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default in respect of the Capital Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in aggregate principal amount of the holders of the Debentures (a "Super Majority") to be waived under the Indenture, the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate Liquidation Amount of the Capital Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The foregoing provisions of this Section 2.6(a) shall be in lieu of ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Capital Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Capital Securities or impair any right consequent thereon. Any waiver by the Holders of the Capital Securities of an Event of Default with respect to the Capital Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in Liquidation Amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b), the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b), the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate Liquidation Amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided further, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences if all Events of Default with respect to the Capital Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Capital Securities and only the Holders of the Capital Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee, at the direction of the Holders of the Capital Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. SECTION 2.7 EVENT OF DEFAULT; NOTICE. (a) The Property Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, the Administrative Trustees and the Sponsor, notices of all defaults with respect to the Securities actually known to a Responsible Officer of the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein). (b) The Sponsor and the Administrative Trustees shall file annually with the Property Trustee a certification as to whether or not they are in compliance with all the conditions and covenants applicable to them under this Declaration. (c) For purposes of this Section 2.7, the Property Trustee shall not be deemed to have knowledge of any default or Event of Default except: (i) a default under Sections 5.01(a) and 5.01(b) of the Indenture; or (ii) any default as to which the Property Trustee shall have received written notice or of which a Responsible Officer of the Property Trustee charged with the administration of the Declaration shall have actual knowledge. ARTICLE III ORGANIZATION SECTION 3.1 NAME. The Trust shall continue to be named "Orion Capital Trust II" as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrative Trustees. SECTION 3.2 OFFICE. The address of the principal office of the Trust is 101 Barclay Street, Floor 21W, New York, New York, 10286, Attention: Corporate Trust Administration. On ten Business Days' prior written notice to the Holders, the Administrative Trustees may designate another principal office. SECTION 3.3 PURPOSE. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities including effecting the Exchange Offer, (b) use the proceeds from the sale of the Securities to acquire the Debentures, (c) to make Distributions to Holders of the Securities as herein provided, and (d) except as otherwise limited herein, to engage in only those other activities necessary, advisable or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, mortgage or pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. SECTION 3.4 AUTHORITY. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Administrative Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Administrative Trustees in accordance with their powers, as set forth in Sections 3.6 and 5.5, shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. The authority of the Delaware Trustee is set forth in Section 3.11 hereof. SECTION 3.5 TITLE TO PROPERTY OF THE TRUST. Except as provided in Section 3.8 with respect to the Debentures and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.6 POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES. (a) The Administrative Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (i) to issue and sell the Capital Securities and the Common Securities in accordance with this Declaration; provided, however, that (A) the Trust may issue no more than two series of Capital Securities and no more than one series of Common Securities, (B) there shall be no interests in the Trust other than the Securities, and (C) the issuance of Securities shall be limited to: (x) a simultaneous issuance of both Capital Securities and Common Securities at the Closing Time and (y) the issuance of a second series of Capital Securities upon the consummation of the Exchange Offer. (ii) in connection with the issue and sale of the Capital Securities and the Common Securities, and in connection with the Exchange Offer, at the direction of the Sponsor, to: (A) prepare and execute, if necessary, an offering memorandum (the "Offering Memorandum") in preliminary and final form prepared by the Sponsor, in relation to the offering and sale of Initial Capital 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, and to execute and file with the Commission, at such time as is determined by the Sponsor, any Registration Statement, including any amendment thereto, as contemplated by the Registration Rights Agreement; (B) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary, in order to qualify or register all or part of the Capital Securities in any State in which the Sponsor has determined to qualify or register such Capital Securities for sale; (C) if deemed necessary or advisable by the Sponsor, execute and file an application, prepared by the Sponsor, to the New York Stock Exchange or any other national stock exchange or the Nasdaq Stock Market's National Market for listing or quotation of the Capital Securities; (D) execute and deliver letters, documents, or instruments with DTC and other Clearing Agencies relating to the Capital Securities; (E) if required, execute and file with the Commission a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor, relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act; and (F) execute and enter into the Purchase Agreement providing for the sale of the Capital Securities, the Registration Rights Agreement, a subscription agreement providing for the sale of the Common Securities, a subscription agreement providing for the sale of the Debentures and any other agreements regarding the issuance and sale of Securities; (iii) to acquire the Initial Debentures with the proceeds of the sale of the Initial Capital Securities and the Common Securities and to exchange the Initial Debentures for a like principal amount of Exchange Debentures pursuant to the Exchange Offer; provided, however, that the Administrative Trustees shall cause legal title to the Debentures to be held of record in the name of the Property Trustee for the benefit of the Holders of the Capital Securities and the Holders of the Common Securities; (iv) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; (v) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of ss. 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; (vi) to take all actions and perform such duties as may be required of the Administrative Trustees pursuant to the terms of the Securities; (vii) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has the exclusive power to bring such Legal Action; (viii) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants, and pay reasonable compensation for such services; (ix) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (x) to give the certificate required by ss. 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by any Administrative Trustee; (xi) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (xii) to act as, or appoint another Person to act as, Registrar and Exchange Agent for the Securities or to appoint a Paying Agent for the Securities as provided in Section 7.4, except for such time as such power to appoint a Paying Agent is vested in the Property Trustee; (xiii) to give prompt written notice to the Property Trustee and to Holders of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture; (xiv) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (xv) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created; (xvi) to take any action, not inconsistent with this Declaration or with applicable law, that the Administrative Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (A) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (B) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; (C) cooperating with the Debenture Issuer to ensure that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes; and (D) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Administrative Trustees, on behalf of the Trust; and (xvii) to take all action necessary to consummate the Exchange Offer or otherwise cause the Capital Securities to be registered pursuant to an effective Registration Statement in accordance with the provisions of the Registration Rights Agreement. (b) The Administrative Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Administrative Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. (c) Subject to this Section 3.6, the Administrative Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. (d) Any expenses incurred by the Administrative Trustees pursuant to this Section 3.6 shall be reimbursed by the Debenture Issuer. SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES. (a) The Trust shall not, and the Trustees (including the Property Trustee) all in their capacities as such and not in their individual capacities shall not, engage in any activity other than as required or authorized by this Declaration. The Trust shall not: (i) invest any proceeds received by the Property Trustee on behalf of the Trust from holding the Debentures, but shall distribute all such proceeds, excluding "Additional Sums" (as defined in the Indenture), to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as provided in this Declaration or Annex I, (A) direct the time, method and place of conducting any proceeding with respect to any remedy available to the Debenture Trustee, or exercising any right or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, unless the Trust shall have received an Opinion of Counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a trust subject to the provisions of Section 671 through 679 of the Code (a "grantor trust") on account of such amendment, modification or termination. SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 5.7. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Administrative Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "Property Trustee Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders and, upon the receipt of payments of funds made in respect of the Debentures held by the Property Trustee, deposit such funds into the Property Trustee Account and make payments to the Holders of the Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the Capital Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon written notice issued by the Administrative Trustees in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain events. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities. (e) Subject to Section 3.9(a) and this Section 3.8(e), the Property Trustee shall have the exclusive right to take any Legal Action which arises out of or in connection with an Event of Default of which a Responsible Officer of the Property Trustee has actual knowledge or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act so require, and if such Property Trustee shall have failed to take such Legal Action, the foregoing to the contrary notwithstanding, the Holders of the Capital Securities may take such Legal Action, to the same extent as if such Holders of Capital Securities held an aggregate principal amount of Debentures equal to the aggregate Liquidation Amount of such Capital Securities, without first proceeding against the Property Trustee or the Trust; provided however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay the principal of or premium, if any, or interest on the Debentures on the date such principal, premium, if any, or interest is otherwise payable (or in the case of redemption, on the redemption date), then, the foregoing to the contrary notwithstanding, a Holder of Capital 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 Debentures having a principal amount equal to the aggregate Liquidation Amount of the Capital Securities of such Holder (a "Direct Action") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of Common Securities will be subrogated to the rights of Holders of Capital Securities to the extent of any payment made by the Debenture Issuer to Holders of Capital Securities in such Direct Action. Except as provided in the preceding sentences, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (f) The Property Trustee shall not resign as a Trustee unless either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.7(a). (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Property Trustee occurs and is continuing, the Property Trustee shall, for the benefit of Holders, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities. (h) The Property Trustee shall be authorized to undertake any actions set forth in ss. 317(a) of the Trust Indenture Act. (i) Subject to Section 7.4 hereof, for such time as the Property Trustee is the Paying Agent, the Property Trustee may authorize one or more Persons to act as additional Paying Agents and to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Securities and any such Paying Agent shall comply with ss. 317(b) of the Trust Indenture Act. Any such additional Paying Agent may be removed by the Property Trustee at any time the Property Trustee remains as Paying Agent and a successor Paying Agent or additional Paying Agents may be (but is not required to be) appointed at any time by the Property Trustee. (j) Subject to this Section 3.8, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 3.6.; provided, however, that if the Administrative Trustees appoint the Property Trustee as Registrar, Exchange Agent or Paying Agent pursuant to Section 3.6(a)(xii), the Property Trustee shall have the power hereunder to serve in any such capacity and perform the duties and obligations related thereto. (k) The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Property Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE. (a) The Property 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 Declaration and in the Securities and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) of which a Responsible Officer of the Property Trustee has actual knowledge, the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property 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 an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration and of the Securities, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration and in the Securities, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property 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 Property Trustee and conforming to the requirements of this Declaration; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property 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 Property Trustee under the Indenture with respect to the Debentures, or exercising any right or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity reasonably satisfactory to the Property Trustee against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration, the Business Trust Act and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Property Trustee be liable for any default or misconduct of the Administrative Trustees or the Sponsor. SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE. (a) Subject to the provisions of Section 3.9: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document 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 Sponsor or the Administrative Trustees contemplated by this Declaration may be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrative Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; (v) the Property Trustee may consult with counsel or other experts of its selection and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, reasonably satisfactory to the Property Trustee, against the costs, expenses (including reasonable attorneys' fees and expenses and the expenses of the Property Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee; PROVIDED, HOWEVER, that nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property 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 Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the rights or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Property Trustee shall not be required to supervise, nor shall it be responsible for any misconduct or negligence on the part of, any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee so to act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (A) may request written instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Securities as would be entitled to direct the Property Trustee under the terms of the Securities in respect of such remedy, right or action, (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 conclusively relying on or acting in accordance with such instructions; (xi) the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xii) the Property Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Property 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 Property 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 Property Trustee shall be construed to be a duty. (c) 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 Property Trustee shall be subject to the provisions of this Section. SECTION 3.11 DELAWARE TRUSTEE. Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Administrative Trustees or the Property Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of ss. 3807 of the Business Trust Act. Without limiting the generality of the foregoing, the Delaware Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees, the Property Trustee or the Sponsor with their respective duties under this Declaration, nor shall the Delaware Trustee be liable for any default or misconduct of any of the Administrative Trustees, the Property Trustee or the Sponsor. SECTION 3.12 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. SECTION 3.13 DURATION OF TRUST. The Trust, unless dissolved pursuant to the provisions of Article VIII hereof, shall have existence up to April 15, 2033. SECTION 3.14 MERGERS. (a) The Trust may not merge or convert with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.14(b) and (c). (b) The Trust may, at the request of the Sponsor as the holder of all the outstanding Common Securities, with the consent of the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees and without the consent of the Holders, the Delaware Trustee or the Property Trustee, merge or convert with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities: or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Securities rank 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 Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization on which the Capital Securities are then listed or quoted, if any; (iv) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Capital Securities (including any Successor Securities) to be downgraded by any two nationally recognized statistical rating organizations; (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than any dilution of such Holders' interests in the new entity); (vi) such Successor Entity has a purpose identical to that of the Trust; (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an opinion of an independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); and (B) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (viii) the Sponsor or any permitted successor or assignee owns all of the common securities of such Successor Entity and guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Capital Securities Guarantee and the Common Securities Guarantee. (c) Notwithstanding Section 3.14(b), the Trust shall not, except with the consent of the Holders of 100% in Liquidation Amount of the Securities, consolidate, amalgamate, merge or convert with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, conversion, replacement, conveyance, transfer or lease would cause the Trust or the Successor Entity not to be classified as a grantor trust for United States federal income tax purposes. ARTICLE IV SPONSOR SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES. At the Closing Time, the Sponsor will purchase all of the Common Securities then issued by the Trust, in a Liquidation Amount equal to at least 3% of the total capital of the Trust, at the same time as the Initial Capital Securities are issued and sold. SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR. (a) In connection with the issue and sale of the Capital Securities and the Common Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (i) to prepare the Offering Memorandum and to prepare for filing by the Trust with the Commission any Registration Statement, including any amendments thereto, as contemplated by the Registration Rights Agreement (or to delegate such preparation to the Administrative Trustees pursuant to Section 3.6(a)(ii)(A) hereof); (ii) to determine the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Administrative Trustees pursuant to Section 3.6(a)(ii)(B) hereof, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) if deemed necessary or advisable by the Sponsor, to prepare for execution and filing by the Administrative Trustees pursuant to Section 3.6(a)(ii)(C) hereof, an application 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; (iv) if required, to prepare for filing by the Administrative Trustees pursuant to Section 3.6(a)(ii)(E) hereof with the Commission a registration statement on Form 8-A relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act, including any amendments thereto; and (v) to negotiate the terms and cause the preparation of the Purchase Agreement and the Registration Rights Agreement providing for the sale and registration, respectively, of the Capital Securities for execution by the Administrative Trustees pursuant to Section 3.6(a)(ii)(F) hereof . SECTION 4.3 RIGHT TO PROCEED. The Sponsor acknowledges the rights of the Holders of Capital Securities, in the event that a failure of the Trust to pay Distributions on the Capital Securities is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures, to institute a proceeding directly against the Debenture Issuer for enforcement of its payment obligations on the Debentures. ARTICLE V TRUSTEES SECTION 5.1 NUMBER OF TRUSTEES; APPOINTMENT OF CO-TRUSTEE. The number of Trustees initially shall be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that, the number of Trustees shall in no event be less than two (2); provided further that (1) one Trustee, in the case of a natural Person, shall be a Person who is a resident of the State of Delaware or that, if not a natural Person, is an entity which has its principal place of business in the State of Delaware (the "Delaware Trustee"); (2) there shall be at least one Trustee who is an employee or officer of, or is affiliated with the Sponsor (an "Administrative Trustee"); and (3) one Trustee shall be the Property Trustee for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements. Notwithstanding the above, unless an Event of Default shall have occurred and be continuing, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust's property may at the time be located, the Holders of a Majority in Liquidation Amount of the Common Securities acting as a class at a meeting of the Holders of the Common Securities, and the Administrative Trustees, shall have power at any time or times, to appoint one or more Persons either to act as a co-trustee, jointly with the Property Trustee, of all or any part of the Trust's property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of this Declaration. In case an Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make any such appointment of a co-trustee. SECTION 5.2 DELAWARE TRUSTEE. As required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be: (a) a natural Person who is a resident of the State of Delaware; or (b) if not a natural Person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law; provided that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee may also be the Delaware Trustee in which case Section 3.11 shall have no application. SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY. (a) There shall at all times be one Trustee (the "Property Trustee") which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.3(c). (c) If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of ss. 310(b) of the Trust Indenture Act. (d) The Capital Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. (e) The initial Property Trustee shall be: The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration SECTION 5.4 Certain Qualifications of Administrative Trustees and DELAWARE TRUSTEE GENERALLY. Each Administrative Trustee and the Delaware Trustee (unless the Property Trustee also acts as Delaware Trustee) shall be either a natural Person who is at least 21 years of age or a legal entity otherwise satisfying the provisions of this Declaration that shall act through one or more Authorized Officers. SECTION 5.5 ADMINISTRATIVE TRUSTEES. (a) The initial Administrative Trustees shall be: W. Marston Becker Craig A. Nyman Michael P. Maloney, Esq. (b) Except as expressly set forth in this Declaration and except if a meeting of the Administrative Trustees is called with respect to any matter over which the Administrative Trustees have power to act, any power of the Administrative Trustees may be exercised by, or with the consent of, any one such Administrative Trustee. (c) Unless otherwise determined by the Administrative Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Administrative Trustee is authorized to execute on behalf of the Trust any documents which the Administrative Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6. SECTION 5.6 DELAWARE TRUSTEE. The initial Delaware Trustee shall be: The Bank of New York (Delaware) 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration SECTION 5.7 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES. (a) Subject to Section 5.7(b), any Trustee may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; (ii) in the case of Administrative Trustees, after the issuance of any Securities, by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; (iii) in the case of the Property Trustee and the Delaware Trustee, unless an Event of Default shall have occurred and be continuing after the issuance of any Securities, by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; and (iv) in the case of the Property Trustee and the Delaware Trustee, if an Event of Default shall have occurred and be continuing after the issuance of the Securities, by vote of Holders of a Majority in Liquidation Amount of the Capital Securities voting as a class at a meeting of the Holders of the Capital Securities. The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.7(a) until a successor Trustee possessing the qualifications to act as Property Trustee under Section 5.3 (a "Successor Property Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Administrative Trustees and the Sponsor. The Trustee that acts as Delaware Trustee shall not be removed in accordance with this Section 5.7(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Administrative Trustees and the Sponsor. (b) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation or removal of the Trustee that acts as the Property Trustee shall be effective: (A) until a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and, after complying with the provisions of Section 3808(e) of the Business Trust Act, the proceeds thereof distributed to the holders of the Securities; and (ii) no such resignation or removal of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (c) The Holders of the Common Securities shall use their best efforts promptly to appoint a Successor Delaware Trustee or Successor Property Trustee, as the case may be, if the Property Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.7. (d) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.7 within 30 days after delivery of an instrument of resignation or removal, the Property Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper and appropriate, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. (e) No Property Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Property Trustee or Successor Delaware Trustee, as the case may be. SECTION 5.8 VACANCIES AMONG TRUSTEES. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees, shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.7. SECTION 5.9 EFFECT OF VACANCIES. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 5.8, the Administrative Trustees in office, regardless of their number, shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Declaration. SECTION 5.10 MEETINGS. If there is more than one Administrative Trustee, meetings of the Administrative Trustees shall be held from time to time as needed upon the call of any Administrative Trustee. Regular meetings of the Administrative Trustees may be held at a time and place fixed by resolution of the Administrative Trustees. Notice of any in-person meeting of the Administrative Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile) not less than 24 hours before such meeting. Notice of any telephonic meeting of the Administrative Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile) not less than 24 hours before such meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of an Administrative Trustee at a meeting shall constitute a waiver of notice of such meeting except where an Administrative Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Administrative Trustees may be taken at a meeting by vote of a majority of the Administrative Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Administrative Trustees. In the event there is only one Administrative Trustee, any and all action of such Administrative Trustee shall be evidenced by a written consent of such Administrative Trustee. SECTION 5.11 DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural Person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6, including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Declaration or the Securities. SECTION 5.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which any Trustee (excluding any Administrative Trustee that is a natural Person) may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Trustee, shall be the successor of such Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 5.13 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Declaration or in any suit against the Property Trustee for any action taken or omitted by it as a Property Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorney's fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. ARTICLE VI DISTRIBUTIONS SECTION 6.1 DISTRIBUTIONS. Each Holder shall receive Distributions in accordance with the terms of such Holder's Securities. If and to the extent that the Debenture Issuer makes a payment of interest (including Compounded Interest (as defined in the Indenture), Additional Interest, additional Distributions, premium and/or principal on the Debentures held by the Property Trustee or any other payments pursuant to the Registration Rights Agreement with respect to the Debentures held by the Property Trustee (but excluding Additional Sums (as defined in the Indenture) (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a Distribution of the Payment Amount to Holders in accordance with the respective terms of the Securities held by them. ARTICLE VII ISSUANCE OF SECURITIES SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES. (a) The Administrative Trustees shall on behalf of the Trust issue one class of capital securities representing undivided beneficial interests in the assets of the Trust, which class may be divided into no more than two series each having such terms as are set forth in Annex I (the "Capital Securities"), and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Common Securities"). At such time, if ever, as the Exchange Debentures are issued, the Administrative Trustees shall on behalf of the Trust issue one series of capital securities representing undivided beneficial interests in the Trust having such terms as are set forth in Annex I (the "Exchange Capital Securities") in exchange for the Initial Capital Securities accepted for exchange in the Exchange Offer, which Exchange Capital Securities shall not bear the legends set forth in Section 9.2 unless the holder of the Initial Capital Securities is either (i) a broker-dealer who purchased such Initial Capital Securities directly from the Trust for resale pursuant to Rule 144A, or any other available exemption, under the Securities Act, (ii) a person participating in the distribution of the Initial Capital Securities or (iii) a Person who is an affiliate (as defined in Rule 144A) of the Trust. The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities, the Exchange Capital Securities and the Common Securities. (b) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (c) Upon receipt of the stated consideration in full, and the subsequent issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (d) Every Person, by virtue of having become a Holder or a Capital 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 7.2 EXECUTION AND AUTHENTICATION. (a) The Securities shall be signed on behalf of the Trust by an Administrative Trustee. In case any Administrative Trustee of the Trust who shall have signed any of the Securities shall cease to be such Administrative Trustee before the Securities so signed shall be delivered by the Trust, such Securities nevertheless may be delivered as though the Person who signed such Securities had not ceased to be such Administrative Trustee; and any Securities may be signed on behalf of the Trust by such Persons who, at the actual date of execution of such Security, shall be the Administrative Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such Person was not such an Administrative Trustee. (b) One Administrative Trustee shall sign the Capital Securities for the Trust by manual or facsimile signature. Unless otherwise determined by the Trust, such signature shall, in the case of Common Securities, be a manual signature. (c) A Capital Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. The signature shall be conclusive evidence that the Capital Security has been authenticated under this Declaration. (d) Upon a written order of the Trust signed by one Administrative Trustee, the Property Trustee shall authenticate the Capital Securities for original issue. The aggregate number of Capital Securities outstanding at any time shall not exceed the number set forth in Annex I hereto except as provided in Section 7.6. (e) The Property Trustee may appoint an authenticating agent acceptable to the Administrative Trustees to authenticate Capital Securities. An authenticating agent may authenticate Capital Securities whenever the Property Trustee may do so. Each reference in this Declaration to authentication by the Property Trustee includes authentication by such agent. An authenticating agent has the same rights as the Property Trustee to deal with the Sponsor or an Affiliate. SECTION 7.3 FORM AND DATING. The Capital Securities and the Property Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates representing the Securities may be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by their execution thereof. The 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 Trust). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Property Trustee in writing. Each Capital Security shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to the extent applicable, the Property Trustee, Administrative Trustees and the Sponsor, by their execution and delivery of this Declaration, expressly agree to be bound thereby. (a) GLOBAL SECURITIES. Securities offered and sold to QIBs in reliance on Rule 144A or offered and sold outside the United States to non-U.S. Persons in offshore transactions 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 A-1 hereto (respectively, a "Rule 144A Global Capital Security" or "Regulation S Global Capital Security"), which shall be deposited on behalf of the purchasers of the Capital Securities represented thereby with the Property Trustee, at its New York 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 an Administrative Trustee and authenticated by the Property Trustee as hereinafter provided. The number of Capital Securities represented by the Rule 144A Global Capital Security and the Regulation S Global Capital Security may from time to time be increased or decreased by adjustments made on the records of the Property Trustee and the Clearing Agency or its nominee as hereinafter provided. (b) BOOK-ENTRY PROVISIONS. This Section 7.3(b) shall apply only to the Rule 144A Global Capital Securities, the Regulation S Global Capital Securities and such other Capital Securities in global form as may be authorized by the Trust to be deposited with or on behalf of the Clearing Agency. (i) An Administrative Trustee shall execute and the Property Trustee shall authenticate and, in accordance with this Section 7.3, make available for delivery initially one or more Rule 144A Global Capital Securities and one or more Regulation S Global Capital Securities that (A) shall be registered in the name of Cede & Co. or other nominee of such Clearing Agency and (B) shall be delivered by the Property Trustee to such Clearing Agency or pursuant to such Clearing Agency's written instructions or held by the Property Trustee as custodian for the Clearing Agency. (ii) Members of, or participants in, the Clearing Agency ("Participants") shall have no rights under this Declaration with respect to any Rule 144A Global Capital Security or any Regulation S Global Capital Security held on their behalf by the Clearing Agency or by the Property Trustee as the custodian of the Clearing Agency or under such Rule 144A Global Capital Security or such Regulation S Global Capital Security, and the Clearing Agency may be treated by the Trust, the Property Trustee and any agent of the Trust or the Property Trustee as the absolute owner of such Rule 144A Global Capital Security or such Regulation S Global Capital Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Trust, the Property Trustee or any agent of the Trust or the Property 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 operation of customary practices of such Clearing Agency governing the exercise of the rights of a holder of a beneficial interest in any Rule 144A Global Capital Security or any Regulation S Global Capital Security. (c) DEFINITIVE CAPITAL SECURITIES. Except as provided in Section 7.9, owners of beneficial interests in a Rule 144A Global Capital Security or a Regulation S Global Capital Security will not be entitled to receive physical delivery of certificated Capital Securities ("Definitive Capital Securities"). Purchasers of Securities who are "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and did not purchase Capital Securities in reliance on Regulation S will receive Capital Securities in the form of individual certificates in definitive, fully registered form without Distribution coupons and with the Restricted Securities Legend set forth in Exhibit A-1 hereto ("Restricted Definitive Capital Securities"); provided, however, that upon transfer of such Restricted Definitive Capital Securities to a QIB, such Restricted Definitive Capital Securities will, unless the Rule 144A Global Capital Security has previously been exchanged, be exchanged for an interest in a Rule 144A Global Capital Security pursuant to the provisions of Section 9.2. Restricted Definitive Capital Securities will bear the Restricted Securities Legend set forth on Exhibit A-1 unless removed in accordance with this Section 7.3 or Section 9.2. SECTION 7.4 REGISTRAR AND PAYING AGENT. (a) The Trust shall maintain in The City of New York, (i) an office or agency where Capital Securities may be presented for registration of transfer ("Registrar"), (ii) an office or agency where Capital Securities may be presented for payment ("Paying Agent") and (iii) an office or agency where Securities may be presented for exchange in connection with the Exchange Offer (the "Exchange Agent"). The Registrar shall keep a register of the Capital Securities and of their transfer. The Administrative Trustees shall appoint the Registrar, the Paying Agent and the Exchange Agent and may appoint one or more co-Registrars, one or more additional Paying Agents and one or more additional Exchange Agents in such other locations as they shall determine. The term "Registrar" includes any additional registrar, the term "Paying Agent" includes any additional paying agent and the term "Exchange Agent" includes any additional Exchange Agent." The Administrative Trustees may change any Registrar or co-Registrar, Paying Agent or Exchange Agent without prior notice to any Holder. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees. The Administrative Trustees shall notify the Property Trustee of the name and address of any Agent not a party to this Declaration. If the Administrative Trustees fail to appoint or maintain another entity as Registrar, Paying Agent or Exchange Agent, the Property Trustee shall act as such. The Trust or any of its Affiliates may act as Paying Agent, Registrar or Exchange Agent. The Trust shall act as Paying Agent, Registrar and co-registrar and the Exchange Agent for the Common Securities. (b) The Administrative Trustees initially appoint the Property Trustee as Registrar, Paying Agent and Exchange Agent for the Capital Securities. SECTION 7.5 PAYING AGENT TO HOLD MONEY IN TRUST. The Trust shall require each Paying Agent other than the Property Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Property Trustee all money held by the Paying Agent for the payment of Liquidation Amounts or Distributions on the Securities, and will notify the Property Trustee if there are insufficient funds for such purpose. While any such insufficiency continues, the Property Trustee may require a Paying Agent to pay all money held by it to the Property Trustee. The Trust at any time may require a Paying Agent to pay all money held by it to the Property Trustee and to account for any money disbursed by it. Upon payment over to the Property Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust) shall have no further liability for the money. If the Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall segregate and hold in a separate trust fund or account for the benefit of the Holders all money held by it as Paying Agent. SECTION 7.6 REPLACEMENT SECURITIES. If the Holder claims that a Security owned by it has been lost, destroyed or wrongfully taken or if such Security is mutilated and is surrendered to the Trust or in the case of the Capital Securities to the Property Trustee, the Trust shall issue, an Administrative Trustee shall execute and the Property Trustee shall authenticate a replacement Security if the requirements of this Section 7.6 are satisfied. An indemnity bond must be provided by the Holder which, in the judgment of the Property Trustee, is sufficient to protect the Trustees, the Sponsor or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Trust may charge such Holder for its expenses in replacing a Security. Every replacement Security is a substitute beneficial interest in the Trust to the same extent as the original it replaces. SECTION 7.7 OUTSTANDING CAPITAL SECURITIES. (a) The Capital Securities outstanding at any time are all the Capital Securities authenticated by the Property Trustee except for those cancelled by it, those delivered to it for cancellation, and those described in this Section as not outstanding. (b) If a Capital Security is replaced (pursuant to Section 7.6 hereof), or purchased, it ceases to be outstanding unless the Property Trustee receives proof satisfactory to it that the replaced or purchased Capital Security is held by a bona fide purchaser satisfying the conditions of this Declaration, including without limitation the provisions of Article IX hereof. (c) If Capital Securities are considered redeemed, including any and all distributions and liquidation preferences, in accordance with the terms of this Declaration, they cease to be outstanding and Distributions on them shall cease to accumulate. (d) A Capital Security does not cease to be outstanding because one of the Administrative Trustees, the Sponsor or an Affiliate of the Sponsor holds the Security. SECTION 7.8 CAPITAL SECURITIES IN TREASURY. In determining whether the Holders of the required amount of Securities have concurred in any direction, waiver or consent, Capital Securities owned by the Administrative Trustees, the Sponsor or an Affiliate of the Sponsor, as the case may be, shall be disregarded and deemed not to be outstanding, except that for the purposes of determining whether the Property Trustee shall be fully protected in relying on any such direction, waiver or consent, only Securities which the Property Trustee actually knows are so owned shall be so disregarded. SECTION 7.9 TEMPORARY SECURITIES. (a) Until definitive Securities are ready for delivery, the Administrative Trustees may cause to be prepared and execute, and, in the case of the Capital Securities, the Property Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Administrative Trustees consider appropriate for temporary Securities. Without unreasonable delay, the Administrative Trustees shall prepare and, in the case of the Capital Securities, the Property Trustee shall authenticate definitive Securities in exchange for temporary Securities. (b) A Global Capital Security deposited with the Clearing Agency or with the Property Trustee as custodian for the Clearing Agency pursuant to Section 7.3 shall be transferred to the beneficial owners thereof in the form of certificated Capital Securities only if such transfer complies with Section 9.2 and (i) the Clearing Agency notifies the Company that it is unwilling or unable to continue as Clearing Agency for such Global Capital 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 Default or an Event of Default has occurred and is continuing or (iii) the Administrative Trustees in their sole discretion elect to cause the issuance of certificated Capital Securities. (c) Any Global Capital Security that is transferable to the beneficial owners thereof in the form of certificated Capital Securities pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the Property Trustee located in the City of New York, New York, to be so transferred, in whole or from time to time in part, without charge, and the Property Trustee shall authenticate and make available for delivery, upon such transfer of each portion of such Global Capital Security, an equal aggregate Liquidation Amount of Securities of authorized denominations in the form of certificated Capital Securities. Any portion of a Global Capital Security transferred pursuant to this Section shall be registered in such names as the Clearing Agency shall direct. Any Capital Security in the form of certificated Capital Securities delivered in exchange for an interest in the Restricted Global Capital Security shall, except as otherwise provided by Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit A-1 hereto. (d) Subject to the provisions of Section 7.9(c), the Holder of a Global Capital 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 Securities. (e) In the event of the occurrence of any of the events specified in Section 7.9(b), the Administrative Trustees will promptly make available to the Property Trustee a reasonable supply of certificated Capital Securities in fully registered form without distribution coupons. SECTION 7.10 CANCELLATION. The Administrative Trustees at any time may deliver Capital Securities to the Property Trustee for cancellation. The Registrar, Paying Agent and Exchange Agent shall forward to the Property Trustee any Capital Securities surrendered to them for registration of transfer, redemption, exchange or payment. The Property Trustee shall promptly cancel all Capital Securities surrendered for registration of transfer, redemption, exchange, payment, replacement or cancellation and shall dispose of canceled Capital Securities as the Administrative Trustees direct, provided that the Property Trustee shall not be obligated to destroy Capital Securities. The Trust may not issue new Capital Securities to replace Capital Securities that it has redeemed or that have been delivered to the Property Trustee for cancellation or that any Holder has exchanged. SECTION 7.11 CUSIP NUMBERS. The Trust in issuing the Capital Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Property Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders of Capital Securities; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Capital 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 Capital Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Sponsor will promptly notify the Property Trustee of any change in the CUSIP numbers. ARTICLE VIII DISSOLUTION OF TRUST SECTION 8.1 DISSOLUTION OF TRUST. (a) The Trust shall automatically dissolve: (i) upon the bankruptcy of the Sponsor; (ii) upon the filing of a certificate of dissolution or liquidation or its equivalent with respect to the Sponsor; (iii) following the distribution of a Like Amount of the Debentures to the Holders; provided that the Property Trustee has received a written notice from the Sponsor as the holder of all the outstanding Common Securities directing it to terminate the Trust (which direction is at the discretion of the Sponsor, except as provided below); provided, further, that such distribution is conditioned on the Administrative Trustees' receipt of an opinion by independent tax counsel experienced in such matters, which opinion may rely on published rulings of the Internal Revenue Service, to the effect that the Holders will not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and such distribution of a Like Amount of the Debentures; (iv) upon the entry of a decree of judicial dissolution of the Trust by a court of competent jurisdiction; (v) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (vi) upon the repayment of the Debentures or at such time as no Debentures are outstanding; (vii) the expiration of the term of the Trust provided in Section 3.13; or (viii) following the distribution of a Like Amount of the Debentures to the Holders of the Securities pursuant to the terms thereof upon receipt of a written notice from the Sponsor that it intends to effect a Tax Event Maturity Shortening and directing the Administrative Trustees to dissolve the Trust and distribute a Like Amount of the Debentures to the Holders of the Securities. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a), the Trust shall be wound up pursuant to Section 3808 of the Business Trust Act and the Administrative Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware; provided, however, that in the event of any of the events of dissolution set forth in Sections 8.1(a)(iii), (v) or (viii), the provisions of Section 3808(e) of the Business Trust Act shall be satisfied in advance of the making of any payments or distributions to Holders of Securities pursuant to this Declaration. (c) The provisions of Section 3.9 and Article X shall survive the dissolution of the Trust. ARTICLE IX TRANSFER OF INTERESTS SECTION 9.1 TRANSFER OF SECURITIES. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Capital 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 security not made in accordance with this Declaration shall be null and void. (c) Subject to Section 3.14, the Sponsor may not transfer the Common Securities. (d) The Registrar shall provide for the registration of Securities and of the transfer of Securities, which will be effected without charge except as provided in Section 7.6 hereof, but only upon payment (with such indemnity as the Registrar 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 Securities, the Registrar shall cause one or more new Securities to be issued in the name of the designated transferee or transferees. Every Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Security surrendered for registration of transfer shall be canceled by the Registrar. A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.2 TRANSFER PROCEDURES AND RESTRICTIONS. (a) GENERAL. Except as otherwise provided in Section 9.2(c), if Capital Securities are issued upon the transfer, exchange or replacement of Capital Securities bearing the Restricted Securities Legend set forth in Exhibit A-1 hereto, or if a request is made to remove such Restricted Securities Legend on Capital Securities, the Capital 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 Property 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 Property 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 Securities are not "restricted" within the meaning of Rule 144. Upon provision of such satisfactory evidence, the Property Trustee, at the written direction of the Administrative Trustees, shall authenticate and deliver Capital Securities that do not bear the legend. (b) TRANSFERS AFTER EFFECTIVENESS OF A REGISTRATION STATEMENT. After the effectiveness of a Registration Statement with respect to any Capital Securities, all requirements pertaining to legends on such Capital Securities will cease to apply, and beneficial interests in a Capital Security in global form without legends will be available to transferees of such Capital Securities, upon exchange of the transferring holder's Restricted Definitive Capital Security or directions to transfer such Holder's beneficial interest in the Global Capital Security. No such transfer or exchange of a Restricted Definitive Capital Security or of an interest in the Global Capital Security shall be effective unless the transferor delivers to the Trust a certificate in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1. Except as otherwise provided in Section 9.2(m), after the effectiveness of a Registration Statement, the Trust shall issue and the Property Trustee, upon a written order of the Trust signed by one Administrative Trustee, shall authenticate a Capital Security in global form without the Restricted Securities Legend (the "Unrestricted Global Capital Security") to deposit with the Clearing Agent to evidence transfers of beneficial interests from the (i) Global Capital Security and (ii) Restricted Definitive Capital Securities. (c) TRANSFER AND EXCHANGE OF DEFINITIVE CAPITAL SECURITIES. When Definitive Capital Securities are presented to the Registrar or co-Registrar: (x) to register the transfer of such Definitive Capital Securities or (y) to exchange such Definitive Capital Securities which became mutilated, destroyed, defaced, stolen or lost, for an equal number of Definitive Capital Securities, the Registrar or co-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 Capital Securities surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Trust and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) in the case of Definitive Capital Securities that are Restricted Definitive Capital Securities: (A) if such Restricted Capital Securities are being delivered to the 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 Capital Securities are being transferred: (x) a certification from the transferor in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1, and (y) if the Trust or Registrar so requests, evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the Restricted Securities Legend. (d) RESTRICTIONS ON TRANSFER OF A DEFINITIVE CAPITAL SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY. A Definitive Capital Security may not be exchanged for a beneficial interest in a Global Capital Security except upon satisfaction of the requirements set forth below. Upon receipt by the Property Trustee of a Definitive Capital Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Property Trustee, together with: (i) if such Definitive Capital Security is a Restricted Capital Security, a written certificate (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1); provided, however, that such Definitive Capital Security may only be exchanged for an interest in a Regulation S Global Security where such Definitive Capital Security is being transferred pursuant to Regulation S or Rule 144 (if available); and (ii) whether or not such Definitive Capital Security is a Restricted Capital Security, written instructions directing the Property Trustee to make, or to direct the Clearing Agency to make, an adjustment on its books and records with respect to the appropriate Global Capital Security to reflect an increase in the number of the Capital Securities represented by such Global Capital Security, then the Property Trustee shall cancel such Definitive Capital Security and cause, or direct the Clearing Agency to cause, the aggregate number of Capital Securities represented by the appropriate Global Capital Security to be increased accordingly. If no Global Capital Securities are then outstanding, the Trust shall issue and the Property Trustee shall authenticate, upon written order of any Administrative Trustee, an appropriate number of Capital Securities in global form. (e) TRANSFER AND EXCHANGE OF GLOBAL CAPITAL SECURITIES. Subject to Section 9.2(f), the transfer and exchange of Global Capital 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. (f) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY FOR A DEFINITIVE CAPITAL SECURITY. (i) Any Person having a beneficial interest in a Global Capital Security may upon request, but only upon 20 days prior notice to the Property Trustee, and if accompanied by the information specified below, exchange such beneficial interest for a Definitive Capital Security representing the same number of Capital Securities. Upon receipt by the Property Trustee from the Clearing Agency or its nominee on behalf of any Person having a beneficial interest in a Global Capital Security of written instructions or such other form of 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 Capital Security and a certification from the transferor (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1), which may be submitted by facsimile, then the Property Trustee will cause the aggregate number of Capital Securities represented by Global Capital Securities to be reduced on its books and records and, following such reduction, the Administrative Trustees will execute and the Property Trustee will authenticate and make available for delivery to the transferee a Definitive Capital Security. (ii) Definitive Capital Securities issued in exchange for a beneficial interest in a Global Capital Security pursuant to this Section 9.2(f) shall be registered in such names and in such authorized denominations as the Clearing Agency, pursuant to instructions from its Participants or indirect participants or otherwise, shall instruct the Property Trustee in writing. The Property Trustee shall deliver such Capital Securities to the Persons in whose names such Capital Securities are so registered in accordance with such instructions of the Clearing Agency. (g) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL CAPITAL SECURITIES. Notwithstanding any other provisions of this Declaration (other than the provisions set forth in subsection (h) of this Section 9.2), a Global Capital 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 any such nominee to a successor Clearing Agency or a nominee of such successor Clearing Agency. (i) Prior to the expiration of the restricted period, as contemplated by Regulation S, beneficial interests in the Regulation S Global Capital Security may be exchanged for beneficial interests in the Rule 144A Global Capital Security only if such exchange occurs in connection with a transfer of the Capital Securities pursuant to Rule 144A and the transferor first delivers to the Property Trustee a written certificate (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect that the Capital Securities are being transferred to a Person whom the transferor reasonably believes to be 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 Rule 144A Global Capital Security may be transferred to a Person who takes delivery in the form of an interest in the Regulation S Global Capital Security, whether before or after the expiration of such restricted period, as contemplated by Regulation S, only if the transferor first delivers to the Property Trustee a written certificate (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of such restricted period, the interest transferred will be held immediately thereafter through Euroclear or CEDEL. (h) AUTHENTICATION OF DEFINITIVE CAPITAL SECURITIES. If at any time: (i) there occurs a Default or an Event of Default which is continuing, or (ii) the Administrative Trustees, in their sole discretion, notify the Property Trustee in writing that they elect to cause the issuance of Definitive Capital Securities under this Declaration, then the Administrative Trustees will execute, and the Property Trustee, upon receipt of a written order of the Trust signed by one Administrative Trustee requesting the authentication and delivery of Definitive Capital Securities to the Persons designated by the Trust, will authenticate and make available for delivery Definitive Capital Securities, equal in number to the number of Capital Securities represented by the Global Capital Securities, in exchange for such Global Capital Securities. (i) LEGEND. (i) Except as permitted by the following paragraph (ii), each Capital Security certificate evidencing the Global Capital Securities and the Definitive Capital Securities (and all Capital 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: THIS CAPITAL SECURITY HAS 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 CAPITAL 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 CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR ANY "AFFILIATE" OF THE CORPORATION WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS CAPITAL 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-U.S. 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 CAPITAL SECURITY 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, 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 CORPORATION 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 A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE and in the case of the Regulation S Global Capital Security THIS CAPITAL 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. (ii) Upon any sale or transfer of a Restricted Capital Security (including any Restricted Capital Security represented by a Global Capital Security) pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 under the Securities Act after such registration statement ceases to be effective: (A) in the case of any Restricted Capital Security that is a Definitive Capital Security, the Registrar shall permit the Holder thereof to exchange such Restricted Capital Security for a Definitive Capital Security that does not bear the Restricted Securities Legend and rescind any restriction on the transfer of such Restricted Capital Security; and (B) in the case of any Restricted Capital Security that is represented by a Global Capital Security, the Registrar shall permit the Holder of such Global Capital Security to exchange such Global Capital Security for another Global Capital Security that does not bear the Restricted Securities Legend. (j) CANCELLATION OR ADJUSTMENT OF GLOBAL CAPITAL SECURITY. At such time as all beneficial interests in a Global Capital Security have either been exchanged for Definitive Capital Securities to the extent permitted by this Declaration or redeemed, repurchased or canceled in accordance with the terms of this Declaration, such Global Capital Security shall be returned to the Clearing Agency for cancellation or retained and canceled by the Property Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Capital Security is exchanged for Definitive Capital Securities, Capital Securities represented by such Global Capital Security shall be reduced and an adjustment shall be made on the books and records of the Property Trustee (if it is then the custodian for such Global Capital Security) with respect to such Global Capital Security, by the Property Trustee or the Securities custodian, to reflect such reduction. (k) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF CAPITAL SECURITIES. (i) To permit registrations of transfers and exchanges, the Administrative Trustees shall execute and the Property Trustee shall authenticate Definitive Capital Securities and Global Capital Securities at the Registrar's or co-Registrar's request in accordance with the terms of this Declaration. (ii) Subject to Section 7.6 hereof, registrations of transfers or exchanges will be effected without charge, but only upon payment (with such indemnity as the Trust or the Sponsor may require) in respect of any tax or other governmental charge that may be imposed in relation to it. (iii) The Registrar or co-Registrar shall not be required to register the transfer of or exchange of (a) Capital Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption or any notice of selection of Capital Securities for redemption and ending at the close of business on the day of such mailing; or (b) any Capital Security so selected for redemption in whole or in part, except the unredeemed portion of any Capital Security being redeemed in part. (iv) Prior to the due presentation for registration of transfer of any Capital Security, the Trust, the Property Trustee, the Paying Agent, the Registrar or any co-Registrar may deem and treat the Person in whose name a Capital Security is registered as the absolute Holder of such Capital Security for the purpose of receiving Distributions on such Capital Security and for all other purposes whatsoever, and none of the Trust, the Property Trustee, the Paying Agent, the Registrar or any co-Registrar shall be affected by notice to the contrary. (v) All Capital Securities issued upon any transfer pursuant to the terms of this Declaration shall evidence the same security and shall be entitled to the same benefits under this Declaration as the Capital Securities surrendered upon such transfer or exchange. (l) NO OBLIGATION OF THE PROPERTY TRUSTEE. (i) The Property Trustee shall have no responsibility or obligation to any beneficial owner of a Global Capital 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 to any ownership interest in the Capital Securities or with respect to the delivery to 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 Capital Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Capital 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 Capital Security). The rights of beneficial owners in any Global Capital Security shall be exercised only through the Clearing Agency subject to the applicable rules and procedures of the Clearing Agency. The Property Trustee may conclusively rely and shall be fully protected in relying upon information furnished by the Clearing Agency or any agent thereof with respect to its Participants and any beneficial owners. (ii) The Property Trustee and Registrar shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Declaration or under applicable law with respect to any transfer of any interest in any Capital Security (including any transfers between or among Clearing Agency Participants or beneficial owners in any Global Capital Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Declaration, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (m) EXCHANGE OF INITIAL CAPITAL SECURITIES FOR EXCHANGE CAPITAL SECURITIES. The Initial Capital Securities may be exchanged for Exchange Securities pursuant to the terms of the Exchange Offer. The Property Trustee shall make the exchange as follows: (i) The Sponsor shall present the Property Trustee with an Officers' Certificate certifying the following: (A) the Registration Statement has become effective; and (B) the number of Initial Capital Securities properly tendered in the Exchange Offer that are represented by a Global Capital Security and the number of Initial Capital Securities properly tendered in the Exchange Offer that are represented by Definitive Capital Securities, the name of each Holder of such Definitive Capital Securities, the liquidation amount of Capital Securities properly tendered in the Exchange Offer by each such Holder and the name and address to which Definitive Capital Securities for Exchange Capital Securities shall be registered and sent for each such Holder. (ii) The Property Trustee upon receipt of (A) such Officers' Certificate, (B) an Opinion of Counsel (x) to the effect that the Exchange Capital 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 (C) a Company Order (as defined in the Indenture), shall authenticate (I) a Global Capital Security for Exchange Capital Securities in aggregate liquidation amount equal to the aggregate liquidation amount of Initial Capital Securities represented by a Global Capital Security indicated in such Officers' Certificate as having been properly tendered and (II) Definitive Capital Securities representing Exchange Capital Securities registered in the names of, and in the liquidation amounts indicated in such Officers' Certificate. (iii) If, upon consummation of the Exchange Offer, less than all the outstanding Initial Capital Securities shall have been properly tendered and not withdrawn, the Property Trustee shall make an endorsement on the Global Capital Security for Initial Capital Securities indicating the reduction in the number and aggregate liquidation amount represented thereby as a result of the Exchange Offer. (iv) The Trust shall deliver such Definitive Capital Securities for Exchange Capital Securities to the Holders thereof as indicated in such Officers' Certificate. (n) MINIMUM TRANSFERS. Initial Capital Securities may only be transferred in minimum blocks of $100,000 aggregate Liquidation Amount until such Initial Capital Securities are registered pursuant to an effective registration statement filed under the Securities Act or become "unrestricted" pursuant to Rule 144 under the Securities Act. (o) INDEMNITY; ERISA. Each Holder of the Securities agrees to indemnify the Sponsor and the Property Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Securities in violation of any provision of this Declaration and/or applicable United States federal or state securities law. Subject to this Article, Securities shall be freely transferable. Notwithstanding the foregoing, Securities may not be acquired by any Person who is, or who, in acquiring such Securities is using the assets of, an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA Plan"), unless the acquisition of such Securities is not a "Prohibited Transaction" (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or one of the following class exemptions (or another applicable exemption) is available to the ERISA Plan: (i) Prohibited Transaction Class Exemption 90-1 ("PTE 90-1"), regarding investments by insurance company pooled separate accounts, (ii) Prohibited Transaction Class Exemption 91-38 ("PTE 91-38"), regarding investments by bank collective investment funds, (iii) Prohibited Transaction Class Exemption 84-14 ("PTE 84-14"), regarding transactions effected by qualified professional asset managers, (iv) Prohibited Transaction Class Exemption 96-23 ("PTE 96-23"), regarding transactions effected by in-house asset managers, or (v) Prohibited Transaction Class Exemption 95-60 ("PTE 95-60"), regarding investments by insurance company general accounts. The acquisition of Capital Securities by any Person who is, or who in acquiring such Capital Securities is using the assets of, an ERISA Plan shall be deemed to constitute a representation by such Person to the Trust that, if such acquisition or the holding of Capital Securities by such Person would constitute a Prohibited Transaction, such Person is eligible for exemptive relief available pursuant to either one of PTE 90-1, PTE 91-38, PTE 84-14, PTE 96-23, PTE 95-60 or another applicable exemption with respect to the acquisition and holding of such Securities. To avoid Prohibited Transactions, any ERISA Plan purchasing Capital Securities will be deemed to have directed the Trust to invest in the Debentures and to have appointed the Trustees. SECTION 9.3 DEEMED SECURITY HOLDERS. The Trustees may treat the Person in whose name any Security shall be registered on the books and records of the Trust as the sole Holder of such Security for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Security on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4 BOOK ENTRY INTERESTS. (a) Global Capital Securities shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of the Clearing Agency, and no Capital Security Beneficial Owner will receive a definitive Capital Security Certificate representing such Capital Security Beneficial Owner's interests in such Global Capital Securities, except as provided in Section 9.2. Unless and until definitive, fully registered Capital Securities certificates have been issued to the Capital Security Beneficial Owners pursuant to Section 9.2: (i) the provisions of this Section 9.4 shall be in full force and effect; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Capital Securities and receiving approvals, votes or consents hereunder) as the Holder of the Capital Securities and the sole holder of the Global Certificates and shall have no obligation to the Capital Security Beneficial Owners; (iii) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (iv) the rights of the Capital Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Capital Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants. SECTION 9.5 NOTICES TO CLEARING AGENCY. Whenever a notice or other communication to the Capital Security Holders is required under this Declaration, the Trustees shall give all such notices and communications specified herein to be given to the Holders of Global Capital Security to the Clearing Agency, and shall have no notice obligations to the Capital Security Beneficial Owners. SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Capital Securities the Administrative Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Capital Securities. ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1 LIABILITY. (a) Except as expressly set forth in this Declaration, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders, which shall be made solely from assets of the Trust; or (ii) required to pay to any Holder any deficit upon dissolution of the Trust or otherwise. (b) The Sponsor shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to ss. 3803(a) of the Business Trust Act, the Holders of the Capital Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2 EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 10.3 FIDUCIARY DUTY. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4 INDEMNIFICATION. (a) (i) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to or otherwise becomes involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to or otherwise becomes involved in any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person, against expenses (including attorneys' fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.4(a) (unless ordered by a court) shall be made by the Debenture Issuer only as authorized in the specific case upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Administrative Trustees by a majority vote of a quorum consisting of such Administrative Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (v) Expenses (including attorneys' fees and expenses) incurred by a Company Indemnified Person in defending or participating in a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 10.4(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (1) by the Administrative Trustees by a majority vote of a quorum of disinterested Administrative Trustees, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion or (3) the Common Security Holder of the Trust, that, based upon the facts known to the Administrative Trustees, counsel or the Common Security Holder at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such Person did not reasonably believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrative Trustees, independent legal counsel or Common Security Holder reasonably determine that such Person deliberately breached his duty to the Trust or its Common Security Holders or Capital Security Holders. (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or Common Security Holders or Capital Security Holders of the Trust or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 10.4(a) shall be deemed to be provided by a contract between the Debenture Issuer and each Company Indemnified Person who serves in such capacity at any time while this Section 10.4(a) is in effect. Any repeal or modification of this Section 10.4(a) shall not affect any rights or obligations then existing. (vii) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any Person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 10.4(a). (viii) For purposes of this Section 10.4(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.4(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when authorized or ratified, continue as to a Person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person. (b) The Debenture Issuer agrees to indemnify the (i) Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees' representatives, custodians, nominees or agents of the Property Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based on the income of such Fiduciary Indemnified Person) incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction and discharge of this Declaration. (c) Each Indemnified Person shall give prompt notice to each indemnifying party from whom indemnification is to be sought hereunder by such Indemnified Person of any action threatened or commenced against it in respect of which any indemnity is sought hereunder, enclosing a copy of all papers served on, and notices and demands delivered to, such Indemnified Person, if any, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 10.4, except to the extent that it is materially prejudiced by such failure. The indemnifying party shall be entitled to assume the defense of any such action or proceeding with counsel reasonably satisfactory to the Indemnified Person who shall not, except with the consent of such Indemnified Person be counsel to the indemnifying party. Upon assumption by the indemnifying party of the defense of any such action or proceeding, the Indemnified Person shall have the right to participate in such action or proceeding and to retain its own counsel, but the indemnifying party shall not be liable for any legal fees or expenses subsequently incurred by such Indemnified Person in connection with the defense thereof unless (i) the indemnifying party has agreed to pay such fees and expenses, (ii) the indemnifying party shall have failed to employ counsel reasonably satisfactory to the Indemnified Person in a timely manner, or (iii) the Indemnified Person shall have been advised by counsel (who shall not be employed by such Indemnified Person and who shall be reasonably satisfactory to the indemnifying party) that such representation would constitute an actual or potential conflict of interests for counsel selected by the indemnifying party. The indemnifying party shall not consent to the terms of any compromise or settlement of any action defended by the indemnifying party in accordance with the foregoing without the prior consent of the Indemnified Person, and the Indemnified Person shall not consent to the terms of any compromise or settlement of any action being defended by the indemnifying party in accordance with the foregoing without the prior consent of the indemnifying party. Notwithstanding the immediately preceding sentence, if at any time an Indemnified Person shall have requested an indemnifying party to reimburse the Indemnified Person for fees and expenses of counsel as contemplated above, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than thirty business days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. SECTION 10.5 OUTSIDE BUSINESSES. Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE XI ACCOUNTING SECTION 11.1 FISCAL YEAR. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2 CERTAIN ACCOUNTING MATTERS. (a) At all times during the existence of the Trust, the Administrative Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. (b) The Administrative Trustees shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, unaudited annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss for such Fiscal Year prepared in accordance with generally accepted accounting principles; provided that if the Trust is required to comply with the periodic reporting requirements of Sections 13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal Year shall be examined and reported on by a firm of independent certified public accountings selected by the Administrative Trustees (which firm may be the firm used by the Sponsor). (c) The Administrative Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required and at such time as is required by the Code and the Treasury Regulations. (d) The Administrative Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrative Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.3 BANKING. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Administrative Trustees; provided, however, that the Property Trustee shall designate the signatories for the Property Trustee Account. SECTION 11.4 WITHHOLDING. The Trust and the Administrative Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrative Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to Distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claimed over-withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1 AMENDMENTS. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by: (i) the Administrative Trustees (or if there are more than two Administrative Trustees a majority of the Administrative Trustees); (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee; and (iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee. (b) No amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Property Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (ii) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an Opinion of Counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities), provided, however, that the Property Trustee shall not be required to sign any such amendment, to the extent the result of such amendment would be to: (1) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust; (2) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (3) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (c) At such time after the Trust has issued any Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (d) Sections 3.14(c) and 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities; (e) Article IV shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities, and; (f) The rights of the Holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees, shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities; and (g) Notwithstanding Section 12.1(c), this Declaration may be amended by the Property Trustee, the Administrative Trustees and the Sponsor without the consent of the Holders of the Securities to: (i) cure any ambiguity, correct or supplement any provision in this Declaration that may be inconsistent with any other provision of this Declaration 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 the Declaration; (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 at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act; or (iii) to qualify or maintain qualification of this Declaration of Trust under the Trust Indenture Act; provided, however, that in each case, such action shall not adversely affect in any material respect the interests of the Holders of the Securities. Any amendments of this Declaration shall become effective when notice thereof is sent to the Holders of the Securities. SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT. (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrative Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading. The Administrative Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in Liquidation Amount of such class of Securities. Such direction shall be given by delivering to the Administrative Trustees one or more notices in a writing stating that the signing Holders wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders calling a meeting shall specify in writing the Security Certificates held by the Holders exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders: (i) notice of any such meeting shall be given to all the Holders having a right to vote thereat at least seven days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders is permitted or required under this Declaration or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders. Any action that may be taken at a meeting of the Holders may be taken without a meeting if a consent or consents in writing setting forth the action so taken is signed by the Holders owning not less than the minimum amount of Securities in Liquidation Amount that would be necessary to authorize or take such action at a meeting at which all Holders having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders entitled to vote who have not consented in writing. The Administrative Trustees may specify that any written ballot submitted to the Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrative Trustees; (ii) each Holder may authorize any Person to act for it by proxy on all matters in which a Holder is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders were stockholders of a Delaware corporation; (iii) each meeting of the Holders shall be conducted by the Administrative Trustees or by such other Person that the Administrative Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Capital Securities are then listed or trading, otherwise provides, the Administrative Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE. The Trustee that acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: (a) The Property Trustee is a New York banking corporation with trust powers and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) The execution, delivery and performance by the Property Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) The execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of the charter or by-laws of the Property Trustee; and (d) No consent, approval or authorization of, or registration with or notice to, any New York or federal banking authority is required for the execution, delivery and performance by the Property Trustee of this Declaration. SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee that: (a) The Delaware Trustee is duly organized, validly existing and in good standing under the laws of the State of Delaware, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) The execution, delivery and performance by the Delaware Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) The execution, delivery and performance of this Declaration by the Delaware Trustee does not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee; (d) The Delaware Trustee is a natural Person who is a resident of the State of Delaware or, if not a natural Person, an entity which has its principal place of business in the State of Delaware; and (e) No consent, approval or authorization of, or registration with or notice to, any federal banking authority is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. ARTICLE XIV REGISTRATION RIGHTS SECTION 14.1 REGISTRATION RIGHTS AGREEMENT; ADDITIONAL INTEREST. (a) The Holders of the Capital Securities, the Debentures and the Capital Securities Guarantee (collectively, the "Registrable Securities") are entitled to the benefits of a Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Sponsor and the Trust have agreed for the benefit of the Holders of Registrable Securities that: (i) they will, at the Sponsor's cost, within 150 days after February 5, 1998 (the "Issue Date"), file a registration statement (the "Exchange Registration Statement") relating to an Exchange Offer pursuant to which each issuer of such respective Registrable Securities would issue amounts of such Registrable Securities as are accepted in the Exchange Offer which shall be identical in all respects to those exchanged, except they will have been registered under the Securities Act and will no longer be subject to transfer restrictions under the Securities Act or the $100,000 minimum aggregate principal or liquidation amount transfer restriction and, if required pursuant to the terms of the Registration Rights Agreement, file a shelf registration statement (the "Shelf Registration Statement") with the Commission with respect to resales of the Registrable Securities, (ii) they will use their best efforts to cause such Exchange Registration Statement and/or Shelf Registration Statement, as the case requires, to be declared effective by the Commission within 180 days after the Issue Date and (iii) they will use their best efforts to maintain the Shelf Registration Statement, if any, continuously effective under the Securities Act until the second anniversary of the effectiveness of the Shelf Registration Statement or such earlier date as is provided in the Registration Rights Agreement (the "Effectiveness Period"). All references herein to such Registrable Securities shall be deemed to include, as the context may require, the Registrable Securities into which such Securities have been exchanged pursuant to the Exchange Registration ("Exchange Securities") and all reference to numbers or amounts of such Securities shall be deemed to include, as the context may require, such Exchange Securities. (b) If (i) (A) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is filed with the Commission on or prior to the 150th day after the Issue Date, or (B) notwithstanding that the Debenture Issuer and the Trust have consummated or will consummate an Exchange Offer, the Debenture Issuer 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 the Registration Rights Agreement, then commencing on the day after either such required filing date, Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Capital Securities 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 Commission on or prior to the 180th day after the Issue Date or (B) notwithstanding that the Debenture Issuer and the Trust have consummated or will consummate an Exchange Offer, the Debenture Issuer 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, commencing on the 181st day after the Issue Date, Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Capital Securities at a rate of 0.25% per annum; or (iii) (A) the Trust has not exchanged Exchange Capital Securities for all Capital Securities or the Debenture Issuer has not exchanged Exchange Guarantees or Exchange Subordinated Debentures for all Guarantees or Subordinated Debentures 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 third anniversary of the Issue Date or such shorter period as may be referred to in Rule 144(k) under the Securities Act (other than after such time as all Capital Securities have been disposed of thereunder or otherwise cease to be Registrable Securities), then Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Capital Securities, 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 Debentures, nor the additional Distributions rate on the Liquidation Amount of the Capital 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 Section 14.1(b)(i)), (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of Section 14.1(b)(ii), or (3) upon the exchange of Exchange Capital Securities, Exchange Guarantees and Exchange Subordinated Debentures for all Capital Securities, Guarantees and Subordinated Debentures tendered (in the case of Section 14.1(b)(iii)(A)), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of Section 14.1(b)(iii)(B)), Additional Interest on the Debentures, and additional Distributions on the Liquidation Amount of the Capital Securities as a result of this Section 14.1(b) (or the relevant subclause thereof), as the case may be, shall cease to accumulate. (g) Any amounts of Additional Interest and additional Distributions due pursuant to Sections 14.1(b)(i), (ii) or (iii) above will be payable in cash on April 15 and October 15 of each year to the Holders on the fifteenth day preceding the relevant Distribution date; provided, however, that the payment of such amounts may be deferred during any Extension Period. ARTICLE XV MISCELLANEOUS SECTION 15.1 NOTICES. (a) All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (i) if given to the Trust, in care of the Administrative Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders): Orion Capital Trust II 9 Farm Springs Road Farmington, CT 06032 Facsimile No. (860) 674-6890 Attention: Michael P. Maloney, Esq. Administrative Trustee (ii) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders): The Bank of New York (Delaware) 101 Barclay Street, Floor 21W New York, NY 10286 Facsimile No. (212) 815-5915 Attention: Corporate Trust Administration (iii) if given to the Property Trustee, at the Property Trustee's mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders): The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Facsimile No. (212) 815-5915 Attention: Corporate Trust Administration (iv) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): Orion Capital Corporation 9 Farm Springs Road Farmington, CT 06032 Facsimile No. (860) 674-6890 Attention: Michael P. Maloney, Esq. Senior Vice President, General Counsel and Secretary (v) if given to any other Holder, at the address set forth on the books and records of the Trust. (b) All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 15.2 GOVERNING LAW. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws; provided, however, that the provisions of 12 Del. C. ss.ss. 3540 and 3561 shall not apply, and, to the fullest extent possible, it is the intent of the parties hereto the compensation payable to any Trustee not be subject to review by any Court whether pursuant to 12 Del. C. ss. 3560 or otherwise. SECTION 15.3 INTENTION OF THE PARTIES. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 15.4 HEADINGS. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 15.5 SUCCESSORS AND ASSIGNS. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 15.6 PARTIAL ENFORCEABILITY. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 15.7 COUNTERPARTS. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the undersigned have caused this Amended and Restated Declaration of Trust to be duly executed as of the day and year first above written. /s/ Marston Becker W. Marston Becker, not in his individual capacity but solely in his capacity as Administrative Trustee /s/ Craig A. Nyman Craig A. Nyman, not in his individual capacity but solely in his capacity as Administrative Trustee /s/ Michael P. Maloney Michael P. Maloney, Esq., not in his individual capacity but solely in his capacity as Administrative Trustee THE BANK OF NEW YORK (DELAWARE), not in its individual capacity but solely in its capacity as Delaware Trustee By:/s/ Walter N. Gitlin Name:Walter N. Gitlin THE BANK OF NEW YORK, not in its individual capacity but solely in its capacity as Property Trustee By:/s/ Walter N. Gitlin Name:Walter N. Gitlin Title:Vice President ORION CAPITAL CORPORATION, as Sponsor By:/s/ Michael P. Maloney Michael P. Maloney, Esq. Senior Vice President, General Counsel and Secretary ANNEX I TERMS OF 7.701% CAPITAL SECURITIES 7.701% COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of February 5, 1998 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities (collectively, the "Securities") are set out below and supplement the other rights and obligations of Holders of Securities contained in the Declaration (each capitalized term used but not defined herein has the meaning set forth in the Declaration or, if not defined in such Declaration, as defined in the Indenture). 1. DESIGNATION AND NUMBER. (a) CAPITAL SECURITIES. 125,000 Capital Securities of the Trust, with an aggregate Liquidation Amount (as defined in Section 2 hereof) of one hundred twenty-five million dollars ($125,000,000), and with a Liquidation Amount of $1,000 per security, are hereby designated for the purposes of identification only as "7.701% Capital Securities" (the "Capital Securities"). Upon consummation of the Exchange Offer a second series of the Capital Securities may be issued which shall be identical in all respects to the series of Capital Securities issued at the Closing Time except that such Capital Securities will not be subject to (i) the transfer restrictions under the Securities Act contained in the series of Capital Securities issued at the Closing Time (except Private Exchange Securities (as defined in the Registration Rights Agreement), which may be subject to such restrictions), (ii) the $100,000 minimum Liquidation Amount transfer restriction set forth in Section 9.2(n) of the Declaration or (iii) any increase in the Distribution rate thereon under the Registration Rights Agreement. The certificates evidencing the Capital Securities to be issued at Closing Time shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange or quotation system on which the Capital Securities are listed or quoted. (b) COMMON SECURITIES. 4,000 Common Securities of the Trust with an aggregate Liquidation Amount with respect to the assets of the Trust of four million dollars ($4,000,000) and a Liquidation Amount with respect to the assets of the Trust of $1,000 per security, are hereby designated for the purposes of identification only as "7.701% Common Securities" (the "Common Securities"). The certificates evidencing the Common Securities shall be substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. DISTRIBUTIONS. (a) Subject to Section 9 hereof, Distributions payable on each Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Security (the "Liquidation Amount"), such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions not due during an Extension Period (including the first semi-annual period during such period) 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 distributions of any such interest unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. (b) Subject to Section 9 hereof, Distributions on the 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 February 5, 1998, and will be payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 1998, except as otherwise described below. The amount of Distributions payable for any period will be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date 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), with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). So long as no Event of Default has occurred and is continuing under the Indenture, the Debenture 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 Debentures for a period not exceeding 10 consecutive semi-annual periods, including the first semi-annual period during such period (each an "Extension Period"), provided that no Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon any such election, Distributions will be deferred during such Extension Period. Notwithstanding such deferral, Distributions to which Holders of Securities are entitled shall continue to accumulate additional Distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded semi-annually from the relevant Distribution Dates during any such Extension Period. Prior to the expiration of any Extension Period, the Debenture Issuer 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, may not exceed 10 consecutive semi-annual periods, including the first semi-annual period during such Extension Period, or extend beyond the Stated Maturity of the Debentures. Upon the expiration of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. (c) Subject to Section 9 hereof, Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the fifteenth day preceding the relevant Distribution Date. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Capital Securities will be made as follows: (i) if the Capital Securities are held in global form by a Clearing Agency (or its nominee), in accordance with the procedures of the Clearing Agency; and (ii) if the Capital Securities are held in definitive form, by check mailed to the address of the Holder thereof as reflected in the records of the Registrar unless otherwise agreed by the Trust. The relevant record dates for the Common Securities shall be the same as the record dates for the Capital Securities. Distributions payable on any Securities that are not punctually paid on any Distribution Date will cease to be payable to the Holder on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date applicable to the Debentures determined in accordance with the Indenture, MUTATIS MUTANDIS. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed on a PRO RATA basis as set forth Section 8 hereof among the Holders of the Securities, except as otherwise required by Section 9 hereof. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any dissolution or termination of the Trust, or the Sponsor otherwise gives notice of its election to liquidate the Trust pursuant to Section 8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the Administrative Trustees as expeditiously as the Administrative Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, and subject to Section 9 hereof, to the Holders of the Securities a Like Amount (as defined below) of the Debentures, unless such distribution is determined by the Property Trustee not to be practicable, in which event such Holders will be entitled to receive out of the assets of the Trust legally available for distribution to Holders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the aggregate of the Liquidation Amount of $1,000 per Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). "Like Amount" means (i) with respect to a redemption of the Securities, Securities having a Liquidation Amount equal to the principal amount of Debentures to be paid in accordance with their terms and (ii) with respect to a distribution of Debentures upon the liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Securities of the Holder to whom such Debentures are distributed. If, upon any such liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a PRO RATA basis as set forth in Section 8 hereof among the Holders of the Securities, except as otherwise required by Section 9 hereof. 4. REDEMPTION AND DISTRIBUTION. (a) Upon the repayment of the Debentures on the Stated Maturity thereof or prepayment thereof (in whole or in part) prior thereto in accordance with the terms thereof, the proceeds from such repayment or prepayment shall be simultaneously applied by the Property Trustee (subject to the Property Trustee having received not less than 45 days written notice to the repayment date or prepayment date) to redeem a Like Amount of the Securities at a redemption price equal to (i) in the case of the repayment of the Debentures on the Stated Maturity, the Maturity Redemption Price (as defined below), (ii) in the case of the optional prepayment of the Debentures upon the occurrence and continuation of a Special Event, the Special Event Redemption Price (as defined below) and (iii) in the case of the optional prepayment of the Debentures other than as a result of the occurrence and continuance of a Special Event, the Optional Redemption Price (as defined below). The Maturity Redemption Price, the Special Event Redemption Price and the Optional Redemption Price are referred to collectively as the "Redemption Price". (b) (i) The "Maturity Redemption Price", with respect to a redemption of Securities, shall mean an amount equal to the principal of and accrued interest on the Debentures as of the Stated Maturity thereof. (ii) "Optional Redemption Price" shall mean the greater of (i) 100% of the Liquidation Amount of Securities to be redeemed or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest on the Debentures to be prepaid discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in either case, accrued and unpaid distributions thereon to the date of redemption. (iii) "Special Event Redemption Price" shall mean a price equal to the greater of (i) 100% of the Liquidation Amount of Securities to be redeemed or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest on the Debentures, discounted to the prepayment date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period) at the Special Event Adjusted Treasury Rate, plus, in each case, accumulated and unpaid Distributions thereon, if any, to the date of such prepayment. (c) On and from the date fixed by the Administrative Trustees for any distribution of Debentures and liquidation of the Trust and subject to Section 9 hereof: (i) the Securities will no longer be deemed to be outstanding, (ii) each Holder of Securities will receive a registered certificate or certificates representing the Debentures to be delivered upon such distribution and (iii) Securities will be deemed to represent beneficial interests in a Like Amount of Debentures, and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on such Securities, until such Securities are presented to the Administrative Trustee or their agent for cancellation and such Debentures are transferred to the Holders of such Securities. (d) The Trust may not redeem fewer than all the outstanding Securities unless all accumulated and unpaid Distributions have been paid on all Securities for all semi-annual Distribution periods that expire on or before the date of redemption. (e) The procedure with respect to redemptions or distributions of Debentures shall be as follows: (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Securities (a "Redemption/Distribution Notice") will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for repayment or prepayment of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be allocated on a PRO RATA basis as set forth in Section 8 hereof among the Holders of Securities, except as otherwise required by Section 9 hereof, it being understood that, in respect of Capital Securities registered in the name of and held of record by a Clearing Agency or its nominee, the distribution of the proceeds of such redemption will be made to the Clearing Agency and disbursed by such Clearing Agency in accordance with the procedures applied by such agency or nominee. (iii) If Securities are to be redeemed and the Trust gives a Redemption/ Distribution Notice, such notice shall be irrevocable and (A) with respect to Capital Securities registered in the name of or held of record by a Clearing Agency or its nominee, by 12:00 noon, New York City time, on the redemption date, provided that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related maturity or prepayment of the Debentures by 10:00 a.m., New York City time, on the Stated Maturity of the Debentures or the date of prepayment, as the case may be, the Property Trustee or the Paying Agent will pay to the Clearing Agency or its nominee funds sufficient to pay the applicable Redemption Price with respect to such Capital Securities, and (B) with respect to Capital Securities issued in certificated form and Common Securities, provided that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related maturity or prepayment of the Debentures, the Property Trustee or the Paying Agent will pay the relevant Redemption Price to the Holders of such Securities against presentation to the Registrar of the certificates therefor. If a Redemption/Distribution Notice shall have been given and funds deposited with the Property Trustee to pay the Redemption Price (including all unpaid Distributions) with respect to the Securities called for redemption, then immediately prior to the close of business on the redemption date, Distributions will cease to accumulate on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Securities shall cease to be outstanding. (iv) Payment of accumulated and unpaid Distributions on the redemption date of any Securities will be subject to the rights of Holders of such Securities on the close of business on a regular record date in respect of a Distribution Date occurring on or prior to such Redemption Date. (v) Neither the Administrative Trustees nor the Trust shall be required to register or cause to be registered the transfer of (A) any Securities beginning on the opening of business 15 days before the day of mailing of a Redemption/Distribution Notice or (B) any Securities selected for redemption (except the unredeemed portion of any Security being redeemed). If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Property Trustee or the Paying Agent or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, or the date fixed for redemption, Distributions on such Securities will continue to accumulate from such redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (vi) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Sponsor or any of its Affiliates may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS - CAPITAL SECURITIES. (a) Except as provided under Sections 5(b) and 7 hereof and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. (b) So long as any Debentures are held by the Property Trustee for the benefit of the Holders of the Trust Securities, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 5.07 of the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of a majority in Liquidation Amount of all outstanding Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each Holder of the Capital Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Capital Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Capital Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Capital Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a trust subject to the provisions of Sections 671 through 679 of the Code (a "grantor trust") on account of such action. The foregoing provisions of this Section 5(b) shall be in lieu of ss.ss. 316(a)(1)(A) and (B) of the Trust Indenture Act, and such ss.ss. 316(a)(1)(A) and (B) are hereby expressly excluded from this Trust Agreement. (c) If an Event of Default under the Declaration has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay principal of or premium, if any, or interest on the Debentures on any due date (including any Interest Payment Date or prepayment date or Stated Maturity of the Debenture), then a Holder of Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or premium, if any, or interest on a Like Amount of Debentures (a "Direct Action") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Common Securities Holders will be subrogated to the rights of the Holder of Capital Securities to the extent of any payment made by the Debenture Issuer to the Holders of Capital Securities in such Direct Action. Except as provided in the second preceding sentence, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (d) Any required approval of Holders of Capital Securities may be given at a separate meeting of Holders of Capital Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Capital Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consent. (e) No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. (f) Notwithstanding that Holders of Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. (g) If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a Majority in Liquidation Amount of the outstanding Capital Securities. In no event will the holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Sponsor as the holder of all the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Declaration. 6. VOTING RIGHTS - COMMON SECURITIES. (a) Except as provided under Sections 6(b), 6(c), and 7 and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by the Holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Declaration. (c) So long as any Debentures are held by the Property Trustee for the benefit of the Holders of the Trust Securities, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or execute any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 5.07 of the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of a majority in Liquidation Amount of all outstanding Common Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each Holder of the Common Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Common Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Common Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a trust subject to the provisions of Sections 671 through 679 of the Code (a "grantor trust") on account of such action. The foregoing provisions of this Section 6(c) shall be in lieu of ss.ss. 316(a)(1)(A) and (B) of the Trust Indenture Act, and such ss.ss. 316(a)(1)(A) and (B) are hereby expressly excluded from this Trust Agreement. (d) If an Event of Default under the Declaration has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay principal of or premium, if any, or interest on the Debentures on the due date (including any Interest Payment Date or prepayment date or Stated Maturity of the Debenture), then a Holder of Common Securities may institute a Direct Action for enforcement of payment to such Holder of the principal of or premium, if any, or interest on a Like Amount of Debentures on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Common Securities Holders will be subrogated to the rights of the Holders of Capital Securities to the extent of any payment made by the Debenture Issuer to Holders of Common Securities in such Direct Action. Except as provided in the second preceding sentence, the Holders of Common Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (e) Any required approval of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. (f) No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 7. AMENDMENTS TO DECLARATION AND INDENTURE. In addition to the requirements set out in Section 12.1 of the Declaration, the Declaration may be amended from time to time by the Sponsor as the holder of all of the outstanding Common Securities, the Property Trustee and the Administrative Trustees, without the consent of the Holders of the Securities (i) to cure any ambiguity, correct or supplement any provisions in the Declaration that may be inconsistent with any other provisions, or to make any other provisions with respect to matters or questions arising under the Declaration which shall not be inconsistent with the other provisions of the Declaration, (ii) to modify, eliminate or add to any provisions of the Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act, or (iii) to qualify or maintain qualification of the Declaration under the Trust Indenture Act; provided, however, that in each case, such action shall not adversely affect in any material respect the interests of any Holder of Securities. Any amendments of the Declaration pursuant to the foregoing shall become effective when notice thereof is sent to the Holders of the Securities. The Declaration also may be amended by the Trustees and the Sponsor as the holder of all the outstanding Common Securities (i) with the consent of Holders representing a majority in Liquidation Amount of all outstanding Securities and (ii) upon 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 as a grantor trust for United States federal income tax purposes or the Trust's exemption from status as an Investment Company under the Investment Company Act; provided that, without the consent of each Holder of Securities, the Declaration may not be amended to (i) change the amount or timing of any Distribution on the Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Securities as of a specified date or (ii) restrict the right of a Holder of Securities to institute suit for the enforcement of any such payment on or after such date. 8. PRO RATA. A reference in these terms of the Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate Liquidation Amount of the Securities held by the relevant Holder in relation to the aggregate Liquidation Amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Declaration has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities pro rata according to the aggregate Liquidation Amount of Capital Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of Common Securities pro rata according to the aggregate Liquidation Amount of Common Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Common Securities outstanding. 9. RANKING. The Capital Securities rank pari passu with the Common Securities and payment thereon shall be made Pro Rata with the Common Securities, except that, if an Event of Default under the Declaration occurs and is continuing, no payments in respect of Distributions on, or payments upon liquidation, redemption or otherwise with respect to, the Common Securities shall be made until the Holders of the Capital Securities shall be paid in full the Distributions, Redemption Price, Liquidation Distribution and other payments to which they are entitled at such time. 10. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE. Each Holder of Capital Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Capital Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 11. NO PREEMPTIVE RIGHTS. The Holders of the Securities shall have no preemptive rights to subscribe for any additional securities. 12. ADDITIONAL INTEREST. If the Debenture Issuer fails to comply with its obligations under the Registration Rights Agreement or if the Exchange Offer Registration Statement (as defined in the Registration Rights Agreement) or the Shelf Registration Statement (as defined in the Registration Rights Agreement) fails to become effective, then Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Trust Securities, each at a rate of 0.25% per annum as more fully set forth in Article XIV of the Declaration. 13. MISCELLANEOUS. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee or the Common Securities Guarantee (as may be appropriate), and the Indenture (including any supplemental indenture) to a Holder without charge on written request to the Sponsor at its principal place of business. EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] [IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS CAPITAL SECURITY IS A GLOBAL CAPITAL 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 CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL 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 CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.] [IF THIS GLOBAL SECURITY IS A RULE 144A GLOBAL SECURITY, INSERT: UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL 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.] THIS CAPITAL SECURITY HAS 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 CAPITAL 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, SUCH REGISTRATION. THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO 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 CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT 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-U.S. 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 CAPITAL SECURITY 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, 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 OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR (ii) THE ACQUISITION AND HOLDINGS OF THIS CAPITAL SECURITY BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT FROM ANY SUCH PROHIBITION. [IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY, INSERT: THIS CAPITAL 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.] Certificate No. _______ CUSIP NO. Certificate Evidencing Capital Securities of ORION CAPITAL TRUST II 7.701% Capital Securities (Liquidation Amount $1,000 per Capital Security) ORION CAPITAL TRUST II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ___________ (the "Holder") is the registered owner of __________________ capital securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 7.701% Capital Securities (Liquidation Amount $1,000 per Capital Security) (the "Capital Securities"). The Capital 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, in proper form for transfer and otherwise complying with the terms and conditions of the Declaration (as hereinafter defined). The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are set forth herein, on the reverse hereof and in the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of February 5, 1998, as the same may be amended from time to time (the "Declaration"), and shall in all respects be subject to the provisions thereof, including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration. Each capitalized term used but not defined herein or in any legend form or certificate hereon shall have the meaning given it in the Declaration. The Sponsor will provide a copy of the Declaration, without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder and to the benefits of the Capital Securities Guarantee to the extent provided therein. By its acceptance hereof, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this 5th day of February, 1998. ORION CAPITAL TRUST II By: _________________________ Michael P. Maloney, Esq. Administrative Trustee PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Capital Securities referred to in the within-mentioned Declaration. Dated: February 5, 1998. THE BANK OF NEW YORK as Property Trustee By: _________________________________ Name: Title: [FORM OF REVERSE OF SECURITY] Distributions payable on each Capital Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions not due during an Extension Period (including the first semi-annual period during such period) 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 Debentures held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. Distributions on the Capital 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 February 5, 1998 and will be payable semi-annually in arrears on April 15 and October 15, of each year, commencing on April 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 less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. As long as no Event of Default has occurred and is continuing, the Debenture Issuer has the right under the Indenture, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period on the Debentures for a period not exceeding 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (an "Extension Period"), during which Extension Period no interest shall be due and payable, provided that no Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon any such election, semi-annual Distributions on the Capital Securities will be deferred by the Trust during the term of the Extension Period. Distributions will continue to accumulate interest thereon (to the extent permitted by applicable law, but not exceeding the rate of interest then accruing on the Debentures) at the Coupon Rate compounded semi-annually during any such Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period, provided that such Extension Period, together with all such previous and further extensions within such Extension Period, may not exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity of the Debentures. 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 accrued and unpaid interest and any additional amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Administrative Trustees shall, at the direction of the Sponsor, at any time dissolve the Trust and cause the Debentures to be distributed to the holders of the Securities in liquidation of the Trust or, simultaneously with any redemption of the Debentures, cause a Like Amount of the Securities to be redeemed by the Trust. The Capital Securities shall be redeemable as provided in the Declaration. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to: - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert assignee's social security or tax identification number) - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert address and zip code of assignee) and irrevocably appoints - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ agent to transfer this Capital Security 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 Capital Security Certificate) Signature Guarantee:------------------------ - ------------------------ * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. [Include the following if the Capital Security bears a Restricted Capital Securities Legend] In connection with any transfer of any of the Capital Securities evidenced by this certificate, the undersigned confirms that such Capital 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; or (3) __ transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) __ 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 that is acquiring the Capital 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; or (5) __ transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or (6) __ transferred pursuant to an effective registration statement. Unless one of the boxes is checked, the Registrar will refuse to register any of the Capital 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 Registrar may require, prior to registering any such transfer of the Capital 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, 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 Registrar a Transferee Letter of Representation in the form attached as Annex A to the Offering Memorandum of the Trust dated February 2, 1998. Date:_____________________ Signature:__________________________ (Sign exactly as your name appears on the other side of this Capital Security Certificate) EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE THIS COMMON SECURITY HAS 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, SUCH REGISTRATION. THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO 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) EXCEPT (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 ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. 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 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, 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 OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. Certificate No. __________ Certificate Evidencing Common Securities of ORION CAPITAL TRUST II 7.701% Common Securities (Liquidation Amount $1,000 per Common Security) ORION CAPITAL TRUST II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that Orion Capital Corporation (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 7.701% Common Securities (Liquidation Amount $1,000 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed, in proper form for transfer and otherwise complying with the terms and conditions of the Declaration (as hereinafter defined). The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are set forth herein, on the reverse hereof and in the Amended and Restated Declaration of Trust of the Trust dated as of February 5, 1998, as the same may be amended from time to time (the "Declaration"), and shall in all respects be subject to the provisions thereof, including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration. Each capitalized term used but not defined herein or in any legend, form or certificate hereon shall have the meaning given it in the Declaration. The Sponsor will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture (including any supplemental indenture) to any Holder without charge upon written request to the Sponsor at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder and to the benefits of the Common Securities Guarantee to the extent provided therein. By its acceptance hereof, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this 5th day of February, 1998. ORION CAPITAL TRUST II By:_____________________________ Michael P. Maloney, Esq. Administrative Trustee [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions not due during an Extension Period (including the first semi-annual period during such period) in arrears for more than one semi-annual period will bear interest thereon compounded semiannually 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 Debentures held by the Property Trustee and to the extent the Property Trustee has funds available therefor. Distributions on the Common Securities will be cumulative, will accrue from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from February 5, 1998 and will be payable semi-annually in arrears on April 15 and October 15, of each year, commencing on April 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 less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. As long as no Event of Default has occurred and is continuing, the Debenture Issuer has the right under the Indenture, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period on the Debentures for a period not exceeding 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (an "Extension Period"), during which Extension Period no interest shall be due and payable, provided that no Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon any such election, semi-annual Distributions on the Common Securities will be deferred by the Trust during the term of the Extension Period. Distributions will continue to accumulate interest thereon (to the extent permitted by applicable law, but not exceeding the rate of interest then accruing on the Debentures) at the Coupon Rate compounded semi-annually during any such Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period, provided that such Extension Period, together with all such previous and further extensions within such Extension Period, may not exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity of the Debentures. 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 accrued and unpaid interest and any additional amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Administrative Trustees shall, at the direction of the Sponsor, at any time dissolve the Trust and cause the Debentures to be distributed to the holders of the Securities in liquidation of the Trust or, simultaneously with any redemption of the Debentures, cause a Like Amount of the Securities to be redeemed by the Trust. The Common Securities shall be redeemable as provided in the Declaration. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert assignee's social security or tax identification number) - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert address and zip code of assignee) and irrevocably appoints - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:------------------------ Signature:------------------------ (Sign exactly as your name appears on the other side of this Common Security Certificate) Signature Guarantee:------------------------ - ------------------------ * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. [Include the following if the Common Security bears a Restricted Common 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; or (3) __ transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) __ transferred 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 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; or (5) __ transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or (6) __ transferred pursuant to an effective registration statement Unless one of the boxes is checked, the 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 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, 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 a Transferee Representation Letter in the form attached as Annex A to the Offering Memorandum of the Trust, dated February 5, 1998. Date:_______________________ Signature:______________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) EX-4 6 ----------------------------------------- AMENDED AND RESTATED DECLARATION OF TRUST ORION CAPITAL TRUST II DATED AS OF FEBRUARY 5, 1998 ----------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I INTERPRETATION AND DEFINITIONS....................................1 SECTION 1.1 Definitions...................................................1 ARTICLE II TRUST INDENTURE ACT..............................................9 SECTION 2.1 Trust Indenture Act; Application..............................9 SECTION 2.2 Lists of Holders of Securities................................9 SECTION 2.3 Reports by the Property Trustee..............................10 SECTION 2.4 Periodic Reports to Property Trustee.........................10 SECTION 2.5 Evidence of Compliance with Conditions Precedent.............10 SECTION 2.6 Events of Default; Waiver....................................10 SECTION 2.7 Event of Default; Notice.....................................12 ARTICLE III ORGANIZATION...................................................12 SECTION 3.1 Name.........................................................12 SECTION 3.2 Office.......................................................13 SECTION 3.3 Purpose......................................................13 SECTION 3.4 Authority....................................................13 SECTION 3.5 Title to Property of the Trust...............................13 SECTION 3.6 Powers and Duties of the Administrative Trustees.............13 SECTION 3.7 Prohibition of Actions by the Trust and the Trustees...................................................16 SECTION 3.8 Powers and Duties of the Property Trustee....................17 SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee...........................................19 SECTION 3.10 Certain Rights of Property Trustee..........................21 SECTION 3.11 Delaware Trustee............................................23 SECTION 3.12 Not Responsible for Recitals or Issuance of Securities................................................23 SECTION 3.13 Duration of Trust...........................................24 SECTION 3.14 Mergers.....................................................24 ARTICLE IV SPONSOR.........................................................25 SECTION 4.1 Sponsor's Purchase of Common Securities......................25 SECTION 4.2 Responsibilities of the Sponsor..............................25 SECTION 5.1 Right to Proceed.............................................26 ARTICLE V TRUSTEES.........................................................26 SECTION 5.1 Number of Trustees; Appointment of Co-Trustee................26 SECTION 5.2 Delaware Trustee.............................................27 SECTION 5.3 Property Trustee; Eligibility................................27 SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware Trustee Generally.............................28 SECTION 5.5 Administrative Trustees......................................28 SECTION 5.6 Delaware Trustee.............................................29 SECTION 5.7 Appointment, Removal and Resignation of Trustees.............29 SECTION 5.8 Vacancies among Trustees.....................................31 SECTION 5.9 Effect of Vacancies..........................................31 SECTION 5.10 Meetings....................................................31 SECTION 5.11 Delegation of Power.........................................31 SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business...............................................32 SECTION 5.13 Undertaking for Costs.......................................32 ARTICLE VI DISTRIBUTIONS...................................................32 SECTION 6.1 Distributions................................................32 ARTICLE VII ISSUANCE OF SECURITIES.........................................33 SECTION 7.1 General Provisions Regarding Securities......................33 SECTION 7.2 Execution and Authentication.................................33 SECTION 7.3 Form and Dating..............................................34 SECTION 7.4 Registrar and Paying Agent...................................36 SECTION 7.5 Paying Agent to Hold Money in Trust..........................36 SECTION 7.6 Replacement Securities.......................................37 SECTION 7.7 Outstanding Capital Securities...............................37 SECTION 7.8 Capital Securities in Treasury...............................37 SECTION 7.9 Temporary Securities.........................................38 SECTION 7.10 Cancellation................................................39 SECTION 7.11 CUSIP Numbers...............................................39 ARTICLE VIII DISSOLUTION OF TRUST..........................................39 SECTION 8.1 Dissolution of Trust.........................................39 ARTICLE IX TRANSFER OF INTERESTS...........................................40 SECTION 9.1 Transfer of Securities.......................................40 SECTION 9.2 Transfer Procedures and Restrictions.........................41 SECTION 9.3 Deemed Security Holders......................................50 SECTION 9.4 Book Entry Interests.........................................50 SECTION 9.5 Notices to Clearing Agency...................................50 SECTION 9.6 Appointment of Successor Clearing Agency.....................51 ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS............................................51 SECTION 10.1 Liability...................................................51 SECTION 10.2 Exculpation.................................................51 SECTION 10.3 Fiduciary Duty..............................................52 SECTION 10.4 Indemnification.............................................53 SECTION 10.5 Outside Businesses..........................................56 ARTICLE XI ACCOUNTING......................................................57 SECTION 11.1 Fiscal Year.................................................57 SECTION 11.2 Certain Accounting Matters..................................57 SECTION 11.3 Banking.....................................................57 SECTION 11.4 Withholding.................................................58 ARTICLE XII AMENDMENTS AND MEETINGS........................................58 SECTION 12.1 Amendments..................................................58 SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent............................................60 ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE.......................................................61 SECTION 13.1 Representations and Warranties of Property Trustee....................................................61 SECTION 13.2 Representations and Warranties of Delaware Trustee....................................................62 ARTICLE XIV REGISTRATION RIGHTS............................................63 SECTION 14.1 Registration Rights Agreement; Additional Interest...................................................63 ARTICLE XV MISCELLANEOUS...................................................65 SECTION 15.1 Notices.....................................................65 SECTION 15.2 Governing Law...............................................66 SECTION 15.3 Intention of the Parties....................................66 SECTION 15.4 Headings....................................................66 SECTION 15.5 Successors and Assigns......................................66 SECTION 15.6 Partial Enforceability......................................67 SECTION 15.7 Counterparts................................................67 CROSS-REFERENCE TABLE* SECTION OF TRUST INDENTURE ACT SECTION OF OF 1939, AS AMENDED DECLARATION 310(a) 5.3(a) 310(c) Inapplicable 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(f) Inapplicable 315(a) 3.9(b) 315(c) 3.9(a) 315(d) 3.9(a) 316(a) Annex I 316(c) 3.6(a) - ------------------- * This Cross-Reference Table does not constitute part of the Declaration and shall not affect the interpretation of any of its terms or provisions. AMENDED AND RESTATED DECLARATION OF TRUST OF ORION CAPITAL TRUST II February 5, 1998 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of February 5, 1998, by the Trustees (as defined herein), the Sponsor (as defined herein) and by the Holders (as defined herein), from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration. WHEREAS, the Delaware Trustee and the Sponsor established Orion Capital Trust II (the "Trust"), a statutory business trust formed under the Business Trust Act (as defined herein) pursuant to a Declaration of Trust dated as of February 2, 1998 (the "Original Declaration"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on February 2, 1998 for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Debentures of the Debenture Issuer (each as hereinafter defined); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration. NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration fully amend and restate the Original Trust Agreement so as to 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 interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1 DEFINITIONS. Unless the context otherwise requires: (a) Capitalized terms used in this Declaration but not defined in the preamble above or elsewhere herein have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration (including Annex I hereto and Exhibit A hereto) as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or the context otherwise requires; (f) a term defined in the Indenture (as defined below) has the same meaning when used in this Declaration unless otherwise defined in this Declaration or the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "ADDITIONAL INTEREST" means the additional interest referred to in Article XIV. "ADMINISTRATIVE TRUSTEE" has the meaning set forth in Section 5.1. "AFFILIATE" shall mean, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding the power to vote 20% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 20% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, and (d) a partnership in which the specified Person is a general partner; provided, however, that Intercargo Corporation shall not be deemed to be an Affiliate of the Company or Orion Capital Trust II. "AGENT" means any Paying Agent or Registrar. "AUTHORIZED OFFICER" of a Person means any other Person that is authorized to legally bind such former Person. "BOOK ENTRY INTEREST" means a beneficial interest in a Global Certificate registered in the name of a Clearing Agency or its nominee, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "BUSINESS DAY" means any day other than a Saturday or a Sunday or a day on which banking institutions in The City of New York, New York are authorized or required by law or executive order to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code ss. 3801 et seq., as it may be amended from time to time or any successor legislation. "CAPITAL 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). "CAPITAL SECURITIES" has the meaning specified in Section 7.1(a). "CAPITAL SECURITIES GUARANTEE" means the guarantee agreement dated as of February 5, 1998 of the Sponsor in respect of the Capital Securities. "CLEARING AGENCY" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Capital Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Capital Securities. "CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "CLOSING TIME" means the "Closing Time" under the Purchase Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "COMMISSION" means the United States Securities and Exchange Commission as from time to time constituted, or if any time after the execution of this Declaration such Commission is not existing and performing the duties now assigned to it under applicable Federal securities laws, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning specified in Section 7.1(a). "COMMON SECURITIES GUARANTEE" means the guarantee agreement dated as of February 5, 1998 of the Sponsor in respect of the Common Securities. "COMPANY INDEMNIFIED PERSON" means (a) any Administrative Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrative Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates. "CORPORATE TRUST OFFICE" means the office of the Property Trustee at which the corporate trust business of the Property Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holders of Securities. "DEBENTURE ISSUER" means Orion Capital Corporation, a Delaware corporation, or any successor entity resulting from any consolidation, amalgamation, merger or other business combination, in its capacity as issuer of the Debentures under the Indenture. "DEBENTURE TRUSTEE" means The Bank of New York, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "DEBENTURES" means the 7.701% Junior Subordinated Deferrable Interest Debentures due April 15, 2028 of the Debenture Issuer issued pursuant to the Indenture (including, as applicable, those Debentures issued upon consummation of the Exchange Offer). "DEFAULT" means an event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "DEFINITIVE CAPITAL SECURITIES" has the meaning set forth in Section 7.3(c). "DELAWARE TRUSTEE" has the meaning set forth in Section 5.2. "DIRECT ACTION" has the meaning set forth in Section 3.8(e). "DISTRIBUTION" means a distribution payable to Holders of Securities in accordance with Section 6.1. "DTC" means The Depository Trust Company, the initial Clearing Agency. "EVENT OF DEFAULT" in respect of the Securities means an Event of Default (as defined in the Indenture) that has occurred and is continuing in respect of the Debentures. "EXCHANGE OFFER" means the exchange offer (including any private exchange offer) contemplated in Section 2(a) of the Registration Rights Agreement. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "EXCHANGE AGENT" has the meaning set forth in Section 7.4(a). "EXCHANGE CAPITAL SECURITIES" has the meaning set forth in Section 7.1(a). "EXCHANGE DEBENTURES" means the Debentures issued upon consummation of the Exchange Offer. "FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section 10.4(b). "GLOBAL CAPITAL SECURITIES" means the Regulation S Global Capital Securities, the Rule 144A Global Capital Securities and the Unrestricted Global Capital Securities. "GLOBAL CERTIFICATES" means certificates for Capital Securities registered in the name of a Clearing Agency or its nominee. "HOLDER" means a Person in whose name a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "INDEMNIFIED PERSON" means a Company Indemnified Person or a Fiduciary Indemnified Person. "INDENTURE" means the Indenture, dated as of February 5, 1998, among the Debenture Issuer and the Debenture Trustee, as amended from time to time. "INITIAL CAPITAL SECURITIES" means 7.701% Capital Securities (liquidation amount $1,000 per Security) of the Trust issued at the Closing Time. "INITIAL DEBENTURES" means the Debentures as authenticated and issued under the Indenture at the Closing Time. "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "ISSUE DATE" shall have the meaning set forth in Section 14.1. "LEGAL ACTION" has the meaning set forth in Section 3.6(a)(vii). "LIKE AMOUNT" has the meaning set forth in Annex I. "LIQUIDATION AMOUNT" with respect to any Security means the amount designated as such with respect thereto in Annex I hereto. "MAJORITY IN LIQUIDATION AMOUNT" means, with respect to the Trust Securities, except as provided in the terms of the Capital Securities or by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "OFFERING MEMORANDUM" has the meaning set forth in Section 3.6(a)(ii)(A). "OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate signed by the Chairman, a Vice Chairman, the Chief Executive Officer, the President, a Vice President (however designated), or the Secretary or an Assistant Secretary of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that each officer signing the 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 Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" means a written opinion of counsel, who may be an employee of the Sponsor, and who shall be acceptable to the Property Trustee. "PARTICIPANTS" has the meaning set forth in Section 7.3(b). "PAYING AGENT" has the meaning specified in Section 7.4. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PROPERTY TRUSTEE" has the meaning set forth in Section 5.3(a). "PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section 3.8(c). "PURCHASE AGREEMENT" means the Purchase Agreement for the initial offering and sale of Capital Securities. "QIBS" means qualified institutional buyers as defined in Rule 144A. "QUORUM" means a majority of the Administrative Trustees or, if there are only two Administrative Trustees, both of them. "REGISTRAR" has the meaning set forth in Section 7.4. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of February 5, 1998, by and among Orion Capital Corporation, the Trust and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "REGISTRATION STATEMENT" has the meaning given to such term in the Securities Act, and the regulations promulgated thereunder. "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 CAPITAL SECURITY" has the meaning set forth in Section 7.3(a). "RELATED PARTY" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESPONSIBLE OFFICER," when used with respect to the Property Trustee, means the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the cashier, any assistant cashier, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer or assistant officer of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED DEFINITIVE CAPITAL SECURITIES" has the meaning set forth in Section 7.3(c). "RESTRICTED CAPITAL SECURITY" means a Capital Security required by Section 9.2 to contain a Restricted Securities Legend. "RESTRICTED SECURITIES LEGEND" has the meaning set forth in Section 9.2. "RULE 3A-5" means Rule 3a-5 under the Investment Company Act, or any successor rule or regulation. "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. "RULE 144A GLOBAL CAPITAL SECURITY" has the meaning set forth in Section 7.3(a). "SECURITIES" or "TRUST SECURITIES" means the Common Securities and the Capital Securities (including, as applicable, those Capital Securities issued upon consummation of the Exchange Offer). "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "SECURITIES GUARANTEES" means the Common Securities Guarantee and the Capital Securities Guarantee. "SPECIAL EVENT" has the meaning set forth in the Indenture. "SPONSOR" means Orion Capital Corporation, a Delaware corporation, or any successor entity resulting from any merger, consolidation, amalgamation or other business combination, in its capacity as sponsor of the Trust. "SUCCESSOR DELAWARE TRUSTEE" has the meaning set forth in Section 5.7(a). "SUCCESSOR ENTITY" has the meaning set forth in Section 3.14(b). "SUCCESSOR PROPERTY TRUSTEE" has the meaning set forth in Section 5.7(a). "SUCCESSOR SECURITIES" has the meaning set forth in Section 3.14(b). "SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii). "TAX EVENT MATURITY SHORTENING" has the meaning set forth in the Indenture. "10% IN LIQUIDATION AMOUNT" means, with respect to the Trust Securities, except as provided in the terms of the Capital Securities or by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% of the aggregate Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "TREASURY REGULATIONS" means the income tax regulations, including temporary regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" or "TRUSTEES" means each Person who has signed this Declaration as a trustee (including the Property Trustee, the Delaware Trustee and each Administrative Trustee), so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "UNRESTRICTED GLOBAL CAPITAL SECURITY" has the meaning set forth in Section 9.2(b). ARTICLE II TRUST INDENTURE ACT SECTION 2.1 TRUST INDENTURE ACT; APPLICATION. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by ss.ss. 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (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 2.2 LISTS OF HOLDERS OF SECURITIES. (a) Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide the Property Trustee, unless the Property Trustee is Registrar for the Securities, with a list (i) within 14 days after each record date for payment of Distributions, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("List of Holders") as of such record date, provided that neither the Sponsor nor the Administrative Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in a List of Holders given to it or which it receives in its capacity as Paying Agent (if acting in such capacity), provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with its obligations under ss.ss. 311(a), 311(b) and 312(b) of the Trust Indenture Act SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE. On or before February 5 of each year, commencing February 5, 1999, the Property Trustee shall provide to the Holders of the Capital Securities such reports as are required by ss. 313 of the Trust Indenture Act, if any, in the form and in the manner provided by ss. 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of ss. 313(d) of the Trust Indenture Act. SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE. Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as are required by ss. 314 (if any) and the compliance certificate required by ss. 314 of the Trust Indenture Act in the form, in the manner and at the times required by ss. 314 of the Trust Indenture Act. SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Sponsor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent provided for in this Declaration that relate to any of the matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to ss. 314(c)(1) of the Trust Indenture Act may be given in the form of an Officers' Certificate. SECTION 2.6 EVENTS OF DEFAULT; WAIVER. (a) The Holders of a Majority in Liquidation Amount of Capital Securities may, by vote, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default in respect of the Capital Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in aggregate principal amount of the holders of the Debentures (a "Super Majority") to be waived under the Indenture, the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate Liquidation Amount of the Capital Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The foregoing provisions of this Section 2.6(a) shall be in lieu of ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Capital Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Capital Securities or impair any right consequent thereon. Any waiver by the Holders of the Capital Securities of an Event of Default with respect to the Capital Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in Liquidation Amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b), the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b), the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate Liquidation Amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided further, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences if all Events of Default with respect to the Capital Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Capital Securities and only the Holders of the Capital Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee, at the direction of the Holders of the Capital Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. SECTION 2.7 EVENT OF DEFAULT; NOTICE. (a) The Property Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, the Administrative Trustees and the Sponsor, notices of all defaults with respect to the Securities actually known to a Responsible Officer of the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein). (b) The Sponsor and the Administrative Trustees shall file annually with the Property Trustee a certification as to whether or not they are in compliance with all the conditions and covenants applicable to them under this Declaration. (c) For purposes of this Section 2.7, the Property Trustee shall not be deemed to have knowledge of any default or Event of Default except: (i) a default under Sections 5.01(a) and 5.01(b) of the Indenture; or (ii) any default as to which the Property Trustee shall have received written notice or of which a Responsible Officer of the Property Trustee charged with the administration of the Declaration shall have actual knowledge. ARTICLE III ORGANIZATION SECTION 3.1 NAME. The Trust shall continue to be named "Orion Capital Trust II" as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrative Trustees. SECTION 3.2 OFFICE. The address of the principal office of the Trust is 101 Barclay Street, Floor 21W, New York, New York, 10286, Attention: Corporate Trust Administration. On ten Business Days' prior written notice to the Holders, the Administrative Trustees may designate another principal office. SECTION 3.3 PURPOSE. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities including effecting the Exchange Offer, (b) use the proceeds from the sale of the Securities to acquire the Debentures, (c) to make Distributions to Holders of the Securities as herein provided, and (d) except as otherwise limited herein, to engage in only those other activities necessary, advisable or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, mortgage or pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. SECTION 3.4 AUTHORITY. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Administrative Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Administrative Trustees in accordance with their powers, as set forth in Sections 3.6 and 5.5, shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. The authority of the Delaware Trustee is set forth in Section 3.11 hereof. SECTION 3.5 TITLE TO PROPERTY OF THE TRUST. Except as provided in Section 3.8 with respect to the Debentures and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.6 POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES. (a) The Administrative Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (i) to issue and sell the Capital Securities and the Common Securities in accordance with this Declaration; provided, however, that (A) the Trust may issue no more than two series of Capital Securities and no more than one series of Common Securities, (B) there shall be no interests in the Trust other than the Securities, and (C) the issuance of Securities shall be limited to: (x) a simultaneous issuance of both Capital Securities and Common Securities at the Closing Time and (y) the issuance of a second series of Capital Securities upon the consummation of the Exchange Offer. (ii) in connection with the issue and sale of the Capital Securities and the Common Securities, and in connection with the Exchange Offer, at the direction of the Sponsor, to: (A) prepare and execute, if necessary, an offering memorandum (the "Offering Memorandum") in preliminary and final form prepared by the Sponsor, in relation to the offering and sale of Initial Capital 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, and to execute and file with the Commission, at such time as is determined by the Sponsor, any Registration Statement, including any amendment thereto, as contemplated by the Registration Rights Agreement; (B) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary, in order to qualify or register all or part of the Capital Securities in any State in which the Sponsor has determined to qualify or register such Capital Securities for sale; (C) if deemed necessary or advisable by the Sponsor, execute and file an application, prepared by the Sponsor, to the New York Stock Exchange or any other national stock exchange or the Nasdaq Stock Market's National Market for listing or quotation of the Capital Securities; (D) execute and deliver letters, documents, or instruments with DTC and other Clearing Agencies relating to the Capital Securities; (E) if required, execute and file with the Commission a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor, relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act; and (F) execute and enter into the Purchase Agreement providing for the sale of the Capital Securities, the Registration Rights Agreement, a subscription agreement providing for the sale of the Common Securities, a subscription agreement providing for the sale of the Debentures and any other agreements regarding the issuance and sale of Securities; (iii) to acquire the Initial Debentures with the proceeds of the sale of the Initial Capital Securities and the Common Securities and to exchange the Initial Debentures for a like principal amount of Exchange Debentures pursuant to the Exchange Offer; provided, however, that the Administrative Trustees shall cause legal title to the Debentures to be held of record in the name of the Property Trustee for the benefit of the Holders of the Capital Securities and the Holders of the Common Securities; (iv) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; (v) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of ss. 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; (vi) to take all actions and perform such duties as may be required of the Administrative Trustees pursuant to the terms of the Securities; (vii) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has the exclusive power to bring such Legal Action; (viii) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants, and pay reasonable compensation for such services; (ix) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (x) to give the certificate required by ss. 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by any Administrative Trustee; (xi) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (xii) to act as, or appoint another Person to act as, Registrar and Exchange Agent for the Securities or to appoint a Paying Agent for the Securities as provided in Section 7.4, except for such time as such power to appoint a Paying Agent is vested in the Property Trustee; (xiii) to give prompt written notice to the Property Trustee and to Holders of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture; (xiv) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (xv) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created; (xvi) to take any action, not inconsistent with this Declaration or with applicable law, that the Administrative Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (A) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (B) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; (C) cooperating with the Debenture Issuer to ensure that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes; and (D) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Administrative Trustees, on behalf of the Trust; and (xvii) to take all action necessary to consummate the Exchange Offer or otherwise cause the Capital Securities to be registered pursuant to an effective Registration Statement in accordance with the provisions of the Registration Rights Agreement. (b) The Administrative Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Administrative Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. (c) Subject to this Section 3.6, the Administrative Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. (d) Any expenses incurred by the Administrative Trustees pursuant to this Section 3.6 shall be reimbursed by the Debenture Issuer. SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES. (a) The Trust shall not, and the Trustees (including the Property Trustee) all in their capacities as such and not in their individual capacities shall not, engage in any activity other than as required or authorized by this Declaration. The Trust shall not: (i) invest any proceeds received by the Property Trustee on behalf of the Trust from holding the Debentures, but shall distribute all such proceeds, excluding "Additional Sums" (as defined in the Indenture), to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as provided in this Declaration or Annex I, (A) direct the time, method and place of conducting any proceeding with respect to any remedy available to the Debenture Trustee, or exercising any right or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, unless the Trust shall have received an Opinion of Counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a trust subject to the provisions of Section 671 through 679 of the Code (a "grantor trust") on account of such amendment, modification or termination. SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 5.7. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Administrative Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "Property Trustee Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders and, upon the receipt of payments of funds made in respect of the Debentures held by the Property Trustee, deposit such funds into the Property Trustee Account and make payments to the Holders of the Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the Capital Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon written notice issued by the Administrative Trustees in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain events. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities. (e) Subject to Section 3.9(a) and this Section 3.8(e), the Property Trustee shall have the exclusive right to take any Legal Action which arises out of or in connection with an Event of Default of which a Responsible Officer of the Property Trustee has actual knowledge or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act so require, and if such Property Trustee shall have failed to take such Legal Action, the foregoing to the contrary notwithstanding, the Holders of the Capital Securities may take such Legal Action, to the same extent as if such Holders of Capital Securities held an aggregate principal amount of Debentures equal to the aggregate Liquidation Amount of such Capital Securities, without first proceeding against the Property Trustee or the Trust; provided however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay the principal of or premium, if any, or interest on the Debentures on the date such principal, premium, if any, or interest is otherwise payable (or in the case of redemption, on the redemption date), then, the foregoing to the contrary notwithstanding, a Holder of Capital 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 Debentures having a principal amount equal to the aggregate Liquidation Amount of the Capital Securities of such Holder (a "Direct Action") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of Common Securities will be subrogated to the rights of Holders of Capital Securities to the extent of any payment made by the Debenture Issuer to Holders of Capital Securities in such Direct Action. Except as provided in the preceding sentences, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (f) The Property Trustee shall not resign as a Trustee unless either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.7(a). (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Property Trustee occurs and is continuing, the Property Trustee shall, for the benefit of Holders, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities. (h) The Property Trustee shall be authorized to undertake any actions set forth in ss. 317(a) of the Trust Indenture Act. (i) Subject to Section 7.4 hereof, for such time as the Property Trustee is the Paying Agent, the Property Trustee may authorize one or more Persons to act as additional Paying Agents and to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Securities and any such Paying Agent shall comply with ss. 317(b) of the Trust Indenture Act. Any such additional Paying Agent may be removed by the Property Trustee at any time the Property Trustee remains as Paying Agent and a successor Paying Agent or additional Paying Agents may be (but is not required to be) appointed at any time by the Property Trustee. (j) Subject to this Section 3.8, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 3.6.; provided, however, that if the Administrative Trustees appoint the Property Trustee as Registrar, Exchange Agent or Paying Agent pursuant to Section 3.6(a)(xii), the Property Trustee shall have the power hereunder to serve in any such capacity and perform the duties and obligations related thereto. (k) The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Property Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE. (a) The Property 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 Declaration and in the Securities and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) of which a Responsible Officer of the Property Trustee has actual knowledge, the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property 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 an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration and of the Securities, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration and in the Securities, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property 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 Property Trustee and conforming to the requirements of this Declaration; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property 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 Property Trustee under the Indenture with respect to the Debentures, or exercising any right or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity reasonably satisfactory to the Property Trustee against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration, the Business Trust Act and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Property Trustee be liable for any default or misconduct of the Administrative Trustees or the Sponsor. SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE. (a) Subject to the provisions of Section 3.9: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document 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 Sponsor or the Administrative Trustees contemplated by this Declaration may be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrative Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; (v) the Property Trustee may consult with counsel or other experts of its selection and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, reasonably satisfactory to the Property Trustee, against the costs, expenses (including reasonable attorneys' fees and expenses and the expenses of the Property Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee; PROVIDED, HOWEVER, that nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property 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 Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the rights or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Property Trustee shall not be required to supervise, nor shall it be responsible for any misconduct or negligence on the part of, any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee so to act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (A) may request written instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Securities as would be entitled to direct the Property Trustee under the terms of the Securities in respect of such remedy, right or action, (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 conclusively relying on or acting in accordance with such instructions; (xi) the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xii) the Property Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Property 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 Property 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 Property Trustee shall be construed to be a duty. (c) 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 Property Trustee shall be subject to the provisions of this Section. SECTION 3.11 DELAWARE TRUSTEE. Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Administrative Trustees or the Property Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of ss. 3807 of the Business Trust Act. Without limiting the generality of the foregoing, the Delaware Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees, the Property Trustee or the Sponsor with their respective duties under this Declaration, nor shall the Delaware Trustee be liable for any default or misconduct of any of the Administrative Trustees, the Property Trustee or the Sponsor. SECTION 3.12 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. SECTION 3.13 DURATION OF TRUST. The Trust, unless dissolved pursuant to the provisions of Article VIII hereof, shall have existence up to April 15, 2033. SECTION 3.14 MERGERS. (a) The Trust may not merge or convert with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.14(b) and (c). (b) The Trust may, at the request of the Sponsor as the holder of all the outstanding Common Securities, with the consent of the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees and without the consent of the Holders, the Delaware Trustee or the Property Trustee, merge or convert with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities: or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Securities rank 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 Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization on which the Capital Securities are then listed or quoted, if any; (iv) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Capital Securities (including any Successor Securities) to be downgraded by any two nationally recognized statistical rating organizations; (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than any dilution of such Holders' interests in the new entity); (vi) such Successor Entity has a purpose identical to that of the Trust; (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an opinion of an independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); and (B) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (viii) the Sponsor or any permitted successor or assignee owns all of the common securities of such Successor Entity and guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Capital Securities Guarantee and the Common Securities Guarantee. (c) Notwithstanding Section 3.14(b), the Trust shall not, except with the consent of the Holders of 100% in Liquidation Amount of the Securities, consolidate, amalgamate, merge or convert with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, conversion, replacement, conveyance, transfer or lease would cause the Trust or the Successor Entity not to be classified as a grantor trust for United States federal income tax purposes. ARTICLE IV SPONSOR SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES. At the Closing Time, the Sponsor will purchase all of the Common Securities then issued by the Trust, in a Liquidation Amount equal to at least 3% of the total capital of the Trust, at the same time as the Initial Capital Securities are issued and sold. SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR. (a) In connection with the issue and sale of the Capital Securities and the Common Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (i) to prepare the Offering Memorandum and to prepare for filing by the Trust with the Commission any Registration Statement, including any amendments thereto, as contemplated by the Registration Rights Agreement (or to delegate such preparation to the Administrative Trustees pursuant to Section 3.6(a)(ii)(A) hereof); (ii) to determine the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Administrative Trustees pursuant to Section 3.6(a)(ii)(B) hereof, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) if deemed necessary or advisable by the Sponsor, to prepare for execution and filing by the Administrative Trustees pursuant to Section 3.6(a)(ii)(C) hereof, an application 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; (iv) if required, to prepare for filing by the Administrative Trustees pursuant to Section 3.6(a)(ii)(E) hereof with the Commission a registration statement on Form 8-A relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act, including any amendments thereto; and (v) to negotiate the terms and cause the preparation of the Purchase Agreement and the Registration Rights Agreement providing for the sale and registration, respectively, of the Capital Securities for execution by the Administrative Trustees pursuant to Section 3.6(a)(ii)(F) hereof . SECTION 4.3 RIGHT TO PROCEED. The Sponsor acknowledges the rights of the Holders of Capital Securities, in the event that a failure of the Trust to pay Distributions on the Capital Securities is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures, to institute a proceeding directly against the Debenture Issuer for enforcement of its payment obligations on the Debentures. ARTICLE V TRUSTEES SECTION 5.1 NUMBER OF TRUSTEES; APPOINTMENT OF CO-TRUSTEE. The number of Trustees initially shall be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that, the number of Trustees shall in no event be less than two (2); provided further that (1) one Trustee, in the case of a natural Person, shall be a Person who is a resident of the State of Delaware or that, if not a natural Person, is an entity which has its principal place of business in the State of Delaware (the "Delaware Trustee"); (2) there shall be at least one Trustee who is an employee or officer of, or is affiliated with the Sponsor (an "Administrative Trustee"); and (3) one Trustee shall be the Property Trustee for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements. Notwithstanding the above, unless an Event of Default shall have occurred and be continuing, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust's property may at the time be located, the Holders of a Majority in Liquidation Amount of the Common Securities acting as a class at a meeting of the Holders of the Common Securities, and the Administrative Trustees, shall have power at any time or times, to appoint one or more Persons either to act as a co-trustee, jointly with the Property Trustee, of all or any part of the Trust's property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of this Declaration. In case an Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make any such appointment of a co-trustee. SECTION 5.2 DELAWARE TRUSTEE. As required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be: (a) a natural Person who is a resident of the State of Delaware; or (b) if not a natural Person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law; provided that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee may also be the Delaware Trustee in which case Section 3.11 shall have no application. SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY. (a) There shall at all times be one Trustee (the "Property Trustee") which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.3(c). (c) If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of ss. 310(b) of the Trust Indenture Act. (d) The Capital Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. (e) The initial Property Trustee shall be: The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration SECTION 5.4 Certain Qualifications of Administrative Trustees and DELAWARE TRUSTEE GENERALLY. Each Administrative Trustee and the Delaware Trustee (unless the Property Trustee also acts as Delaware Trustee) shall be either a natural Person who is at least 21 years of age or a legal entity otherwise satisfying the provisions of this Declaration that shall act through one or more Authorized Officers. SECTION 5.5 ADMINISTRATIVE TRUSTEES. (a) The initial Administrative Trustees shall be: W. Marston Becker Craig A. Nyman Michael P. Maloney, Esq. (b) Except as expressly set forth in this Declaration and except if a meeting of the Administrative Trustees is called with respect to any matter over which the Administrative Trustees have power to act, any power of the Administrative Trustees may be exercised by, or with the consent of, any one such Administrative Trustee. (c) Unless otherwise determined by the Administrative Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Administrative Trustee is authorized to execute on behalf of the Trust any documents which the Administrative Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6. SECTION 5.6 DELAWARE TRUSTEE. The initial Delaware Trustee shall be: The Bank of New York (Delaware) 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration SECTION 5.7 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES. (a) Subject to Section 5.7(b), any Trustee may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; (ii) in the case of Administrative Trustees, after the issuance of any Securities, by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; (iii) in the case of the Property Trustee and the Delaware Trustee, unless an Event of Default shall have occurred and be continuing after the issuance of any Securities, by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; and (iv) in the case of the Property Trustee and the Delaware Trustee, if an Event of Default shall have occurred and be continuing after the issuance of the Securities, by vote of Holders of a Majority in Liquidation Amount of the Capital Securities voting as a class at a meeting of the Holders of the Capital Securities. The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.7(a) until a successor Trustee possessing the qualifications to act as Property Trustee under Section 5.3 (a "Successor Property Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Administrative Trustees and the Sponsor. The Trustee that acts as Delaware Trustee shall not be removed in accordance with this Section 5.7(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Administrative Trustees and the Sponsor. (b) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation or removal of the Trustee that acts as the Property Trustee shall be effective: (A) until a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and, after complying with the provisions of Section 3808(e) of the Business Trust Act, the proceeds thereof distributed to the holders of the Securities; and (ii) no such resignation or removal of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (c) The Holders of the Common Securities shall use their best efforts promptly to appoint a Successor Delaware Trustee or Successor Property Trustee, as the case may be, if the Property Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.7. (d) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.7 within 30 days after delivery of an instrument of resignation or removal, the Property Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper and appropriate, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. (e) No Property Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Property Trustee or Successor Delaware Trustee, as the case may be. SECTION 5.8 VACANCIES AMONG TRUSTEES. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees, shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.7. SECTION 5.9 EFFECT OF VACANCIES. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 5.8, the Administrative Trustees in office, regardless of their number, shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Declaration. SECTION 5.10 MEETINGS. If there is more than one Administrative Trustee, meetings of the Administrative Trustees shall be held from time to time as needed upon the call of any Administrative Trustee. Regular meetings of the Administrative Trustees may be held at a time and place fixed by resolution of the Administrative Trustees. Notice of any in-person meeting of the Administrative Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile) not less than 24 hours before such meeting. Notice of any telephonic meeting of the Administrative Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile) not less than 24 hours before such meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of an Administrative Trustee at a meeting shall constitute a waiver of notice of such meeting except where an Administrative Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Administrative Trustees may be taken at a meeting by vote of a majority of the Administrative Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Administrative Trustees. In the event there is only one Administrative Trustee, any and all action of such Administrative Trustee shall be evidenced by a written consent of such Administrative Trustee. SECTION 5.11 DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural Person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6, including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Declaration or the Securities. SECTION 5.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which any Trustee (excluding any Administrative Trustee that is a natural Person) may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Trustee, shall be the successor of such Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 5.13 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Declaration or in any suit against the Property Trustee for any action taken or omitted by it as a Property Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorney's fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. ARTICLE VI DISTRIBUTIONS SECTION 6.1 DISTRIBUTIONS. Each Holder shall receive Distributions in accordance with the terms of such Holder's Securities. If and to the extent that the Debenture Issuer makes a payment of interest (including Compounded Interest (as defined in the Indenture), Additional Interest, additional Distributions, premium and/or principal on the Debentures held by the Property Trustee or any other payments pursuant to the Registration Rights Agreement with respect to the Debentures held by the Property Trustee (but excluding Additional Sums (as defined in the Indenture) (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a Distribution of the Payment Amount to Holders in accordance with the respective terms of the Securities held by them. ARTICLE VII ISSUANCE OF SECURITIES SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES. (a) The Administrative Trustees shall on behalf of the Trust issue one class of capital securities representing undivided beneficial interests in the assets of the Trust, which class may be divided into no more than two series each having such terms as are set forth in Annex I (the "Capital Securities"), and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Common Securities"). At such time, if ever, as the Exchange Debentures are issued, the Administrative Trustees shall on behalf of the Trust issue one series of capital securities representing undivided beneficial interests in the Trust having such terms as are set forth in Annex I (the "Exchange Capital Securities") in exchange for the Initial Capital Securities accepted for exchange in the Exchange Offer, which Exchange Capital Securities shall not bear the legends set forth in Section 9.2 unless the holder of the Initial Capital Securities is either (i) a broker-dealer who purchased such Initial Capital Securities directly from the Trust for resale pursuant to Rule 144A, or any other available exemption, under the Securities Act, (ii) a person participating in the distribution of the Initial Capital Securities or (iii) a Person who is an affiliate (as defined in Rule 144A) of the Trust. The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities, the Exchange Capital Securities and the Common Securities. (b) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (c) Upon receipt of the stated consideration in full, and the subsequent issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (d) Every Person, by virtue of having become a Holder or a Capital 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 7.2 EXECUTION AND AUTHENTICATION. (a) The Securities shall be signed on behalf of the Trust by an Administrative Trustee. In case any Administrative Trustee of the Trust who shall have signed any of the Securities shall cease to be such Administrative Trustee before the Securities so signed shall be delivered by the Trust, such Securities nevertheless may be delivered as though the Person who signed such Securities had not ceased to be such Administrative Trustee; and any Securities may be signed on behalf of the Trust by such Persons who, at the actual date of execution of such Security, shall be the Administrative Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such Person was not such an Administrative Trustee. (b) One Administrative Trustee shall sign the Capital Securities for the Trust by manual or facsimile signature. Unless otherwise determined by the Trust, such signature shall, in the case of Common Securities, be a manual signature. (c) A Capital Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. The signature shall be conclusive evidence that the Capital Security has been authenticated under this Declaration. (d) Upon a written order of the Trust signed by one Administrative Trustee, the Property Trustee shall authenticate the Capital Securities for original issue. The aggregate number of Capital Securities outstanding at any time shall not exceed the number set forth in Annex I hereto except as provided in Section 7.6. (e) The Property Trustee may appoint an authenticating agent acceptable to the Administrative Trustees to authenticate Capital Securities. An authenticating agent may authenticate Capital Securities whenever the Property Trustee may do so. Each reference in this Declaration to authentication by the Property Trustee includes authentication by such agent. An authenticating agent has the same rights as the Property Trustee to deal with the Sponsor or an Affiliate. SECTION 7.3 FORM AND DATING. The Capital Securities and the Property Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates representing the Securities may be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by their execution thereof. The 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 Trust). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Property Trustee in writing. Each Capital Security shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to the extent applicable, the Property Trustee, Administrative Trustees and the Sponsor, by their execution and delivery of this Declaration, expressly agree to be bound thereby. (a) GLOBAL SECURITIES. Securities offered and sold to QIBs in reliance on Rule 144A or offered and sold outside the United States to non-U.S. Persons in offshore transactions 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 A-1 hereto (respectively, a "Rule 144A Global Capital Security" or "Regulation S Global Capital Security"), which shall be deposited on behalf of the purchasers of the Capital Securities represented thereby with the Property Trustee, at its New York 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 an Administrative Trustee and authenticated by the Property Trustee as hereinafter provided. The number of Capital Securities represented by the Rule 144A Global Capital Security and the Regulation S Global Capital Security may from time to time be increased or decreased by adjustments made on the records of the Property Trustee and the Clearing Agency or its nominee as hereinafter provided. (b) BOOK-ENTRY PROVISIONS. This Section 7.3(b) shall apply only to the Rule 144A Global Capital Securities, the Regulation S Global Capital Securities and such other Capital Securities in global form as may be authorized by the Trust to be deposited with or on behalf of the Clearing Agency. (i) An Administrative Trustee shall execute and the Property Trustee shall authenticate and, in accordance with this Section 7.3, make available for delivery initially one or more Rule 144A Global Capital Securities and one or more Regulation S Global Capital Securities that (A) shall be registered in the name of Cede & Co. or other nominee of such Clearing Agency and (B) shall be delivered by the Property Trustee to such Clearing Agency or pursuant to such Clearing Agency's written instructions or held by the Property Trustee as custodian for the Clearing Agency. (ii) Members of, or participants in, the Clearing Agency ("Participants") shall have no rights under this Declaration with respect to any Rule 144A Global Capital Security or any Regulation S Global Capital Security held on their behalf by the Clearing Agency or by the Property Trustee as the custodian of the Clearing Agency or under such Rule 144A Global Capital Security or such Regulation S Global Capital Security, and the Clearing Agency may be treated by the Trust, the Property Trustee and any agent of the Trust or the Property Trustee as the absolute owner of such Rule 144A Global Capital Security or such Regulation S Global Capital Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Trust, the Property Trustee or any agent of the Trust or the Property 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 operation of customary practices of such Clearing Agency governing the exercise of the rights of a holder of a beneficial interest in any Rule 144A Global Capital Security or any Regulation S Global Capital Security. (c) DEFINITIVE CAPITAL SECURITIES. Except as provided in Section 7.9, owners of beneficial interests in a Rule 144A Global Capital Security or a Regulation S Global Capital Security will not be entitled to receive physical delivery of certificated Capital Securities ("Definitive Capital Securities"). Purchasers of Securities who are "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and did not purchase Capital Securities in reliance on Regulation S will receive Capital Securities in the form of individual certificates in definitive, fully registered form without Distribution coupons and with the Restricted Securities Legend set forth in Exhibit A-1 hereto ("Restricted Definitive Capital Securities"); provided, however, that upon transfer of such Restricted Definitive Capital Securities to a QIB, such Restricted Definitive Capital Securities will, unless the Rule 144A Global Capital Security has previously been exchanged, be exchanged for an interest in a Rule 144A Global Capital Security pursuant to the provisions of Section 9.2. Restricted Definitive Capital Securities will bear the Restricted Securities Legend set forth on Exhibit A-1 unless removed in accordance with this Section 7.3 or Section 9.2. SECTION 7.4 REGISTRAR AND PAYING AGENT. (a) The Trust shall maintain in The City of New York, (i) an office or agency where Capital Securities may be presented for registration of transfer ("Registrar"), (ii) an office or agency where Capital Securities may be presented for payment ("Paying Agent") and (iii) an office or agency where Securities may be presented for exchange in connection with the Exchange Offer (the "Exchange Agent"). The Registrar shall keep a register of the Capital Securities and of their transfer. The Administrative Trustees shall appoint the Registrar, the Paying Agent and the Exchange Agent and may appoint one or more co-Registrars, one or more additional Paying Agents and one or more additional Exchange Agents in such other locations as they shall determine. The term "Registrar" includes any additional registrar, the term "Paying Agent" includes any additional paying agent and the term "Exchange Agent" includes any additional Exchange Agent." The Administrative Trustees may change any Registrar or co-Registrar, Paying Agent or Exchange Agent without prior notice to any Holder. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees. The Administrative Trustees shall notify the Property Trustee of the name and address of any Agent not a party to this Declaration. If the Administrative Trustees fail to appoint or maintain another entity as Registrar, Paying Agent or Exchange Agent, the Property Trustee shall act as such. The Trust or any of its Affiliates may act as Paying Agent, Registrar or Exchange Agent. The Trust shall act as Paying Agent, Registrar and co-registrar and the Exchange Agent for the Common Securities. (b) The Administrative Trustees initially appoint the Property Trustee as Registrar, Paying Agent and Exchange Agent for the Capital Securities. SECTION 7.5 PAYING AGENT TO HOLD MONEY IN TRUST. The Trust shall require each Paying Agent other than the Property Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Property Trustee all money held by the Paying Agent for the payment of Liquidation Amounts or Distributions on the Securities, and will notify the Property Trustee if there are insufficient funds for such purpose. While any such insufficiency continues, the Property Trustee may require a Paying Agent to pay all money held by it to the Property Trustee. The Trust at any time may require a Paying Agent to pay all money held by it to the Property Trustee and to account for any money disbursed by it. Upon payment over to the Property Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust) shall have no further liability for the money. If the Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall segregate and hold in a separate trust fund or account for the benefit of the Holders all money held by it as Paying Agent. SECTION 7.6 REPLACEMENT SECURITIES. If the Holder claims that a Security owned by it has been lost, destroyed or wrongfully taken or if such Security is mutilated and is surrendered to the Trust or in the case of the Capital Securities to the Property Trustee, the Trust shall issue, an Administrative Trustee shall execute and the Property Trustee shall authenticate a replacement Security if the requirements of this Section 7.6 are satisfied. An indemnity bond must be provided by the Holder which, in the judgment of the Property Trustee, is sufficient to protect the Trustees, the Sponsor or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Trust may charge such Holder for its expenses in replacing a Security. Every replacement Security is a substitute beneficial interest in the Trust to the same extent as the original it replaces. SECTION 7.7 OUTSTANDING CAPITAL SECURITIES. (a) The Capital Securities outstanding at any time are all the Capital Securities authenticated by the Property Trustee except for those cancelled by it, those delivered to it for cancellation, and those described in this Section as not outstanding. (b) If a Capital Security is replaced (pursuant to Section 7.6 hereof), or purchased, it ceases to be outstanding unless the Property Trustee receives proof satisfactory to it that the replaced or purchased Capital Security is held by a bona fide purchaser satisfying the conditions of this Declaration, including without limitation the provisions of Article IX hereof. (c) If Capital Securities are considered redeemed, including any and all distributions and liquidation preferences, in accordance with the terms of this Declaration, they cease to be outstanding and Distributions on them shall cease to accumulate. (d) A Capital Security does not cease to be outstanding because one of the Administrative Trustees, the Sponsor or an Affiliate of the Sponsor holds the Security. SECTION 7.8 CAPITAL SECURITIES IN TREASURY. In determining whether the Holders of the required amount of Securities have concurred in any direction, waiver or consent, Capital Securities owned by the Administrative Trustees, the Sponsor or an Affiliate of the Sponsor, as the case may be, shall be disregarded and deemed not to be outstanding, except that for the purposes of determining whether the Property Trustee shall be fully protected in relying on any such direction, waiver or consent, only Securities which the Property Trustee actually knows are so owned shall be so disregarded. SECTION 7.9 TEMPORARY SECURITIES. (a) Until definitive Securities are ready for delivery, the Administrative Trustees may cause to be prepared and execute, and, in the case of the Capital Securities, the Property Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Administrative Trustees consider appropriate for temporary Securities. Without unreasonable delay, the Administrative Trustees shall prepare and, in the case of the Capital Securities, the Property Trustee shall authenticate definitive Securities in exchange for temporary Securities. (b) A Global Capital Security deposited with the Clearing Agency or with the Property Trustee as custodian for the Clearing Agency pursuant to Section 7.3 shall be transferred to the beneficial owners thereof in the form of certificated Capital Securities only if such transfer complies with Section 9.2 and (i) the Clearing Agency notifies the Company that it is unwilling or unable to continue as Clearing Agency for such Global Capital 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 Default or an Event of Default has occurred and is continuing or (iii) the Administrative Trustees in their sole discretion elect to cause the issuance of certificated Capital Securities. (c) Any Global Capital Security that is transferable to the beneficial owners thereof in the form of certificated Capital Securities pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the Property Trustee located in the City of New York, New York, to be so transferred, in whole or from time to time in part, without charge, and the Property Trustee shall authenticate and make available for delivery, upon such transfer of each portion of such Global Capital Security, an equal aggregate Liquidation Amount of Securities of authorized denominations in the form of certificated Capital Securities. Any portion of a Global Capital Security transferred pursuant to this Section shall be registered in such names as the Clearing Agency shall direct. Any Capital Security in the form of certificated Capital Securities delivered in exchange for an interest in the Restricted Global Capital Security shall, except as otherwise provided by Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit A-1 hereto. (d) Subject to the provisions of Section 7.9(c), the Holder of a Global Capital 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 Securities. (e) In the event of the occurrence of any of the events specified in Section 7.9(b), the Administrative Trustees will promptly make available to the Property Trustee a reasonable supply of certificated Capital Securities in fully registered form without distribution coupons. SECTION 7.10 CANCELLATION. The Administrative Trustees at any time may deliver Capital Securities to the Property Trustee for cancellation. The Registrar, Paying Agent and Exchange Agent shall forward to the Property Trustee any Capital Securities surrendered to them for registration of transfer, redemption, exchange or payment. The Property Trustee shall promptly cancel all Capital Securities surrendered for registration of transfer, redemption, exchange, payment, replacement or cancellation and shall dispose of canceled Capital Securities as the Administrative Trustees direct, provided that the Property Trustee shall not be obligated to destroy Capital Securities. The Trust may not issue new Capital Securities to replace Capital Securities that it has redeemed or that have been delivered to the Property Trustee for cancellation or that any Holder has exchanged. SECTION 7.11 CUSIP NUMBERS. The Trust in issuing the Capital Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Property Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders of Capital Securities; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Capital 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 Capital Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Sponsor will promptly notify the Property Trustee of any change in the CUSIP numbers. ARTICLE VIII DISSOLUTION OF TRUST SECTION 8.1 DISSOLUTION OF TRUST. (a) The Trust shall automatically dissolve: (i) upon the bankruptcy of the Sponsor; (ii) upon the filing of a certificate of dissolution or liquidation or its equivalent with respect to the Sponsor; (iii) following the distribution of a Like Amount of the Debentures to the Holders; provided that the Property Trustee has received a written notice from the Sponsor as the holder of all the outstanding Common Securities directing it to terminate the Trust (which direction is at the discretion of the Sponsor, except as provided below); provided, further, that such distribution is conditioned on the Administrative Trustees' receipt of an opinion by independent tax counsel experienced in such matters, which opinion may rely on published rulings of the Internal Revenue Service, to the effect that the Holders will not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and such distribution of a Like Amount of the Debentures; (iv) upon the entry of a decree of judicial dissolution of the Trust by a court of competent jurisdiction; (v) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (vi) upon the repayment of the Debentures or at such time as no Debentures are outstanding; (vii) the expiration of the term of the Trust provided in Section 3.13; or (viii) following the distribution of a Like Amount of the Debentures to the Holders of the Securities pursuant to the terms thereof upon receipt of a written notice from the Sponsor that it intends to effect a Tax Event Maturity Shortening and directing the Administrative Trustees to dissolve the Trust and distribute a Like Amount of the Debentures to the Holders of the Securities. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a), the Trust shall be wound up pursuant to Section 3808 of the Business Trust Act and the Administrative Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware; provided, however, that in the event of any of the events of dissolution set forth in Sections 8.1(a)(iii), (v) or (viii), the provisions of Section 3808(e) of the Business Trust Act shall be satisfied in advance of the making of any payments or distributions to Holders of Securities pursuant to this Declaration. (c) The provisions of Section 3.9 and Article X shall survive the dissolution of the Trust. ARTICLE IX TRANSFER OF INTERESTS SECTION 9.1 TRANSFER OF SECURITIES. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Capital 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 security not made in accordance with this Declaration shall be null and void. (c) Subject to Section 3.14, the Sponsor may not transfer the Common Securities. (d) The Registrar shall provide for the registration of Securities and of the transfer of Securities, which will be effected without charge except as provided in Section 7.6 hereof, but only upon payment (with such indemnity as the Registrar 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 Securities, the Registrar shall cause one or more new Securities to be issued in the name of the designated transferee or transferees. Every Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Security surrendered for registration of transfer shall be canceled by the Registrar. A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.2 TRANSFER PROCEDURES AND RESTRICTIONS. (a) GENERAL. Except as otherwise provided in Section 9.2(c), if Capital Securities are issued upon the transfer, exchange or replacement of Capital Securities bearing the Restricted Securities Legend set forth in Exhibit A-1 hereto, or if a request is made to remove such Restricted Securities Legend on Capital Securities, the Capital 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 Property 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 Property 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 Securities are not "restricted" within the meaning of Rule 144. Upon provision of such satisfactory evidence, the Property Trustee, at the written direction of the Administrative Trustees, shall authenticate and deliver Capital Securities that do not bear the legend. (b) TRANSFERS AFTER EFFECTIVENESS OF A REGISTRATION STATEMENT. After the effectiveness of a Registration Statement with respect to any Capital Securities, all requirements pertaining to legends on such Capital Securities will cease to apply, and beneficial interests in a Capital Security in global form without legends will be available to transferees of such Capital Securities, upon exchange of the transferring holder's Restricted Definitive Capital Security or directions to transfer such Holder's beneficial interest in the Global Capital Security. No such transfer or exchange of a Restricted Definitive Capital Security or of an interest in the Global Capital Security shall be effective unless the transferor delivers to the Trust a certificate in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1. Except as otherwise provided in Section 9.2(m), after the effectiveness of a Registration Statement, the Trust shall issue and the Property Trustee, upon a written order of the Trust signed by one Administrative Trustee, shall authenticate a Capital Security in global form without the Restricted Securities Legend (the "Unrestricted Global Capital Security") to deposit with the Clearing Agent to evidence transfers of beneficial interests from the (i) Global Capital Security and (ii) Restricted Definitive Capital Securities. (c) TRANSFER AND EXCHANGE OF DEFINITIVE CAPITAL SECURITIES. When Definitive Capital Securities are presented to the Registrar or co-Registrar: (x) to register the transfer of such Definitive Capital Securities or (y) to exchange such Definitive Capital Securities which became mutilated, destroyed, defaced, stolen or lost, for an equal number of Definitive Capital Securities, the Registrar or co-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 Capital Securities surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Trust and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) in the case of Definitive Capital Securities that are Restricted Definitive Capital Securities: (A) if such Restricted Capital Securities are being delivered to the 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 Capital Securities are being transferred: (x) a certification from the transferor in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1, and (y) if the Trust or Registrar so requests, evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the Restricted Securities Legend. (d) RESTRICTIONS ON TRANSFER OF A DEFINITIVE CAPITAL SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY. A Definitive Capital Security may not be exchanged for a beneficial interest in a Global Capital Security except upon satisfaction of the requirements set forth below. Upon receipt by the Property Trustee of a Definitive Capital Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Property Trustee, together with: (i) if such Definitive Capital Security is a Restricted Capital Security, a written certificate (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1); provided, however, that such Definitive Capital Security may only be exchanged for an interest in a Regulation S Global Security where such Definitive Capital Security is being transferred pursuant to Regulation S or Rule 144 (if available); and (ii) whether or not such Definitive Capital Security is a Restricted Capital Security, written instructions directing the Property Trustee to make, or to direct the Clearing Agency to make, an adjustment on its books and records with respect to the appropriate Global Capital Security to reflect an increase in the number of the Capital Securities represented by such Global Capital Security, then the Property Trustee shall cancel such Definitive Capital Security and cause, or direct the Clearing Agency to cause, the aggregate number of Capital Securities represented by the appropriate Global Capital Security to be increased accordingly. If no Global Capital Securities are then outstanding, the Trust shall issue and the Property Trustee shall authenticate, upon written order of any Administrative Trustee, an appropriate number of Capital Securities in global form. (e) TRANSFER AND EXCHANGE OF GLOBAL CAPITAL SECURITIES. Subject to Section 9.2(f), the transfer and exchange of Global Capital 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. (f) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY FOR A DEFINITIVE CAPITAL SECURITY. (i) Any Person having a beneficial interest in a Global Capital Security may upon request, but only upon 20 days prior notice to the Property Trustee, and if accompanied by the information specified below, exchange such beneficial interest for a Definitive Capital Security representing the same number of Capital Securities. Upon receipt by the Property Trustee from the Clearing Agency or its nominee on behalf of any Person having a beneficial interest in a Global Capital Security of written instructions or such other form of 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 Capital Security and a certification from the transferor (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1), which may be submitted by facsimile, then the Property Trustee will cause the aggregate number of Capital Securities represented by Global Capital Securities to be reduced on its books and records and, following such reduction, the Administrative Trustees will execute and the Property Trustee will authenticate and make available for delivery to the transferee a Definitive Capital Security. (ii) Definitive Capital Securities issued in exchange for a beneficial interest in a Global Capital Security pursuant to this Section 9.2(f) shall be registered in such names and in such authorized denominations as the Clearing Agency, pursuant to instructions from its Participants or indirect participants or otherwise, shall instruct the Property Trustee in writing. The Property Trustee shall deliver such Capital Securities to the Persons in whose names such Capital Securities are so registered in accordance with such instructions of the Clearing Agency. (g) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL CAPITAL SECURITIES. Notwithstanding any other provisions of this Declaration (other than the provisions set forth in subsection (h) of this Section 9.2), a Global Capital 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 any such nominee to a successor Clearing Agency or a nominee of such successor Clearing Agency. (i) Prior to the expiration of the restricted period, as contemplated by Regulation S, beneficial interests in the Regulation S Global Capital Security may be exchanged for beneficial interests in the Rule 144A Global Capital Security only if such exchange occurs in connection with a transfer of the Capital Securities pursuant to Rule 144A and the transferor first delivers to the Property Trustee a written certificate (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect that the Capital Securities are being transferred to a Person whom the transferor reasonably believes to be 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 Rule 144A Global Capital Security may be transferred to a Person who takes delivery in the form of an interest in the Regulation S Global Capital Security, whether before or after the expiration of such restricted period, as contemplated by Regulation S, only if the transferor first delivers to the Property Trustee a written certificate (in a form substantially similar to that attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of such restricted period, the interest transferred will be held immediately thereafter through Euroclear or CEDEL. (h) AUTHENTICATION OF DEFINITIVE CAPITAL SECURITIES. If at any time: (i) there occurs a Default or an Event of Default which is continuing, or (ii) the Administrative Trustees, in their sole discretion, notify the Property Trustee in writing that they elect to cause the issuance of Definitive Capital Securities under this Declaration, then the Administrative Trustees will execute, and the Property Trustee, upon receipt of a written order of the Trust signed by one Administrative Trustee requesting the authentication and delivery of Definitive Capital Securities to the Persons designated by the Trust, will authenticate and make available for delivery Definitive Capital Securities, equal in number to the number of Capital Securities represented by the Global Capital Securities, in exchange for such Global Capital Securities. (i) LEGEND. (i) Except as permitted by the following paragraph (ii), each Capital Security certificate evidencing the Global Capital Securities and the Definitive Capital Securities (and all Capital 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: THIS CAPITAL SECURITY HAS 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 CAPITAL 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 CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR ANY "AFFILIATE" OF THE CORPORATION WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS CAPITAL 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-U.S. 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 CAPITAL SECURITY 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, 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 CORPORATION 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 A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE and in the case of the Regulation S Global Capital Security THIS CAPITAL 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. (ii) Upon any sale or transfer of a Restricted Capital Security (including any Restricted Capital Security represented by a Global Capital Security) pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 under the Securities Act after such registration statement ceases to be effective: (A) in the case of any Restricted Capital Security that is a Definitive Capital Security, the Registrar shall permit the Holder thereof to exchange such Restricted Capital Security for a Definitive Capital Security that does not bear the Restricted Securities Legend and rescind any restriction on the transfer of such Restricted Capital Security; and (B) in the case of any Restricted Capital Security that is represented by a Global Capital Security, the Registrar shall permit the Holder of such Global Capital Security to exchange such Global Capital Security for another Global Capital Security that does not bear the Restricted Securities Legend. (j) CANCELLATION OR ADJUSTMENT OF GLOBAL CAPITAL SECURITY. At such time as all beneficial interests in a Global Capital Security have either been exchanged for Definitive Capital Securities to the extent permitted by this Declaration or redeemed, repurchased or canceled in accordance with the terms of this Declaration, such Global Capital Security shall be returned to the Clearing Agency for cancellation or retained and canceled by the Property Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Capital Security is exchanged for Definitive Capital Securities, Capital Securities represented by such Global Capital Security shall be reduced and an adjustment shall be made on the books and records of the Property Trustee (if it is then the custodian for such Global Capital Security) with respect to such Global Capital Security, by the Property Trustee or the Securities custodian, to reflect such reduction. (k) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF CAPITAL SECURITIES. (i) To permit registrations of transfers and exchanges, the Administrative Trustees shall execute and the Property Trustee shall authenticate Definitive Capital Securities and Global Capital Securities at the Registrar's or co-Registrar's request in accordance with the terms of this Declaration. (ii) Subject to Section 7.6 hereof, registrations of transfers or exchanges will be effected without charge, but only upon payment (with such indemnity as the Trust or the Sponsor may require) in respect of any tax or other governmental charge that may be imposed in relation to it. (iii) The Registrar or co-Registrar shall not be required to register the transfer of or exchange of (a) Capital Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption or any notice of selection of Capital Securities for redemption and ending at the close of business on the day of such mailing; or (b) any Capital Security so selected for redemption in whole or in part, except the unredeemed portion of any Capital Security being redeemed in part. (iv) Prior to the due presentation for registration of transfer of any Capital Security, the Trust, the Property Trustee, the Paying Agent, the Registrar or any co-Registrar may deem and treat the Person in whose name a Capital Security is registered as the absolute Holder of such Capital Security for the purpose of receiving Distributions on such Capital Security and for all other purposes whatsoever, and none of the Trust, the Property Trustee, the Paying Agent, the Registrar or any co-Registrar shall be affected by notice to the contrary. (v) All Capital Securities issued upon any transfer pursuant to the terms of this Declaration shall evidence the same security and shall be entitled to the same benefits under this Declaration as the Capital Securities surrendered upon such transfer or exchange. (l) NO OBLIGATION OF THE PROPERTY TRUSTEE. (i) The Property Trustee shall have no responsibility or obligation to any beneficial owner of a Global Capital 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 to any ownership interest in the Capital Securities or with respect to the delivery to 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 Capital Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Capital 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 Capital Security). The rights of beneficial owners in any Global Capital Security shall be exercised only through the Clearing Agency subject to the applicable rules and procedures of the Clearing Agency. The Property Trustee may conclusively rely and shall be fully protected in relying upon information furnished by the Clearing Agency or any agent thereof with respect to its Participants and any beneficial owners. (ii) The Property Trustee and Registrar shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Declaration or under applicable law with respect to any transfer of any interest in any Capital Security (including any transfers between or among Clearing Agency Participants or beneficial owners in any Global Capital Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Declaration, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (m) EXCHANGE OF INITIAL CAPITAL SECURITIES FOR EXCHANGE CAPITAL SECURITIES. The Initial Capital Securities may be exchanged for Exchange Securities pursuant to the terms of the Exchange Offer. The Property Trustee shall make the exchange as follows: (i) The Sponsor shall present the Property Trustee with an Officers' Certificate certifying the following: (A) the Registration Statement has become effective; and (B) the number of Initial Capital Securities properly tendered in the Exchange Offer that are represented by a Global Capital Security and the number of Initial Capital Securities properly tendered in the Exchange Offer that are represented by Definitive Capital Securities, the name of each Holder of such Definitive Capital Securities, the liquidation amount of Capital Securities properly tendered in the Exchange Offer by each such Holder and the name and address to which Definitive Capital Securities for Exchange Capital Securities shall be registered and sent for each such Holder. (ii) The Property Trustee upon receipt of (A) such Officers' Certificate, (B) an Opinion of Counsel (x) to the effect that the Exchange Capital 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 (C) a Company Order (as defined in the Indenture), shall authenticate (I) a Global Capital Security for Exchange Capital Securities in aggregate liquidation amount equal to the aggregate liquidation amount of Initial Capital Securities represented by a Global Capital Security indicated in such Officers' Certificate as having been properly tendered and (II) Definitive Capital Securities representing Exchange Capital Securities registered in the names of, and in the liquidation amounts indicated in such Officers' Certificate. (iii) If, upon consummation of the Exchange Offer, less than all the outstanding Initial Capital Securities shall have been properly tendered and not withdrawn, the Property Trustee shall make an endorsement on the Global Capital Security for Initial Capital Securities indicating the reduction in the number and aggregate liquidation amount represented thereby as a result of the Exchange Offer. (iv) The Trust shall deliver such Definitive Capital Securities for Exchange Capital Securities to the Holders thereof as indicated in such Officers' Certificate. (n) MINIMUM TRANSFERS. Initial Capital Securities may only be transferred in minimum blocks of $100,000 aggregate Liquidation Amount until such Initial Capital Securities are registered pursuant to an effective registration statement filed under the Securities Act or become "unrestricted" pursuant to Rule 144 under the Securities Act. (o) INDEMNITY; ERISA. Each Holder of the Securities agrees to indemnify the Sponsor and the Property Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Securities in violation of any provision of this Declaration and/or applicable United States federal or state securities law. Subject to this Article, Securities shall be freely transferable. Notwithstanding the foregoing, Securities may not be acquired by any Person who is, or who, in acquiring such Securities is using the assets of, an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA Plan"), unless the acquisition of such Securities is not a "Prohibited Transaction" (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or one of the following class exemptions (or another applicable exemption) is available to the ERISA Plan: (i) Prohibited Transaction Class Exemption 90-1 ("PTE 90-1"), regarding investments by insurance company pooled separate accounts, (ii) Prohibited Transaction Class Exemption 91-38 ("PTE 91-38"), regarding investments by bank collective investment funds, (iii) Prohibited Transaction Class Exemption 84-14 ("PTE 84-14"), regarding transactions effected by qualified professional asset managers, (iv) Prohibited Transaction Class Exemption 96-23 ("PTE 96-23"), regarding transactions effected by in-house asset managers, or (v) Prohibited Transaction Class Exemption 95-60 ("PTE 95-60"), regarding investments by insurance company general accounts. The acquisition of Capital Securities by any Person who is, or who in acquiring such Capital Securities is using the assets of, an ERISA Plan shall be deemed to constitute a representation by such Person to the Trust that, if such acquisition or the holding of Capital Securities by such Person would constitute a Prohibited Transaction, such Person is eligible for exemptive relief available pursuant to either one of PTE 90-1, PTE 91-38, PTE 84-14, PTE 96-23, PTE 95-60 or another applicable exemption with respect to the acquisition and holding of such Securities. To avoid Prohibited Transactions, any ERISA Plan purchasing Capital Securities will be deemed to have directed the Trust to invest in the Debentures and to have appointed the Trustees. SECTION 9.3 DEEMED SECURITY HOLDERS. The Trustees may treat the Person in whose name any Security shall be registered on the books and records of the Trust as the sole Holder of such Security for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Security on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4 BOOK ENTRY INTERESTS. (a) Global Capital Securities shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of the Clearing Agency, and no Capital Security Beneficial Owner will receive a definitive Capital Security Certificate representing such Capital Security Beneficial Owner's interests in such Global Capital Securities, except as provided in Section 9.2. Unless and until definitive, fully registered Capital Securities certificates have been issued to the Capital Security Beneficial Owners pursuant to Section 9.2: (i) the provisions of this Section 9.4 shall be in full force and effect; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Capital Securities and receiving approvals, votes or consents hereunder) as the Holder of the Capital Securities and the sole holder of the Global Certificates and shall have no obligation to the Capital Security Beneficial Owners; (iii) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (iv) the rights of the Capital Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Capital Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants. SECTION 9.5 NOTICES TO CLEARING AGENCY. Whenever a notice or other communication to the Capital Security Holders is required under this Declaration, the Trustees shall give all such notices and communications specified herein to be given to the Holders of Global Capital Security to the Clearing Agency, and shall have no notice obligations to the Capital Security Beneficial Owners. SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Capital Securities the Administrative Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Capital Securities. ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1 LIABILITY. (a) Except as expressly set forth in this Declaration, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders, which shall be made solely from assets of the Trust; or (ii) required to pay to any Holder any deficit upon dissolution of the Trust or otherwise. (b) The Sponsor shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to ss. 3803(a) of the Business Trust Act, the Holders of the Capital Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2 EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 10.3 FIDUCIARY DUTY. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4 INDEMNIFICATION. (a) (i) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to or otherwise becomes involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to or otherwise becomes involved in any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person, against expenses (including attorneys' fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.4(a) (unless ordered by a court) shall be made by the Debenture Issuer only as authorized in the specific case upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Administrative Trustees by a majority vote of a quorum consisting of such Administrative Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (v) Expenses (including attorneys' fees and expenses) incurred by a Company Indemnified Person in defending or participating in a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 10.4(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (1) by the Administrative Trustees by a majority vote of a quorum of disinterested Administrative Trustees, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion or (3) the Common Security Holder of the Trust, that, based upon the facts known to the Administrative Trustees, counsel or the Common Security Holder at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such Person did not reasonably believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrative Trustees, independent legal counsel or Common Security Holder reasonably determine that such Person deliberately breached his duty to the Trust or its Common Security Holders or Capital Security Holders. (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or Common Security Holders or Capital Security Holders of the Trust or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 10.4(a) shall be deemed to be provided by a contract between the Debenture Issuer and each Company Indemnified Person who serves in such capacity at any time while this Section 10.4(a) is in effect. Any repeal or modification of this Section 10.4(a) shall not affect any rights or obligations then existing. (vii) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any Person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 10.4(a). (viii) For purposes of this Section 10.4(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.4(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when authorized or ratified, continue as to a Person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person. (b) The Debenture Issuer agrees to indemnify the (i) Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees' representatives, custodians, nominees or agents of the Property Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based on the income of such Fiduciary Indemnified Person) incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction and discharge of this Declaration. (c) Each Indemnified Person shall give prompt notice to each indemnifying party from whom indemnification is to be sought hereunder by such Indemnified Person of any action threatened or commenced against it in respect of which any indemnity is sought hereunder, enclosing a copy of all papers served on, and notices and demands delivered to, such Indemnified Person, if any, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 10.4, except to the extent that it is materially prejudiced by such failure. The indemnifying party shall be entitled to assume the defense of any such action or proceeding with counsel reasonably satisfactory to the Indemnified Person who shall not, except with the consent of such Indemnified Person be counsel to the indemnifying party. Upon assumption by the indemnifying party of the defense of any such action or proceeding, the Indemnified Person shall have the right to participate in such action or proceeding and to retain its own counsel, but the indemnifying party shall not be liable for any legal fees or expenses subsequently incurred by such Indemnified Person in connection with the defense thereof unless (i) the indemnifying party has agreed to pay such fees and expenses, (ii) the indemnifying party shall have failed to employ counsel reasonably satisfactory to the Indemnified Person in a timely manner, or (iii) the Indemnified Person shall have been advised by counsel (who shall not be employed by such Indemnified Person and who shall be reasonably satisfactory to the indemnifying party) that such representation would constitute an actual or potential conflict of interests for counsel selected by the indemnifying party. The indemnifying party shall not consent to the terms of any compromise or settlement of any action defended by the indemnifying party in accordance with the foregoing without the prior consent of the Indemnified Person, and the Indemnified Person shall not consent to the terms of any compromise or settlement of any action being defended by the indemnifying party in accordance with the foregoing without the prior consent of the indemnifying party. Notwithstanding the immediately preceding sentence, if at any time an Indemnified Person shall have requested an indemnifying party to reimburse the Indemnified Person for fees and expenses of counsel as contemplated above, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than thirty business days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. SECTION 10.5 OUTSIDE BUSINESSES. Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE XI ACCOUNTING SECTION 11.1 FISCAL YEAR. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2 CERTAIN ACCOUNTING MATTERS. (a) At all times during the existence of the Trust, the Administrative Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. (b) The Administrative Trustees shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, unaudited annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss for such Fiscal Year prepared in accordance with generally accepted accounting principles; provided that if the Trust is required to comply with the periodic reporting requirements of Sections 13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal Year shall be examined and reported on by a firm of independent certified public accountings selected by the Administrative Trustees (which firm may be the firm used by the Sponsor). (c) The Administrative Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required and at such time as is required by the Code and the Treasury Regulations. (d) The Administrative Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrative Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.3 BANKING. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Administrative Trustees; provided, however, that the Property Trustee shall designate the signatories for the Property Trustee Account. SECTION 11.4 WITHHOLDING. The Trust and the Administrative Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrative Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to Distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claimed over-withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1 AMENDMENTS. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by: (i) the Administrative Trustees (or if there are more than two Administrative Trustees a majority of the Administrative Trustees); (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee; and (iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee. (b) No amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Property Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (ii) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an Opinion of Counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities), provided, however, that the Property Trustee shall not be required to sign any such amendment, to the extent the result of such amendment would be to: (1) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust; (2) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (3) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (c) At such time after the Trust has issued any Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (d) Sections 3.14(c) and 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities; (e) Article IV shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities, and; (f) The rights of the Holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees, shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities; and (g) Notwithstanding Section 12.1(c), this Declaration may be amended by the Property Trustee, the Administrative Trustees and the Sponsor without the consent of the Holders of the Securities to: (i) cure any ambiguity, correct or supplement any provision in this Declaration that may be inconsistent with any other provision of this Declaration 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 the Declaration; (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 at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act; or (iii) to qualify or maintain qualification of this Declaration of Trust under the Trust Indenture Act; provided, however, that in each case, such action shall not adversely affect in any material respect the interests of the Holders of the Securities. Any amendments of this Declaration shall become effective when notice thereof is sent to the Holders of the Securities. SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT. (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrative Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading. The Administrative Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in Liquidation Amount of such class of Securities. Such direction shall be given by delivering to the Administrative Trustees one or more notices in a writing stating that the signing Holders wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders calling a meeting shall specify in writing the Security Certificates held by the Holders exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders: (i) notice of any such meeting shall be given to all the Holders having a right to vote thereat at least seven days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders is permitted or required under this Declaration or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders. Any action that may be taken at a meeting of the Holders may be taken without a meeting if a consent or consents in writing setting forth the action so taken is signed by the Holders owning not less than the minimum amount of Securities in Liquidation Amount that would be necessary to authorize or take such action at a meeting at which all Holders having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders entitled to vote who have not consented in writing. The Administrative Trustees may specify that any written ballot submitted to the Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrative Trustees; (ii) each Holder may authorize any Person to act for it by proxy on all matters in which a Holder is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders were stockholders of a Delaware corporation; (iii) each meeting of the Holders shall be conducted by the Administrative Trustees or by such other Person that the Administrative Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Capital Securities are then listed or trading, otherwise provides, the Administrative Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE. The Trustee that acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: (a) The Property Trustee is a New York banking corporation with trust powers and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) The execution, delivery and performance by the Property Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) The execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of the charter or by-laws of the Property Trustee; and (d) No consent, approval or authorization of, or registration with or notice to, any New York or federal banking authority is required for the execution, delivery and performance by the Property Trustee of this Declaration. SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee that: (a) The Delaware Trustee is duly organized, validly existing and in good standing under the laws of the State of Delaware, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) The execution, delivery and performance by the Delaware Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) The execution, delivery and performance of this Declaration by the Delaware Trustee does not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee; (d) The Delaware Trustee is a natural Person who is a resident of the State of Delaware or, if not a natural Person, an entity which has its principal place of business in the State of Delaware; and (e) No consent, approval or authorization of, or registration with or notice to, any federal banking authority is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. ARTICLE XIV REGISTRATION RIGHTS SECTION 14.1 REGISTRATION RIGHTS AGREEMENT; ADDITIONAL INTEREST. (a) The Holders of the Capital Securities, the Debentures and the Capital Securities Guarantee (collectively, the "Registrable Securities") are entitled to the benefits of a Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Sponsor and the Trust have agreed for the benefit of the Holders of Registrable Securities that: (i) they will, at the Sponsor's cost, within 150 days after February 5, 1998 (the "Issue Date"), file a registration statement (the "Exchange Registration Statement") relating to an Exchange Offer pursuant to which each issuer of such respective Registrable Securities would issue amounts of such Registrable Securities as are accepted in the Exchange Offer which shall be identical in all respects to those exchanged, except they will have been registered under the Securities Act and will no longer be subject to transfer restrictions under the Securities Act or the $100,000 minimum aggregate principal or liquidation amount transfer restriction and, if required pursuant to the terms of the Registration Rights Agreement, file a shelf registration statement (the "Shelf Registration Statement") with the Commission with respect to resales of the Registrable Securities, (ii) they will use their best efforts to cause such Exchange Registration Statement and/or Shelf Registration Statement, as the case requires, to be declared effective by the Commission within 180 days after the Issue Date and (iii) they will use their best efforts to maintain the Shelf Registration Statement, if any, continuously effective under the Securities Act until the second anniversary of the effectiveness of the Shelf Registration Statement or such earlier date as is provided in the Registration Rights Agreement (the "Effectiveness Period"). All references herein to such Registrable Securities shall be deemed to include, as the context may require, the Registrable Securities into which such Securities have been exchanged pursuant to the Exchange Registration ("Exchange Securities") and all reference to numbers or amounts of such Securities shall be deemed to include, as the context may require, such Exchange Securities. (b) If (i) (A) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is filed with the Commission on or prior to the 150th day after the Issue Date, or (B) notwithstanding that the Debenture Issuer and the Trust have consummated or will consummate an Exchange Offer, the Debenture Issuer 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 the Registration Rights Agreement, then commencing on the day after either such required filing date, Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Capital Securities 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 Commission on or prior to the 180th day after the Issue Date or (B) notwithstanding that the Debenture Issuer and the Trust have consummated or will consummate an Exchange Offer, the Debenture Issuer 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, commencing on the 181st day after the Issue Date, Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Capital Securities at a rate of 0.25% per annum; or (iii) (A) the Trust has not exchanged Exchange Capital Securities for all Capital Securities or the Debenture Issuer has not exchanged Exchange Guarantees or Exchange Subordinated Debentures for all Guarantees or Subordinated Debentures 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 third anniversary of the Issue Date or such shorter period as may be referred to in Rule 144(k) under the Securities Act (other than after such time as all Capital Securities have been disposed of thereunder or otherwise cease to be Registrable Securities), then Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Capital Securities, 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 Debentures, nor the additional Distributions rate on the Liquidation Amount of the Capital 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 Section 14.1(b)(i)), (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of Section 14.1(b)(ii), or (3) upon the exchange of Exchange Capital Securities, Exchange Guarantees and Exchange Subordinated Debentures for all Capital Securities, Guarantees and Subordinated Debentures tendered (in the case of Section 14.1(b)(iii)(A)), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of Section 14.1(b)(iii)(B)), Additional Interest on the Debentures, and additional Distributions on the Liquidation Amount of the Capital Securities as a result of this Section 14.1(b) (or the relevant subclause thereof), as the case may be, shall cease to accumulate. (g) Any amounts of Additional Interest and additional Distributions due pursuant to Sections 14.1(b)(i), (ii) or (iii) above will be payable in cash on April 15 and October 15 of each year to the Holders on the fifteenth day preceding the relevant Distribution date; provided, however, that the payment of such amounts may be deferred during any Extension Period. ARTICLE XV MISCELLANEOUS SECTION 15.1 NOTICES. (a) All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (i) if given to the Trust, in care of the Administrative Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders): Orion Capital Trust II 9 Farm Springs Road Farmington, CT 06032 Facsimile No. (860) 674-6890 Attention: Michael P. Maloney, Esq. Administrative Trustee (ii) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders): The Bank of New York (Delaware) 101 Barclay Street, Floor 21W New York, NY 10286 Facsimile No. (212) 815-5915 Attention: Corporate Trust Administration (iii) if given to the Property Trustee, at the Property Trustee's mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders): The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Facsimile No. (212) 815-5915 Attention: Corporate Trust Administration (iv) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): Orion Capital Corporation 9 Farm Springs Road Farmington, CT 06032 Facsimile No. (860) 674-6890 Attention: Michael P. Maloney, Esq. Senior Vice President, General Counsel and Secretary (v) if given to any other Holder, at the address set forth on the books and records of the Trust. (b) All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 15.2 GOVERNING LAW. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws; provided, however, that the provisions of 12 Del. C. ss.ss. 3540 and 3561 shall not apply, and, to the fullest extent possible, it is the intent of the parties hereto the compensation payable to any Trustee not be subject to review by any Court whether pursuant to 12 Del. C. ss. 3560 or otherwise. SECTION 15.3 INTENTION OF THE PARTIES. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 15.4 HEADINGS. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 15.5 SUCCESSORS AND ASSIGNS. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 15.6 PARTIAL ENFORCEABILITY. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 15.7 COUNTERPARTS. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the undersigned have caused this Amended and Restated Declaration of Trust to be duly executed as of the day and year first above written. ------------------------------------ W. Marston Becker, not in his individual capacity but solely in his capacity as Administrative Trustee ------------------------------------ Craig A. Nyman, not in his individual capacity but solely in his capacity as Administrative Trustee ------------------------------------ Michael P. Maloney, Esq., not in his individual capacity but solely in his capacity as Administrative Trustee THE BANK OF NEW YORK (DELAWARE), not in its individual capacity but solely in its capacity as Delaware Trustee By:_________________________________ Name: Title: THE BANK OF NEW YORK, not in its individual capacity but solely in its capacity as Property Trustee By:__________________________________ Name: Title: ORION CAPITAL CORPORATION, as Sponsor By:__________________________________ Michael P. Maloney, Esq. Senior Vice President, General Counsel and Secretary ANNEX I TERMS OF 7.701% CAPITAL SECURITIES 7.701% COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of February 5, 1998 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities (collectively, the "Securities") are set out below and supplement the other rights and obligations of Holders of Securities contained in the Declaration (each capitalized term used but not defined herein has the meaning set forth in the Declaration or, if not defined in such Declaration, as defined in the Indenture). 1. DESIGNATION AND NUMBER. (a) CAPITAL SECURITIES. 125,000 Capital Securities of the Trust, with an aggregate Liquidation Amount (as defined in Section 2 hereof) of one hundred twenty-five million dollars ($125,000,000), and with a Liquidation Amount of $1,000 per security, are hereby designated for the purposes of identification only as "7.701% Capital Securities" (the "Capital Securities"). Upon consummation of the Exchange Offer a second series of the Capital Securities may be issued which shall be identical in all respects to the series of Capital Securities issued at the Closing Time except that such Capital Securities will not be subject to (i) the transfer restrictions under the Securities Act contained in the series of Capital Securities issued at the Closing Time (except Private Exchange Securities (as defined in the Registration Rights Agreement), which may be subject to such restrictions), (ii) the $100,000 minimum Liquidation Amount transfer restriction set forth in Section 9.2(n) of the Declaration or (iii) any increase in the Distribution rate thereon under the Registration Rights Agreement. The certificates evidencing the Capital Securities to be issued at Closing Time shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange or quotation system on which the Capital Securities are listed or quoted. (b) COMMON SECURITIES. 4,000 Common Securities of the Trust with an aggregate Liquidation Amount with respect to the assets of the Trust of four million dollars ($4,000,000) and a Liquidation Amount with respect to the assets of the Trust of $1,000 per security, are hereby designated for the purposes of identification only as "7.701% Common Securities" (the "Common Securities"). The certificates evidencing the Common Securities shall be substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. DISTRIBUTIONS. (a) Subject to Section 9 hereof, Distributions payable on each Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Security (the "Liquidation Amount"), such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions not due during an Extension Period (including the first semi-annual period during such period) 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 distributions of any such interest unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. (b) Subject to Section 9 hereof, Distributions on the 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 February 5, 1998, and will be payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 1998, except as otherwise described below. The amount of Distributions payable for any period will be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date 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), with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). So long as no Event of Default has occurred and is continuing under the Indenture, the Debenture 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 Debentures for a period not exceeding 10 consecutive semi-annual periods, including the first semi-annual period during such period (each an "Extension Period"), provided that no Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon any such election, Distributions will be deferred during such Extension Period. Notwithstanding such deferral, Distributions to which Holders of Securities are entitled shall continue to accumulate additional Distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded semi-annually from the relevant Distribution Dates during any such Extension Period. Prior to the expiration of any Extension Period, the Debenture Issuer 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, may not exceed 10 consecutive semi-annual periods, including the first semi-annual period during such Extension Period, or extend beyond the Stated Maturity of the Debentures. Upon the expiration of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. (c) Subject to Section 9 hereof, Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the fifteenth day preceding the relevant Distribution Date. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Capital Securities will be made as follows: (i) if the Capital Securities are held in global form by a Clearing Agency (or its nominee), in accordance with the procedures of the Clearing Agency; and (ii) if the Capital Securities are held in definitive form, by check mailed to the address of the Holder thereof as reflected in the records of the Registrar unless otherwise agreed by the Trust. The relevant record dates for the Common Securities shall be the same as the record dates for the Capital Securities. Distributions payable on any Securities that are not punctually paid on any Distribution Date will cease to be payable to the Holder on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date applicable to the Debentures determined in accordance with the Indenture, MUTATIS MUTANDIS. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed on a PRO RATA basis as set forth Section 8 hereof among the Holders of the Securities, except as otherwise required by Section 9 hereof. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any dissolution or termination of the Trust, or the Sponsor otherwise gives notice of its election to liquidate the Trust pursuant to Section 8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the Administrative Trustees as expeditiously as the Administrative Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, and subject to Section 9 hereof, to the Holders of the Securities a Like Amount (as defined below) of the Debentures, unless such distribution is determined by the Property Trustee not to be practicable, in which event such Holders will be entitled to receive out of the assets of the Trust legally available for distribution to Holders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the aggregate of the Liquidation Amount of $1,000 per Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). "Like Amount" means (i) with respect to a redemption of the Securities, Securities having a Liquidation Amount equal to the principal amount of Debentures to be paid in accordance with their terms and (ii) with respect to a distribution of Debentures upon the liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Securities of the Holder to whom such Debentures are distributed. If, upon any such liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a PRO RATA basis as set forth in Section 8 hereof among the Holders of the Securities, except as otherwise required by Section 9 hereof. 4. REDEMPTION AND DISTRIBUTION. (a) Upon the repayment of the Debentures on the Stated Maturity thereof or prepayment thereof (in whole or in part) prior thereto in accordance with the terms thereof, the proceeds from such repayment or prepayment shall be simultaneously applied by the Property Trustee (subject to the Property Trustee having received not less than 45 days written notice to the repayment date or prepayment date) to redeem a Like Amount of the Securities at a redemption price equal to (i) in the case of the repayment of the Debentures on the Stated Maturity, the Maturity Redemption Price (as defined below), (ii) in the case of the optional prepayment of the Debentures upon the occurrence and continuation of a Special Event, the Special Event Redemption Price (as defined below) and (iii) in the case of the optional prepayment of the Debentures other than as a result of the occurrence and continuance of a Special Event, the Optional Redemption Price (as defined below). The Maturity Redemption Price, the Special Event Redemption Price and the Optional Redemption Price are referred to collectively as the "Redemption Price". (b) (i) The "Maturity Redemption Price", with respect to a redemption of Securities, shall mean an amount equal to the principal of and accrued interest on the Debentures as of the Stated Maturity thereof. (ii) "Optional Redemption Price" shall mean the greater of (i) 100% of the Liquidation Amount of Securities to be redeemed or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest on the Debentures to be prepaid discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in either case, accrued and unpaid distributions thereon to the date of redemption. (iii) "Special Event Redemption Price" shall mean a price equal to the greater of (i) 100% of the Liquidation Amount of Securities to be redeemed or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest on the Debentures, discounted to the prepayment date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months and, for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period) at the Special Event Adjusted Treasury Rate, plus, in each case, accumulated and unpaid Distributions thereon, if any, to the date of such prepayment. (c) On and from the date fixed by the Administrative Trustees for any distribution of Debentures and liquidation of the Trust and subject to Section 9 hereof: (i) the Securities will no longer be deemed to be outstanding, (ii) each Holder of Securities will receive a registered certificate or certificates representing the Debentures to be delivered upon such distribution and (iii) Securities will be deemed to represent beneficial interests in a Like Amount of Debentures, and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on such Securities, until such Securities are presented to the Administrative Trustee or their agent for cancellation and such Debentures are transferred to the Holders of such Securities. (d) The Trust may not redeem fewer than all the outstanding Securities unless all accumulated and unpaid Distributions have been paid on all Securities for all semi-annual Distribution periods that expire on or before the date of redemption. (e) The procedure with respect to redemptions or distributions of Debentures shall be as follows: (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Securities (a "Redemption/Distribution Notice") will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for repayment or prepayment of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be allocated on a PRO RATA basis as set forth in Section 8 hereof among the Holders of Securities, except as otherwise required by Section 9 hereof, it being understood that, in respect of Capital Securities registered in the name of and held of record by a Clearing Agency or its nominee, the distribution of the proceeds of such redemption will be made to the Clearing Agency and disbursed by such Clearing Agency in accordance with the procedures applied by such agency or nominee. (iii) If Securities are to be redeemed and the Trust gives a Redemption/ Distribution Notice, such notice shall be irrevocable and (A) with respect to Capital Securities registered in the name of or held of record by a Clearing Agency or its nominee, by 12:00 noon, New York City time, on the redemption date, provided that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related maturity or prepayment of the Debentures by 10:00 a.m., New York City time, on the Stated Maturity of the Debentures or the date of prepayment, as the case may be, the Property Trustee or the Paying Agent will pay to the Clearing Agency or its nominee funds sufficient to pay the applicable Redemption Price with respect to such Capital Securities, and (B) with respect to Capital Securities issued in certificated form and Common Securities, provided that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related maturity or prepayment of the Debentures, the Property Trustee or the Paying Agent will pay the relevant Redemption Price to the Holders of such Securities against presentation to the Registrar of the certificates therefor. If a Redemption/Distribution Notice shall have been given and funds deposited with the Property Trustee to pay the Redemption Price (including all unpaid Distributions) with respect to the Securities called for redemption, then immediately prior to the close of business on the redemption date, Distributions will cease to accumulate on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Securities shall cease to be outstanding. (iv) Payment of accumulated and unpaid Distributions on the redemption date of any Securities will be subject to the rights of Holders of such Securities on the close of business on a regular record date in respect of a Distribution Date occurring on or prior to such Redemption Date. (v) Neither the Administrative Trustees nor the Trust shall be required to register or cause to be registered the transfer of (A) any Securities beginning on the opening of business 15 days before the day of mailing of a Redemption/Distribution Notice or (B) any Securities selected for redemption (except the unredeemed portion of any Security being redeemed). If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Property Trustee or the Paying Agent or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, or the date fixed for redemption, Distributions on such Securities will continue to accumulate from such redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (vi) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Sponsor or any of its Affiliates may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS - CAPITAL SECURITIES. (a) Except as provided under Sections 5(b) and 7 hereof and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. (b) So long as any Debentures are held by the Property Trustee for the benefit of the Holders of the Trust Securities, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 5.07 of the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of a majority in Liquidation Amount of all outstanding Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each Holder of the Capital Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Capital Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Capital Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Capital Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a trust subject to the provisions of Sections 671 through 679 of the Code (a "grantor trust") on account of such action. The foregoing provisions of this Section 5(b) shall be in lieu of ss.ss. 316(a)(1)(A) and (B) of the Trust Indenture Act, and such ss.ss. 316(a)(1)(A) and (B) are hereby expressly excluded from this Trust Agreement. (c) If an Event of Default under the Declaration has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay principal of or premium, if any, or interest on the Debentures on any due date (including any Interest Payment Date or prepayment date or Stated Maturity of the Debenture), then a Holder of Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or premium, if any, or interest on a Like Amount of Debentures (a "Direct Action") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Common Securities Holders will be subrogated to the rights of the Holder of Capital Securities to the extent of any payment made by the Debenture Issuer to the Holders of Capital Securities in such Direct Action. Except as provided in the second preceding sentence, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (d) Any required approval of Holders of Capital Securities may be given at a separate meeting of Holders of Capital Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Capital Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consent. (e) No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. (f) Notwithstanding that Holders of Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. (g) If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a Majority in Liquidation Amount of the outstanding Capital Securities. In no event will the holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Sponsor as the holder of all the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Declaration. 6. VOTING RIGHTS - COMMON SECURITIES. (a) Except as provided under Sections 6(b), 6(c), and 7 and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by the Holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Declaration. (c) So long as any Debentures are held by the Property Trustee for the benefit of the Holders of the Trust Securities, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or execute any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 5.07 of the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of a majority in Liquidation Amount of all outstanding Common Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each Holder of the Common Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Common Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Common Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a trust subject to the provisions of Sections 671 through 679 of the Code (a "grantor trust") on account of such action. The foregoing provisions of this Section 6(c) shall be in lieu of ss.ss. 316(a)(1)(A) and (B) of the Trust Indenture Act, and such ss.ss. 316(a)(1)(A) and (B) are hereby expressly excluded from this Trust Agreement. (d) If an Event of Default under the Declaration has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay principal of or premium, if any, or interest on the Debentures on the due date (including any Interest Payment Date or prepayment date or Stated Maturity of the Debenture), then a Holder of Common Securities may institute a Direct Action for enforcement of payment to such Holder of the principal of or premium, if any, or interest on a Like Amount of Debentures on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Common Securities Holders will be subrogated to the rights of the Holders of Capital Securities to the extent of any payment made by the Debenture Issuer to Holders of Common Securities in such Direct Action. Except as provided in the second preceding sentence, the Holders of Common Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (e) Any required approval of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. (f) No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 7. AMENDMENTS TO DECLARATION AND INDENTURE. In addition to the requirements set out in Section 12.1 of the Declaration, the Declaration may be amended from time to time by the Sponsor as the holder of all of the outstanding Common Securities, the Property Trustee and the Administrative Trustees, without the consent of the Holders of the Securities (i) to cure any ambiguity, correct or supplement any provisions in the Declaration that may be inconsistent with any other provisions, or to make any other provisions with respect to matters or questions arising under the Declaration which shall not be inconsistent with the other provisions of the Declaration, (ii) to modify, eliminate or add to any provisions of the Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act, or (iii) to qualify or maintain qualification of the Declaration under the Trust Indenture Act; provided, however, that in each case, such action shall not adversely affect in any material respect the interests of any Holder of Securities. Any amendments of the Declaration pursuant to the foregoing shall become effective when notice thereof is sent to the Holders of the Securities. The Declaration also may be amended by the Trustees and the Sponsor as the holder of all the outstanding Common Securities (i) with the consent of Holders representing a majority in Liquidation Amount of all outstanding Securities and (ii) upon 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 as a grantor trust for United States federal income tax purposes or the Trust's exemption from status as an Investment Company under the Investment Company Act; provided that, without the consent of each Holder of Securities, the Declaration may not be amended to (i) change the amount or timing of any Distribution on the Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Securities as of a specified date or (ii) restrict the right of a Holder of Securities to institute suit for the enforcement of any such payment on or after such date. 8. PRO RATA. A reference in these terms of the Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate Liquidation Amount of the Securities held by the relevant Holder in relation to the aggregate Liquidation Amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Declaration has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities pro rata according to the aggregate Liquidation Amount of Capital Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of Common Securities pro rata according to the aggregate Liquidation Amount of Common Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Common Securities outstanding. 9. RANKING. The Capital Securities rank pari passu with the Common Securities and payment thereon shall be made Pro Rata with the Common Securities, except that, if an Event of Default under the Declaration occurs and is continuing, no payments in respect of Distributions on, or payments upon liquidation, redemption or otherwise with respect to, the Common Securities shall be made until the Holders of the Capital Securities shall be paid in full the Distributions, Redemption Price, Liquidation Distribution and other payments to which they are entitled at such time. 10. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE. Each Holder of Capital Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Capital Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 11. NO PREEMPTIVE RIGHTS. The Holders of the Securities shall have no preemptive rights to subscribe for any additional securities. 12. ADDITIONAL INTEREST. If the Debenture Issuer fails to comply with its obligations under the Registration Rights Agreement or if the Exchange Offer Registration Statement (as defined in the Registration Rights Agreement) or the Shelf Registration Statement (as defined in the Registration Rights Agreement) fails to become effective, then Additional Interest shall accrue on the principal amount of the Debentures, and additional Distributions shall accumulate on the Liquidation Amount of the Trust Securities, each at a rate of 0.25% per annum as more fully set forth in Article XIV of the Declaration. 13. MISCELLANEOUS. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee or the Common Securities Guarantee (as may be appropriate), and the Indenture (including any supplemental indenture) to a Holder without charge on written request to the Sponsor at its principal place of business. EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] [IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS CAPITAL SECURITY IS A GLOBAL CAPITAL 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 CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL 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 CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.] [IF THIS GLOBAL SECURITY IS A RULE 144A GLOBAL SECURITY, INSERT: UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL 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.] THIS CAPITAL SECURITY HAS 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 CAPITAL 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, SUCH REGISTRATION. THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO 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 CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT 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-U.S. 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 CAPITAL SECURITY 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, 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 OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR (ii) THE ACQUISITION AND HOLDINGS OF THIS CAPITAL SECURITY BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT FROM ANY SUCH PROHIBITION. [IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY, INSERT: THIS CAPITAL 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.] Certificate No. _______ CUSIP NO. Certificate Evidencing Capital Securities of ORION CAPITAL TRUST II 7.701% Capital Securities (Liquidation Amount $1,000 per Capital Security) ORION CAPITAL TRUST II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ___________ (the "Holder") is the registered owner of __________________ capital securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 7.701% Capital Securities (Liquidation Amount $1,000 per Capital Security) (the "Capital Securities"). The Capital 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, in proper form for transfer and otherwise complying with the terms and conditions of the Declaration (as hereinafter defined). The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are set forth herein, on the reverse hereof and in the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of February 5, 1998, as the same may be amended from time to time (the "Declaration"), and shall in all respects be subject to the provisions thereof, including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration. Each capitalized term used but not defined herein or in any legend form or certificate hereon shall have the meaning given it in the Declaration. The Sponsor will provide a copy of the Declaration, without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder and to the benefits of the Capital Securities Guarantee to the extent provided therein. By its acceptance hereof, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this 5th day of February, 1998. ORION CAPITAL TRUST II By: _________________________ Michael P. Maloney, Esq. Administrative Trustee PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Capital Securities referred to in the within-mentioned Declaration. Dated: February 5, 1998. THE BANK OF NEW YORK as Property Trustee By: _________________________________ Name: Title: [FORM OF REVERSE OF SECURITY] Distributions payable on each Capital Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions not due during an Extension Period (including the first semi-annual period during such period) 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 Debentures held by the Property Trustee and to the extent the Property Trustee has funds on hand legally available therefor. Distributions on the Capital 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 February 5, 1998 and will be payable semi-annually in arrears on April 15 and October 15, of each year, commencing on April 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 less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. As long as no Event of Default has occurred and is continuing, the Debenture Issuer has the right under the Indenture, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period on the Debentures for a period not exceeding 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (an "Extension Period"), during which Extension Period no interest shall be due and payable, provided that no Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon any such election, semi-annual Distributions on the Capital Securities will be deferred by the Trust during the term of the Extension Period. Distributions will continue to accumulate interest thereon (to the extent permitted by applicable law, but not exceeding the rate of interest then accruing on the Debentures) at the Coupon Rate compounded semi-annually during any such Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period, provided that such Extension Period, together with all such previous and further extensions within such Extension Period, may not exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity of the Debentures. 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 accrued and unpaid interest and any additional amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Administrative Trustees shall, at the direction of the Sponsor, at any time dissolve the Trust and cause the Debentures to be distributed to the holders of the Securities in liquidation of the Trust or, simultaneously with any redemption of the Debentures, cause a Like Amount of the Securities to be redeemed by the Trust. The Capital Securities shall be redeemable as provided in the Declaration. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to: - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert assignee's social security or tax identification number) - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert address and zip code of assignee) and irrevocably appoints - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ agent to transfer this Capital Security 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 Capital Security Certificate) Signature Guarantee:------------------------ - ------------------------ * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. [Include the following if the Capital Security bears a Restricted Capital Securities Legend] In connection with any transfer of any of the Capital Securities evidenced by this certificate, the undersigned confirms that such Capital 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; or (3) __ transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) __ 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 that is acquiring the Capital 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; or (5) __ transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or (6) __ transferred pursuant to an effective registration statement. Unless one of the boxes is checked, the Registrar will refuse to register any of the Capital 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 Registrar may require, prior to registering any such transfer of the Capital 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, 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 Registrar a Transferee Letter of Representation in the form attached as Annex A to the Offering Memorandum of the Trust dated February 2, 1998. Date:_____________________ Signature:__________________________ (Sign exactly as your name appears on the other side of this Capital Security Certificate) EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE THIS COMMON SECURITY HAS 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, SUCH REGISTRATION. THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO 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) EXCEPT (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 ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. 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 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, 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 OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. Certificate No. __________ Certificate Evidencing Common Securities of ORION CAPITAL TRUST II 7.701% Common Securities (Liquidation Amount $1,000 per Common Security) ORION CAPITAL TRUST II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that Orion Capital Corporation (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 7.701% Common Securities (Liquidation Amount $1,000 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed, in proper form for transfer and otherwise complying with the terms and conditions of the Declaration (as hereinafter defined). The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are set forth herein, on the reverse hereof and in the Amended and Restated Declaration of Trust of the Trust dated as of February 5, 1998, as the same may be amended from time to time (the "Declaration"), and shall in all respects be subject to the provisions thereof, including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration. Each capitalized term used but not defined herein or in any legend, form or certificate hereon shall have the meaning given it in the Declaration. The Sponsor will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture (including any supplemental indenture) to any Holder without charge upon written request to the Sponsor at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder and to the benefits of the Common Securities Guarantee to the extent provided therein. By its acceptance hereof, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this 5th day of February, 1998. ORION CAPITAL TRUST II By:_____________________________ Michael P. Maloney, Esq. Administrative Trustee [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions not due during an Extension Period (including the first semi-annual period during such period) in arrears for more than one semi-annual period will bear interest thereon compounded semiannually 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 Debentures held by the Property Trustee and to the extent the Property Trustee has funds available therefor. Distributions on the Common Securities will be cumulative, will accrue from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from February 5, 1998 and will be payable semi-annually in arrears on April 15 and October 15, of each year, commencing on April 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 less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in such period. As long as no Event of Default has occurred and is continuing, the Debenture Issuer has the right under the Indenture, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period on the Debentures for a period not exceeding 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period (an "Extension Period"), during which Extension Period no interest shall be due and payable, provided that no Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon any such election, semi-annual Distributions on the Common Securities will be deferred by the Trust during the term of the Extension Period. Distributions will continue to accumulate interest thereon (to the extent permitted by applicable law, but not exceeding the rate of interest then accruing on the Debentures) at the Coupon Rate compounded semi-annually during any such Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period, provided that such Extension Period, together with all such previous and further extensions within such Extension Period, may not exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity of the Debentures. 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 accrued and unpaid interest and any additional amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Administrative Trustees shall, at the direction of the Sponsor, at any time dissolve the Trust and cause the Debentures to be distributed to the holders of the Securities in liquidation of the Trust or, simultaneously with any redemption of the Debentures, cause a Like Amount of the Securities to be redeemed by the Trust. The Common Securities shall be redeemable as provided in the Declaration. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert assignee's social security or tax identification number) - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ (Insert address and zip code of assignee) and irrevocably appoints - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:------------------------ Signature:------------------------ (Sign exactly as your name appears on the other side of this Common Security Certificate) Signature Guarantee:------------------------ - ------------------------ * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. [Include the following if the Common Security bears a Restricted Common 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; or (3) __ transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) __ transferred 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 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; or (5) __ transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or (6) __ transferred pursuant to an effective registration statement Unless one of the boxes is checked, the 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 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, 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 a Transferee Representation Letter in the form attached as Annex A to the Offering Memorandum of the Trust, dated February 5, 1998. Date:_______________________ Signature:______________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) EX-4 7 -------------------------------------- CAPITAL SECURITIES GUARANTEE AGREEMENT ORION CAPITAL CORPORATION DATED AS OF FEBRUARY 5, 1998 --------------------------------------- TABLE OF CONTENTS Page ARTICLE I. DEFINITIONS AND INTERPRETATION SECTION 1.1. Definitions and Interpretation....................1 ARTICLE II. TRUST INDENTURE ACT SECTION 2.1. Trust Indenture Act; Application................. 5 SECTION 2.2. List of Holders of Securities.................... 5 SECTION 2.3. Reports by the Capital Securities Guarantee Trustee...............................6 SECTION 2.4. Periodic Reports to Capital Securities Guarantee Trustee................... 6 SECTION 2.5. Evidence of Compliance with Conditions Precedent............................6 SECTION 2.6. Events of Default; Waiver........................ 6 SECTION 2.7. Event of Default; Notice......................... 7 SECTION 2.8. Conflicting Interests............................ 8 ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 3.1. Powers and Duties of the Capital Securities Guarantee Trustee................... 7 SECTION 3.2. Certain Rights of Capital Securities Guarantee Trustee....................9 SECTION 3.3. Not Responsible for Recitals or Issuance of Capital Securities Guarantee................11 ARTICLE IV. CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 4.1. Capital Securities Guarantee Trustee; Eligibility....................................11 SECTION 4.2. Appointment, Removal and Resignation of Capital Securities Guarantee Trustee........12 ARTICLE V. GUARANTEE SECTION 5.1. Guarantee........................................13 SECTION 5.2. Waiver of Notice and Demand......................13 SECTION 5.3. Obligations Not Affected.........................13 SECTION 5.4. Rights of Holders................................14 SECTION 5.5. Guarantee of Payment.............................15 SECTION 5.6. Subrogation......................................15 SECTION 5.7. Independent Obligations..........................15 ARTICLE VI. LIMITATION OF TRANSACTION; SUBORDINATION SECTION 6.1. Limitation of Transactions.......................15 SECTION 6.2. Ranking..........................................16 ARTICLE VII. TERMINATION SECTION 7.1. Termination......................................16 ARTICLE VIII. INDEMNIFICATION SECTION 8.1. Exculpation......................................17 SECTION 8.2. Indemnification..................................17 ARTICLE IX. MISCELLANEOUS SECTION 9.1. Successors and Assigns...........................18 SECTION 9.2. Amendments.......................................18 SECTION 9.3. Notices..........................................18 SECTION 9.4. Exchange Offer...................................20 SECTION 9.5. Benefit..........................................20 SECTION 9.6. Governing Law....................................20 CAPITAL SECURITIES GUARANTEE AGREEMENT This CAPITAL SECURITIES GUARANTEE AGREEMENT (the "Capital Securities Guarantee"), dated as of February 5, 1998, delivered by Orion Capital Corporation, a Delaware corporation (the "Guarantor"), and The Bank of New York, a New York banking corporation, as trustee (the "Capital Securities Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of Orion Capital Trust II, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of February 5, 1998, the Guarantor as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof 125,000 capital securities, having an aggregate liquidation amount of $125,000,000, such capital securities being designated as the 7.701% Capital Securities (collectively the "Capital Securities"); WHEREAS, as incentive for the Holders to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Capital Securities Guarantee, to pay to the Holders of the Capital Securities the Guarantee Payments (as defined below). The Guarantor agrees to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is executing and delivering a guarantee agreement (the "Common Securities Guarantee"), with substantially identical terms to this Capital Securities Guarantee, for the benefit of the holders of the Common Securities (as defined herein), except that if an Event of Default (as defined in the Declaration) has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee are subordinate to the rights of holders of Capital Securities to receive Guaranty Payments under this Capital Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder, which purchase the Guarantor hereby acknowledges shall benefit the Guarantor, the Guarantor executes and delivers this Capital Securities Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 DEFINITIONS AND INTERPRETATION In this Capital Securities Guarantee, unless the context otherwise requires: (a) Capitalized terms used in this Capital Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) Terms defined in the Declaration as at the date of execution of this Capital Securities Guarantee have the same meaning when used in this Capital Securities Guarantee unless otherwise defined in this Capital Securities Guarantee; (c) a term defined anywhere in this Capital Securities Guarantee has the same meaning throughout; (d) all references to "the Capital Securities Guarantee" or "this Capital Securities Guarantee" are to this Capital Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Capital Securities Guarantee to Articles and Sections are to Articles and Sections of this Capital Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act has the same meaning when used in this Capital Securities Guarantee, unless otherwise defined in this Capital Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "AFFILIATE" shall mean, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding the power to vote 20% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 20% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, and (d) a partnership in which the specified Person is a general partner; provided, however, that Intercargo Corporation shall not be deemed to be an Affiliate of the Company or Orion Capital Trust II. "BUSINESS DAY" means any day other than a Saturday or a Sunday, or a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. "CAPITAL SECURITIES GUARANTEE TRUSTEE" means The Bank of New York, a New York banking corporation, until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Capital Securities Guarantee and thereafter means each such Successor Capital Securities Guarantee Trustee. "COMMON SECURITIES" means the securities representing common undivided beneficial interests in the assets of the Issuer. "CORPORATE TRUST OFFICE" means the office of the Capital Securities Guarantee Trustee at which the corporate trust business of the Capital Securities Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286. "COVERED PERSON" means any Holder or beneficial owner of Capital Securities. "DEBENTURES" means the series of subordinated debt securities of the Guarantor designated the 7.701% Junior Subordinated Deferrable Interest Debentures due April 15, 2028 held by the Property Trustee (as defined in the Declaration) of the Issuer. "EVENT OF DEFAULT" means a default by the Guarantor on any of its payments or other obligations under this Capital Securities Guarantee. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by the Issuer: (i) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Capital Securities to the extent the Issuer has funds on hand legally available therefor at such time, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "Redemption Price") to the extent the Issuer has funds on hand legally available therefor at such time, with respect to any Capital Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution or liquidation of the Issuer (other than in connection with the distribution of Debentures to the Holders in exchange for Capital Securities as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Capital Securities to the date of payment, to the extent the Issuer has funds on hand legally available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer. If an Event of Default (as defined in the Indenture) has occurred and is continuing, no Guarantee Payments under the Common Securities Guarantee with respect to the Common Securities shall be made until the Holders of Capital Securities shall be paid in full the Guarantee Payments to which they are entitled under this Capital Securities Guarantee. "HOLDER" means any holder, as registered on the books and records of the Issuer, of any Capital Securities; provided, however, that, in determining whether the holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "INDEMNIFIED PERSON" means the Capital Securities Guarantee Trustee, any Affiliate of the Capital Securities Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Capital Securities Guarantee Trustee. "INDENTURE" means the Indenture, dated as of February 5, 1998, between the Guarantor (the "Debenture Issuer") and The Bank of New York, as trustee, pursuant to which the Debentures are to be issued to the Property Trustee. "MAJORITY IN LIQUIDATION AMOUNT OF THE CAPITAL SECURITIES" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Capital Securities, voting separately as a class, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all Capital Securities. "OFFICERS' CERTIFICATE" means, with respect to any person, a certificate signed by the Chairman, a Vice Chairman, the Chief Executive Officer, the President, a Vice President (however designated), the Secretary or an Assistant Secretary of the Guarantor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Capital Securities Guarantee 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 Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OTHER DEBENTURES" means only those junior subordinated debentures issued by the Guarantor from time to time and sold to trusts to be established by the Guarantor (if any), which are in each case similar to the Issuer. "OTHER GUARANTEES" means any guarantee now or hereafter to be entered into by the Guarantor in respect to any capital securities or common securities of any other trust similar to the Issuer, or of any trustee of such trust, or of a partnership or other entity affiliated with the Guarantor that is a financing vehicle of the Guarantor. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of February 5, 1998, by and among the Guarantor, the Issuer and the Initial Purchasers named therein as such agreement may be amended, modified or supplemented from time to time. "RESPONSIBLE OFFICER" when used with respect to the Capital Securities Guarantee Trustee, means the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the cashier, any assistant cashier, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer or assistant officer of the Capital Securities Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SUCCESSOR CAPITAL SECURITIES GUARANTEE TRUSTEE" means a successor Capital Securities Guarantee Trustee possessing the qualifications to act as Capital Securities Guarantee Trustee under Section 4.1. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended. ARTICLE II TRUST INDENTURE ACT SECTION 2.1 TRUST INDENTURE ACT; APPLICATION This Capital Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Capital Securities Guarantee and shall, to the extent applicable, be governed by such provisions; and if and to the extent that any provision of this Capital Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2 LIST OF HOLDERS OF SECURITIES (a) The Guarantor shall provide the Capital Securities Guarantee Trustee (unless the Capital Securities Guarantee Trustee is otherwise the registrar of the Capital Securities) with a list, in such form as the Capital Securities Guarantee Trustee may reasonably require, of the names and addressees of the Holders of the Capital Securities ("List of Holders") as of such date, (i) within one Business Day after each record date, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Capital Securities Guarantee Trustee; provided, that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Capital Securities Guarantee Trustee by the Guarantor. The Capital Securities Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Capital Securities Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 REPORTS BY THE CAPITAL SECURITIES GUARANTEE TRUSTEE On or before February 4 of each year, commencing February 4, 1999, the Capital Securities Guarantee Trustee shall provide to the Holders of the Capital Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Capital Securities Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 PERIODIC REPORTS TO CAPITAL SECURITIES GUARANTEE TRUSTEE The Guarantor shall provide to the Capital Securities Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Capital Securities Guarantee Trustee is for informational purposes only and the Capital Securities Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Capital Securities Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT The Guarantor shall provide to the Capital Securities Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Capital Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6 EVENTS OF DEFAULT; WAIVER The Holders of a Majority in Liquidation Amount of Capital Securities may, by vote, on behalf of the Holders of all of the Capital Securities, 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 Capital Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7 EVENT OF DEFAULT; NOTICE (a) The Capital Securities Guarantee Trustee shall, within 90 days after the occurrence of a default with respect to this Capital Securities Guarantee, mail by first class postage prepaid, to all Holders of the Capital Securities, notices of all defaults actually known to a Responsible Officer of the Capital Securities Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, except in the case of default in the payment of any Guarantee Payment, the Capital Securities 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 Capital Securities Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the holders of the Capital Securities. (b) The Capital Securities Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Capital Securities Guarantee Trustee shall have received written notice, or a Responsible Officer of the Capital Securities Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge, of such Event of Default. SECTION 2.8 CONFLICTING INTERESTS The Declaration shall be deemed to be specifically described in this Capital Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWERS, DUTIES AND RIGHTS OF THE CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 3.1 POWERS AND DUTIES OF THE CAPITAL SECURITIES GUARANTEE TRUSTEE (a) This Capital Securities Guarantee shall be held by the Capital Securities Guarantee Trustee for the benefit of the Holders, and the Capital Securities Guarantee Trustee shall not transfer this Capital Securities Guarantee to any Person except a Holder exercising his or her rights pursuant to Section 5.4(b) or to a Successor Capital Securities Guarantee Trustee upon acceptance by such Successor Capital Securities Guarantee Trustee of its appointment to act as Successor Capital Securities Guarantee Trustee. The right, title and interest of the Capital Securities Guarantee Trustee shall automatically vest in any Successor Capital Securities Guarantee Trustee, and such vesting and succession of title shall be effective whether or not documents have been executed and delivered pursuant to the appointment of such Successor Capital Securities Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Capital Securities Guarantee Trustee has occurred and is continuing, the Capital Securities Guarantee Trustee shall enforce this Capital Securities Guarantee for the benefit of the Holders. (c) The Capital Securities 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 Capital Securities Guarantee, and no implied covenants shall be read into this Capital Securities Guarantee against the Capital Securities Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall exercise such of the rights and powers vested in it by this Capital Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Capital Securities Guarantee shall be construed to relieve the Capital Securities 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 Capital Securities Guarantee Trustee shall be determined solely by the express provisions of this Capital Securities Guarantee, and the Capital Securities Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Capital Securities Guarantee, and no implied covenants or obligations shall be read into this Capital Securities Guarantee against the Capital Securities Guarantee Trustee; and (B) in the absence of bad faith on the part of the Capital Securities Guarantee Trustee, the Capital Securities 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 Capital Securities Guarantee Trustee and conforming to the requirements of this Capital Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Capital Securities Guarantee; (ii) the Capital Securities Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Capital Securities Guarantee Trustee, unless it shall be proved that the Capital Securities Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Capital Securities 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 Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Capital Securities Guarantee Trustee, or exercising any trust or power conferred upon the Capital Securities Guarantee Trustee under this Capital Securities Guarantee; and (iv) no provision of this Capital Securities Guarantee shall require the Capital Securities Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Capital Securities 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 Capital Securities Guarantee or indemnity, reasonably satisfactory to the Capital Securities Guarantee Trustee, against such risk or liability is not reasonably assured to it. SECTION 3.2 CERTAIN RIGHTS OF CAPITAL SECURITIES GUARANTEE TRUSTEE (a) Subject to the provisions of Section 3.1: (i) The Capital Securities Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document 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 Guarantor contemplated by this Capital Securities Guarantee may be sufficiently evidenced by an Officers' Certificate. (iii) Whenever, in the administration of this Capital Securities Guarantee, the Capital Securities Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Capital Securities Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request evidence as to such matter from the Guarantor, which evidence shall be promptly delivered by the Guarantor. (iv) The Capital Securities Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof). (v) The Capital Securities Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Capital Securities Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Capital Securities Guarantee from any court of competent jurisdiction. (vi) The Capital Securities Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Capital Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Capital Securities Guarantee Trustee such security and indemnity, reasonably satisfactory to the Capital Securities Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Capital Securities Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Capital Securities Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Capital Securities Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Capital Securities Guarantee in the case of an Event of Default. (vii) The Capital Securities 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 Capital Securities Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Capital Securities Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Capital Securities Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Capital Securities Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Capital Securities Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Capital Securities Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Capital Securities Guarantee, both of which shall be conclusively evidenced by the Capital Securities Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Capital Securities Guarantee the Capital Securities Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Capital Securities Guarantee Trustee (i) may request instructions from the Holders of a Majority in Liquidation Amount of the Capital Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (xi) The Capital Securities Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Capital Securities Guarantee. (b) No provision of this Capital Securities Guarantee shall be deemed to impose any duty or obligation on the Capital Securities 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 Capital Securities 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 Capital Securities Guarantee Trustee shall be construed to be a duty. SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF CAPITAL SECURITIES GUARANTEE The recitals contained in this Capital Securities Guarantee shall be taken as the statements of the Guarantor, and the Capital Securities Guarantee Trustee does not assume any responsibility for their correctness. The Capital Securities Guarantee Trustee makes no representation as to the validity or sufficiency of this Capital Securities Guarantee. ARTICLE IV CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 4.1 CAPITAL SECURITIES GUARANTEE TRUSTEE; ELIGIBILITY (a) There shall at all times be a Capital Securities Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Capital Securities Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Capital Securities Guarantee Trust shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Capital Securities Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Capital Securities Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION OF CAPITAL SECURITIES GUARANTEE TRUSTEE (a) Subject to Section 4.2(b), the Capital Securities Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during an Event or Default. (b) The Capital Securities Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Capital Guarantee Trustee and delivered to the Guarantor. (c) The Capital Securities Guarantee Trustee shall hold office until a Successor Capital Securities Guarantee Trustee shall have been appointed or until its removal or resignation. The Capital Securities Guarantee Trustee may resign from office (without the need for prior or subsequent accounting) by an instrument in writing executed by the Capital Securities Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Capital Securities Guarantee Trustee and delivered to the Guarantor and the resigning Capital Securities Guarantee Trustee. (d) If no Successor Capital Securities Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery of an instrument of removal or resignation, the Capital Securities Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Capital Securities Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Capital Securities Guarantee Trustee. (e) No Capital Securities Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Capital Securities Guarantee Trustee. (f) Upon termination of this Capital Securities Guarantee or removal or resignation of the Capital Securities Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1 GUARANTEE The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.2 WAIVER OF NOTICE AND DEMAND The Guarantor hereby waives notice of acceptance of this Capital Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3 OBLIGATIONS NOT AFFECTED (a) The obligations, covenants, agreements and duties of the Guarantor under this Capital Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (i) 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 Capital Securities to be performed or observed by the Issuer; (ii) 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 Capital Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Capital Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures permitted by the Indenture); (iii) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (vi) 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; (v) any invalidity of, or defect or deficiency in, the Capital Securities; (vi) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; (vii) the consummation of the Exchange Offer; or (viii) 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 ofthe Guarantor hereunder shall be absolute and unconditional under any and all circumstances. (b) There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4 RIGHTS OF HOLDERS (a) The Holders of a Majority in Liquidation Amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Capital Securities Guarantee Trustee in respect of this Capital Securities Guarantee or exercising any trust or power conferred upon the Capital Securities Guarantee Trustee under this Capital Securities Guarantee. (b) If the Capital Securities Guarantee Trustee fails to enforce such Capital Securities Guarantee, any Holder of Capital Securities may institute a legal proceeding directly against the Guarantor to enforce the Capital Securities Guarantee Trustee's rights under this Capital Securities Guarantee, without first instituting a legal proceeding against the Issuer, the Capital Securities Guarantee Trustee or any other person or entity. The Guarantor waives any right or remedy to require that any action be brought first against the Issuer or any other person or entity before proceeding directly against the Guarantor. SECTION 5.5 GUARANTEE OF PAYMENT This Capital Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6 SUBROGATION The Guarantor shall be subrogated to all (if any) rights of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Capital Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Capital Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Capital Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7 INDEPENDENT OBLIGATIONS The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Capital Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a)(i) through (viii), inclusive, of Section 5.3 hereof. ARTICLE VI LIMITATION OF TRANSACTION; SUBORDINATION SECTION 6.1 LIMITATION OF TRANSACTIONS So long as any Capital Securities remain outstanding, if at any time (i) there shall have occurred any event of which the Guarantor has actual knowledge that (x) with the giving of notice or the lapse of time, or both, would constitute an Event of Default and (y) in respect of which the Guarantor shall not have taken reasonable steps to cure, (ii) the Guarantor shall be in default with respect to its payment of any obligations under this Capital Securities Guarantee and the Debentures held by the Property Trustee, or (iii) the Guarantor shall have given notice of its election of the exercise of its right to defer payment of interest pursuant to Section 16.01 of the Indenture and any such extension shall be continuing, then the Guarantor shall not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to any of the Guarantor's capital stock (which includes common and preferred stock); (2) make any payment of principal, premium, if any, or interest on or repay or repurchase or redeem any debt securities of the Guarantor (including any Other Debentures) that rank pari passu with or junior in right of payment to the Debentures; or (3) make any guarantee payments with respect to any guarantee by the Guarantor of the debt securities of any subsidiary of the Guarantor (including Other Guarantees) if such guarantee ranks pari passu or junior in right of payment to the Debentures other than (a) dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of common stock of the Guarantor, (b) any declaration of a dividend in connection with the implementation of a stockholder's 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 Capital Securities Guarantee, (d) as a direct result of, and only to the extent necessary to avoid the issuance of fractional shares of the Guarantor's capital stock following, a reclassification of the Guarantor's capital stock or the exchange or the conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (e) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, and (f) purchases of common stock related to the issuance of common stock or rights under any of the Guarantor's benefit plans for its directors, officers or employees or any of the Guarantor's dividend reinvestment plans. SECTION 6.2 RANKING This Capital Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than obligations in respect of Other Guarantees), (ii) pari passu with (A) the most senior preferred or preference stock now or hereafter issued by the Guarantor, and (B) with any Other Guarantee and the Common Securities Guarantee, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.1 TERMINATION This Capital Securities Guarantee shall terminate (i) upon full payment of the Redemption Price (as defined in the Declaration) of all Capital Securities, or (ii) upon liquidation of the Issuer, the full payment of the amounts payable in accordance with the Declaration or the distribution of the Debentures to the Holders of all of the Capital Securities. Notwithstanding the foregoing, this Capital Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Capital Securities must restore payment of any sums paid under the Capital Securities or under this Capital Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1 EXCULPATION (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim inured by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Capital Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Capital Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Capital Securities might properly be paid. SECTION 8.2 INDEMNIFICATION (a) The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.2 shall survive the termination of this Capital Securities Guarantee. (b) Each Indemnified Person shall give prompt notice to the Guarantor of any action threatened or commenced against it in respect of which any indemnity is sought hereunder, enclosing a copy of all papers served on, and notices and demands delivered to, such Indemnified Person, if any, but failure to so notify the Guarantor shall not relieve the Guarantor from any liability which it may have under this Section 8.2, except to the extent that it is materially prejudiced by such failure. The Guarantor shall be entitled to assume the defense of any such action or proceeding with counsel reasonably satisfactory to the Indemnified Person who shall not, except with the consent of the Indemnified Person, be counsel to the Guarantor. Upon assumption by the Guarantor of the defense of any such action or proceeding, the Indemnified Person shall have the right to participate in such action or proceeding and to retain its own counsel, but the Guarantor shall not be liable for any legal fees or expenses subsequently incurred by such Indemnified Person in connection with the defense thereof unless (i) the Guarantor has agreed to pay such fees and expenses, (ii) the Guarantor shall have failed to employ counsel reasonably satisfactory to the Indemnified Person in a timely manner, or (iii) the Indemnified Person shall have been advised by counsel (who shall not be employed by such Indemnified Person and who shall be reasonably satisfactory to the Guarantor) that such representation would constitute an actual or potential conflict of interests for counsel selected by the Guarantor. The Guarantor shall not consent to the terms of any compromise or settlement of any action defended by the Guarantor in accordance with the foregoing without the prior consent of the Indemnified Person, and the Indemnified Person shall not consent to the terms of any compromise or settlement of any action being defended by the Guarantor in accordance with the foregoing without the prior consent of the Guarantor. Notwithstanding the immediately preceding sentence, if at any time an Indemnified Person shall have requested the Guarantor to reimburse the Indemnified Person for fees and expenses of counsel as contemplated above, the Guarantor agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 business days after receipt by the Guarantor of the aforesaid request and (ii) the Guarantor shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. ARTICLE IX MISCELLANEOUS SECTION 9.1 SUCCESSORS AND ASSIGNS All guarantees and agreements contained in this Capital Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. SECTION 9.2 AMENDMENTS Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Capital Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in Liquidation Amount of the Capital Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Capital Securities apply to the giving of such approval. SECTION 9.3 NOTICES All notices provided for in this Capital Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) If given to the Issuer, in care of the Administrative Trustees at the Issuer's mailing address set forth below (or such other address as the Issuer may give notice to the Holders of the Capital Securities): Orion Capital Trust II 9 Farm Springs Road Farmington, CT 06032 Attention: Michael P. Maloney, Esq. Administrative Trustee Telecopy: (860) 674-6890 with a copy to Donovan Leisure Newton & Irvine LLP 30 Rockefeller Plaza New York, New York 10112 Attn: John J. McCann, Esq. Fax: (212) 632-3315 (b) If given to the Capital Securities Guarantee Trustee, at the Capital Securities Guarantee Trustee's mailing address set forth below (or such other addresses the Capital Securities Guarantee Trustee may give notice of to the Holders of the Capital Securities); The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Telecopy: (212) 815-5915 (c) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Capital Securities): Orion Capital Corporation 9 Farm Springs Road Farmington, CT 06032 Attention: Michael P. Maloney, Esq. Senior Vice President, General Counsel and Secretary Telecopy: (860) 674-6890 (d) If given to any Holder of Capital Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery, such notice or other document shall be deemed to have been delivered on the date of such refusal. SECTION 9.4 EXCHANGE OFFER In the event an Exchange Offer Registration Statement (as defined in the Registration Rights Agreement) becomes effective and the Issuer issues any capital securities in the Exchange Offer, the Guarantor will enter into a new capital securities guarantee agreement, in substantially the same form as this Capital Securities Guarantee, with respect to such capital securities. SECTION 9.5 BENEFIT This Capital Securities Guarantee is solely for the benefit of the Holders of the Capital Securities and, subject to Section 3.1(a), is not separately transferable from the Capital Securities. SECTION 9.6 GOVERNING LAW THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and year first above written. ORION CAPITAL CORPORATION, as Guarantor By: /s/ Michael P. Maloney Michael P. Maloney, Esq. Senior Vice President, General Counsel and Secretary THE BANK OF NEW YORK, as Capital Securities Guarantee Trustee By:/s/ Walter N. Gitlin Walter N. Gitlin Vice President EX-10 8 Exhibit 10(xxi) CONFORMED COPY August 12, 1997 Mr. W. Marston Becker Chairman Orion Capital Corporation 9 Farm Springs Road Farmington, CT 06032 Dear Mr. Becker: This letter amends the Letter Agreement dated September 13, 1993 amended on February 14, 1995 (as so amended, the "Agreement") between Intercargo Corpor- ation (the "Company") and Orion Capital Corporation ("Orion") with respect to Orion's ownership of shares of the Company's common stock. For purposes of this amendment, the definitions as set forth in the original Agreement shall have the same meanings in this letter. By this letter the Company and Orion agree that the Agreememt is amended as follows: 1. The "Percentage Limitation" referred to in Section 5(a) of the Agreement is increased to "35%". 2. The reference to "December 31, 1998 in Section 5(a) and Section 5(b) of the Agreement is changed to "June 30, 2000". 3. All other terms and conditions of the Agreement remain unchanged. Sincerely, INTERCARGO CORPORATION By:/s/ Michael L. Rybak -------------------- Michael L. Rybak Vice President and Chief Financial Officer Accepted and agreed to on the date written above. ORION CAPITAL CORPORATION By: /s/ W. Marston Becker --------------------- W. Marston Becker Chairman EX-11 9 Exhibit 11
ORION CAPITAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (000s omitted except for per common share data) Year Ended December 31, ------------------------------ 1997 1996 1995 ---- ---- ---- BASIC - Weighted average number of shares outstanding.......................... 27,333 27,400 28,110 ======== ======= ======= Net earnings available to common stockholders......................... $115,806 $86,631 $67,622 ======== ======= ======= Net earnings per common share ................ $ 4.24 $ 3.16 $ 2.41 ======== ======= ======= DILUTED - Weighted average number of shares outstanding.................................. 27,333 27,400 28,110 Dilutive effect of stock options and stock awards................................. 567 388 264 -------- ------- ------- Weighted average number of common and diluted equivalent shares.................... 27,900 27,788 28,374 ======== ======= ======= Net earnings available to common stockholders................................. $115,806 $86,631 $67,622 ======== ======= ======= Net earnings per common share ................ $ 4.15 $ 3.12 $ 2.38 ======== ======= =======
EX-21 10 EXHIBIT 21 SUBSIDIARIES OF ORION CAPITAL CORPORATION State or Other Jurisdiction Subsidiary Of Incorporation - ---------- ---------------- Auto Insurance Centers, Inc. Nevada Carolina American Insurance Company South Carolina Clarke & Towner, Inc. Connecticut Colorado Casualty Insurance Company Colorado Connecticut Specialty Group, Inc. Connecticut Connecticut Specialty Insurance Company Connecticut Connecticut Specialty Insurance Group, Inc. Connecticut Design Professionals Administration Corporation California Design Professionals Insurance Company Connecticut Dimock & Associates, Inc. Insurance Brokers California DPIC Companies, Inc. California DPIC Management Services Corp. Connecticut EBI Companies, Inc. Connecticut EBI Consulting Services, Inc. California EBI Indemnity Company Connecticut EFC Property Management, Inc. California Employee Benefits Insurance Company Connecticut Guaranty National Corporation Colorado Guaranty National Insurance Company Colorado Guaranty National Insurance Company of California California Guaranty National Warranty Services Company Colorado Independent Financial Planners Corporation New Jersey Intercon General Agency, Inc. Texas Jabawwat, Inc. Delaware Landmark American Insurance Company Oklahoma Wm. H. McGee & Co., Inc. New York Wm. H. McGee & Co., (Bermuda) Ltd. Bermuda Wm. H. McGee & Co., of Canada, Ltd. Canada Wm. H. McGee & Co., of Puerto Rico, Inc. Puerto Rico Wm. H. McGee Services, Inc. New York Nations' Care, Inc. Connecticut Orion Capital Companies, Inc. Connecticut Orion Properties Corporation Delaware Peak Property and Casualty Insurance Corporation Colorado Peninsula Excess Insurance Brokers, Inc. California Security Insurance Company of Hartford Connecticut Security Insurance Company (UK) Limited United Kingdom SecurityRe, Inc. Connecticut Security Reinsurance Company Connecticut Security Warranty Association of Florida, Inc. Florida The Connecticut Indemnity Company Connecticut The Fire and Casualty Insurance Company of Conn. Connecticut Unisun Insurance Company South Carolina Viking Insurance Company of Wisconsin Wisconsin Viking Insurance Holdings, Inc. Delaware Viking County Mutual Insurance Company Texas Viking General Agency, Inc. Texas *The listed subsidiaries are wholly-owned by Orion Capital Corporation as of December 31, 1997. The Company owns 24.7% of Intercargo Corporation of Schaumburg, Illinois. EX-23 11 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2- 65348 on Forms S-8 and S-16 relating to the Orion Capital Corporation 1976 and 1979 Stock Option Plans, No. 2-80636 on Form S-8 relating to the Orion Capital Corporation 1982 Long-Term Performance Incentive Plan, No. 2-63344 on Form S-8 relating to the Orion Capital Corporation Employees' Stock Savings and Retirement Plan, No. 33-59847 on Form S-8 relating to the Orion Capital Cor- poration 1994 Stock Option Plan for Non-Employee Directors and No. 333-44901 on Form S-8 relating to the Wm. H. McGee & Co. Inc. 401(K) and Profit Sharing Plan, of our report dated February 11, 1998, appearing in this Annual Report on Form 10-K of Orion Capital Corporation for the year ended December 31, 1997. Deloitte & Touche LLP Hartford, Connecticut March 20, 1998 EX-27 12 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 EXHIBIT 27.1 THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DECEMBER-31-1997 JANUARY-1-1997 DECEMBER-31-1997 1,469,846 312,770 322,395 438,501 2,249 0 2,543,733 9,275 496,752 147,124 3,884,058 1,871,711 551,590 0 20,495 310,228 182,789 0 0 540,321 3,884,058 1,357,680 164,908 47,775 20,172 905,458 387,165 60,645 176,180 46,481 115,806 0 0 0 115,806 4.15 4.24 1,377,416 896,226 9,232 370,907 521,240 1,390,727 9,232
EX-27 13 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 EXHIBIT 27.2 THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORION CAPITAL CORPORATION'S FIRST, SECOND AND THIRD QUARTER OF 1996 FINANCIAL STATEMENTS AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE SCHEDULE HAS BEEN RESTATED FOR FAS NO. 128 AND THE COMPANY'S 2-FOR-1 STOCK SPLIT OF ITS COMMON STOCK ISSUED ON JULY 7, 1997. 1,000 3-MOS 6-MOS 9-MOS YEAR YEAR DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 DEC-31-1996 JAN-1-1996 JAN-1-1996 JAN-1-1996 JAN-1-1995 JAN-1-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1995 DEC-31-1996 767,994 1,093,717 1,132,064 782,869 1,205,308 264,664 342,559 334,734 265,169 326,841 271,265 347,188 340,061 276,282 334,755 304,416 386,873 366,757 304,885 361,593 1,598 1,288 1,214 1,979 1,187 0 0 0 0 0 1,618,357 2,235,282 2,233,468 1,602,861 2,309,767 7,298 26,744 20,924 3,584 11,607 305,576 367,354 394,599 291,527 430,293 82,238 127,700 137,014 77,673 136,168 2,537,445 3,338,290 3,354,324 2,473,588 3,464,357 1,304,761 1,673,025 1,713,179 1,274,982 1,785,664 320,643 484,034 505,963 302,105 496,249 0 0 0 0 0 18,227 20,777 20,879 18,946 22,489 209,164 311,246 311,073 209,148 310,904 161,668 161,661 161,746 161,996 173,925 0 0 0 0 0 0 0 0 0 0 326,124 335,905 368,144 328,907 402,808 2,537,445 3,338,290 3,354,324 2,473,588 3,464,357 186,932 621,511 954,447 749,003 1,300,752 25,086 70,793 106,821 99,040 145,391 3,384 11,126 16,606 11,885 24,180 5,685 11,533 17,473 14,352 23,126 127,132 431,310 655,018 512,233 882,992 49,357 165,249 260,270 195,481 363,547 9,254 24,425 37,891 43,352 51,546 22,499 57,785 91,252 88,035 127,356 4,612 13,767 21,444 20,413 32,033 17,887 38,460 62,821 67,622 86,631 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 17,887 38,460 62,821 67,622 86,631 .65 1.40 2.29 2.41 3.16 .64 1.38 2.26 2.38 3.12 993,978 1,280,317 1,280,317 891,542 1,280,317 125,773 648,356 648,356 500,514 874,123 1,359 6,662 6,662 11,719 8,869 19,006 236,857 236,857 146,540 499,176 89,004 369,475 369,475 263,257 295,713 1,013,100 1,329,003 1,329,003 993,978 1,368,420 1,359 6,662 6,662 11,719 8,869
EX-27 14 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 EXHIBIT 27.3 THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORION CAPITAL CORPORATION'S 1997 QUARTERLY FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE SCHEDULE HAS BEEN RESTATED FOR FAS NO. 128 AND THE COMPANY'S 2-FOR-1 STOCK SPLIT OF ITS COMMON STOCK ISSUED ON JULY 7, 1997. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-1-1997 JAN-1-1997 JAN-1-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 1,361,948 1,342,885 1,424,615 328,279 324,640 318,614 331,541 331,164 327,661 363,986 382,264 432,765 1,307 1,280 2,000 0 0 0 2,450,764 2,511,966 2,617,531 5,606 13,598 2,529 414,233 420,615 441,898 139,478 141,732 145,377 3,608,456 3,677,293 3,761,172 1,794,801 1,793,358 1,805,057 497,114 502,800 508,910 0 0 0 20,780 21,465 21,286 310,734 310,565 310,395 173,930 173,531 174,342 0 0 0 0 0 0 403,499 457,287 510,362 3,608,456 3,677,293 3,761,172 323,963 659,189 1,006,639 40,221 81,537 122,291 15,789 24,147 29,299 4,939 10,119 15,133 219,002 444,696 673,781 94,798 188,075 287,565 11,183 26,487 43,928 43,364 82,679 120,752 9,921 20,791 30,519 29,478 54,859 79,385 0 0 0 0 0 0 0 0 0 29,478 54,859 79,385 1.08 2.01 2.91 1.06 1.97 2.85 1,368,420 1,368,420 1,368,420 217,460 441,001 667,098 1,542 3,695 6,683 81,395 163,377 277,151 125,299 266,521 381,249 1,380,728 1,383,218 1,383,801 1,542 3,695 6,683
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