-----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, AUr3I68Xomruwz3nsEPYQ/xbjy+9c59NZPGmjYkauITgBxPuNvEWYRtq92UViYQA G2RRKO4ueVgHI8IvzlrRuw== 0000950123-97-005316.txt : 19970626 0000950123-97-005316.hdr.sgml : 19970626 ACCESSION NUMBER: 0000950123-97-005316 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970625 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK GROUP INC CENTRAL INDEX KEY: 0000787952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061152790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28707 FILM NUMBER: 97629572 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535500 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK CAPITAL TRUST I CENTRAL INDEX KEY: 0001040591 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 066442139 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28707-01 FILM NUMBER: 97629573 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535500 MAIL ADDRESS: STREET 1: TRENWICK STREET 2: METRO CENTER ONE STATION PLACE CITY: STAMFORD STATE: CT ZIP: 06902 424B3 1 TRENWICK GROUP INC./TRENWICK CAPITAL TRUST I 1 Filed pursuant to Rule 424(b)(3) Registration Nos. 333-28707 and 333-28707-01 PROSPECTUS TRENWICK CAPITAL TRUST I OFFER TO EXCHANGE ITS 8.82% EXCHANGE SUBORDINATED CAPITAL INCOME SECURITIES (LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY) WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 8.82% SUBORDINATED CAPITAL INCOME SECURITIES (LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY) UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY TRENWICK GROUP INC. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 24, 1997, UNLESS EXTENDED. ------------------------ Trenwick Capital Trust I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (as the same may be amended or supplemented from time to time, the "Prospectus") and in the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange up to $110,000,000 aggregate Liquidation Amount, determined on the basis of $1,000 per Subordinated Capital Income Security ("Liquidation Amount"), of its 8.82% Exchange Subordinated Capital Income Securities (the "Exchange Capital Securities"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus constitutes a part, for a like Liquidation Amount of its outstanding 8.82% Subordinated Capital Income Securities (the "Old Capital Securities"), of which $110,000,000 aggregate Liquidation Amount is outstanding. Pursuant to the Exchange Offer, Trenwick Group Inc., a Delaware corporation (the "Company"), is also offering to exchange (i) its guarantee of payments of cash distributions and payments on liquidation of the Trust or redemption of the Old Capital Securities, to the extent the Trust has funds legally available therefor (the "Old Guarantee"), for a like guarantee in respect of the Exchange Capital Securities (the "Exchange Guarantee") and (ii) all of its 8.82% Junior Subordinated Deferrable Interest Debentures due February 1, 2037 (the "Old Junior Subordinated Debentures") for a like aggregate principal amount of its 8.82% Exchange Junior Subordinated Deferrable Interest Debentures due February 1, 2037 (the "Exchange Junior Subordinated Debentures"), corresponding to the aggregate Liquidation Amount of the Exchange Capital Securities, which Exchange Guarantee and Exchange Junior Subordinated Debentures also have been registered under the Securities Act. The Old Capital Securities, the Old Guarantee and the Old Junior Subordinated Debentures, collectively, are referred to herein as the "Old Securities" and the Exchange Capital Securities, the Exchange Guarantee and the Exchange Junior Subordinated Debentures, collectively, are referred to herein as the "Exchange Securities." (Continued on the following page) SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL SECURITIES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is June 25, 1997. 2 (Continued from the previous page) The terms of the Exchange Securities are identical in all material respects to the terms of the Old Securities, except that (i) the Exchange Securities have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Old Securities, (ii) the Exchange Securities will not contain the $100,000 minimum Liquidation Amount transfer restriction, (iii) the Exchange Capital Securities will not provide for any increase in the Distribution rate thereon which is payable on the Old Capital Securities if the Company and the Trust do not or cannot fulfill certain obligations (which obligations will be satisfied upon the consummation of the Exchange Offer) under a Registration Rights Agreement dated as of January 31, 1997 (the "Registration Rights Agreement") among the Company, the Trust and the Initial Purchaser (as defined in "Prospectus Summary -- The Exchange Offer -- Absence of Market for the Exchange Capital Securities") (iv) the Exchange Junior Subordinated Debentures will be issued in denominations of $1,000 and will not contain the $100,000 minimum principal amount transfer restriction and (v) the Exchange Junior Subordinated Debentures will not provide for any increase in the interest rate thereon which is payable on the Old Junior Subordinated Debentures if the Company and the Trust do not or cannot fulfill certain obligations under the Registration Rights Agreement (which obligations will be satisfied upon the consummation of the Exchange Offer). See "Description of Exchange Securities" and "Description of Old Securities." The Exchange Capital Securities are being offered for exchange to satisfy certain obligations of the Company and the Trust under the Registration Rights Agreement. In the event that the Exchange Offer is consummated, any Old Capital Securities which remain outstanding after consummation of the Exchange Offer and the corresponding Exchange Securities issued in the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding Liquidation Amount thereof have taken certain actions or exercised certain rights under the Trust Agreement. This Prospectus and the Letter of Transmittal are first being mailed to all holders of Old Capital Securities on or about June 25, 1997. The Exchange Capital Securities and the Old Capital Securities (collectively, the "Capital Securities") will represent beneficial interests in the assets of the Trust. The Company is the owner of all of the beneficial interests represented by common securities of the Trust (the "Common Securities," and together with the Capital Securities, the "Trust Securities"). The Chase Manhattan Bank is the Property Trustee of the Trust. The Trust exists for the sole purpose of issuing the Trust Securities, investing the proceeds thereof in the Old Junior Subordinated Debentures and the Exchange Junior Subordinated Debentures for which they may be exchanged (together, the "Junior Subordinated Debentures") and making Distributions. The Junior Subordinated Debentures are scheduled to mature on February 1, 2037 (the "Stated Maturity Date"). The Capital Securities may be redeemed, at the option of the Trust, at any time after February 1, 2007, and the Stated Maturity may under certain circumstances be shortened in the event of a Tax Event or Investment Company Event. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Conditional Right to Shorten Maturity and Special Event Redemption." The Capital Securities will have a preference over the Common Securities (as defined herein) under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Subordination of Common Securities." As more fully described below, the Company, in addition to agreeing to pay all fees, expenses, debts and obligations (other than the Trust Securities) related to the Trust has entered into several contractual undertakings which, the Company believes, taken together, guarantee to the holders of the Capital Securities a full and unconditional right to enforce the payment of distributions, the payment of the redemption price upon redemption of the Capital Securities and the payment of the Liquidation Amount with respect to the Capital Securities upon liquidation of the Trust. (See "Risk Factors -- Rights Under the Guarantee.") Those contractual arrangements include the Company's obligations under (i) the Guarantee for the benefit of the holders of Capital Securities, (ii) the Trust Agreement, (iii) the Junior Subordinated Debentures and (iv) the Indenture. As used herein, (i) the "Indenture" means the Indenture, dated as of January 31, 1997, as amended and supplemented from time to time, between the Company and The Chase Manhattan Bank, as Debenture (ii) 3 (Continued from the previous page) Trustee (the "Debenture Trustee") relating to the Junior Subordinated Debentures, (ii) the "Trust Agreement" means the Amended and Restated Declaration of Trust relating to the Trust, dated as of January 31, 1997, among the Company as Sponsor, The Chase Manhattan Bank as Property Trustee (the "Property Trustee"), Chase Manhattan Bank Delaware as Delaware Trustee (the "Delaware Trustee"), and the Administrative Trustees named therein (collectively, with the Property Trustee and Delaware Trustee, the "Issuer Trustees"). In addition, as the context may require, unless otherwise expressly stated, (i) "Capital Securities" and "Trust Securities" include the Old Capital Securities and the Exchange Capital Securities, (ii) "Trust Securities" includes the Capital Securities and the Common Securities, (iii) "Junior Subordinated Debentures" includes the Old Junior Subordinated Debentures and the Exchange Junior Subordinated Debentures and (iv) "Guarantee" includes the Old Guarantee and the Exchange Guarantee. Except as provided below, the Capital Securities will be represented by global Capital Securities in fully registered form, deposited with a custodian for and registered in the name of a nominee of DTC. Beneficial interests in such Capital Securities will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds. Holders of the Exchange Capital Securities will be entitled to receive preferential cumulative cash distributions arising from the payment of interest on the Junior Subordinated Debentures, accruing from January 31, 1997 or from the latest date to which distributions thereon have been duly paid or provided for, and payable semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 1997, at the annual rate of 8.82% of the Liquidation Amount of $1,000 per Trust Security ("Distributions"). So long as no Debenture Event of Default (as defined in "Description of the Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Debenture Events of Default") has occurred and is continuing, the Company will have the right to defer payments of interest on the Junior Subordinated Debentures at any time and from time to time for a period not exceeding 10 consecutive semi-annual periods with respect to each deferral period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity Date. Upon the termination of any such Extension Period and the payment of all amounts then due, the Company may elect to begin a new Extension Period, subject to the requirements set forth in the Indenture. If and for so long as interest payments on the Junior Subordinated Debentures are so deferred, Distributions on the Trust Securities will also be deferred and the Company will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to the Company's capital stock (which includes common and preferred stock) or to make any payment with respect to debt securities of the Company that rank pari passu with or junior to the Junior Subordinated Debentures. 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. During an Extension Period, interest on the Junior Subordinated Debentures will continue to accrue (and the amount of Distributions to which holders of the Trust Securities are entitled will accumulate) at the rate of 8.82% per annum, compounded semi-annually, and holders of Trust Securities will be required to accrue such deferred interest income for United States federal income tax purposes prior to the receipt of cash payments attributable to such interest income. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Option to Extend Interest Payment Date" and "Certain Federal Income Tax Consequences -- Interest Income and Original Issue Discount." Through the Guarantee, the guarantee agreement of the Company relating to the Common Securities (the "Common Guarantee"), the Trust Agreement, the Junior Subordinated Debentures and the Indenture, taken together, the Company has guaranteed or will guarantee, as the case may be, fully, irrevocably and unconditionally, all of the Trust's obligations under the Trust Securities. See "Relationship Among the Exchange Capital Securities, the Exchange Junior Subordinated Debentures and the Exchange Guarantee." The Old Guarantee and the Common Guarantee guarantee, and the Exchange Guarantee will guarantee, payments of Distributions and payments on liquidation or redemption of the Trust Securities, but in each case only to the extent that the Trust holds funds on hand legally available therefor and has failed to make such payments, as described herein. See "Description of Exchange Securities -- Description of Exchange Guaran- (iii) 4 (Continued from the previous page) tee." If the Company fails to make a required payment on the Junior Subordinated Debentures, the Trust will not have sufficient funds to make the related payments, including Distributions, on the Trust Securities. The Guarantee and the Common Guarantee will not cover any such payment when the Trust does not have sufficient funds on hand legally available therefor. In such event, a holder of Capital Securities may institute a legal proceeding directly against the Company to enforce its rights in respect of such payment. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Enforcement of Certain Rights By Holders of Exchange Capital Securities." The obligations of the Company under the Guarantee, the Common Guarantee and the Junior Subordinated Debentures will be subordinate and junior in right of payment to all Senior Indebtedness (as defined in "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Subordination"). The Trust Securities will be subject to mandatory redemption in a Like Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity Date upon repayment of the Junior Subordinated Debentures at a redemption price equal to the principal amount of, plus accrued and unpaid interest on, the Junior Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole but not in part, at any time prior to February 1, 2007, contemporaneously with the optional prepayment of the Junior Subordinated Debentures, upon the occurrence and continuation of a Special Event (as defined herein) at a redemption price equal to the Special Event Prepayment Price (as defined below) (the "Special Event Redemption Price"), and (iii) in whole or in part, on or after February 1, 2007, contemporaneously with the optional prepayment by the Company of the Junior Subordinated Debentures, at a redemption price equal to the Optional Prepayment Price (as defined below) (the "Optional Redemption Price"). Any of the Maturity Redemption Price, the Special Event Redemption Price and the Optional Redemption Price may be referred to herein as the "Redemption Price." See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Redemption." The Junior Subordinated Debentures will be prepayable prior to the Stated Maturity Date at the option of the Company (i) on or after February 1, 2007, in whole or in part, at a prepayment price (the "Optional Prepayment Price") equal to the principal amount thereof outstanding, plus accrued and unpaid interest thereon to the date of prepayment, or (ii) at any time, in whole but not in part, upon the occurrence and continuation of a Special Event, at a prepayment price (the "Special Event Prepayment Price") equal to the greater of (a) 100% of the principal amount thereof or (b) the sum, as determined by a Quotation Agent (as defined herein), of the present values of the remaining scheduled payments of principal and the 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 (as defined herein) plus, in either case, accrued interest thereon to the date of prepayment. Either of the Optional Prepayment Price or the Special Event Prepayment Price may be referred to herein as the "Prepayment Price." See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Optional Prepayment" and "-- Conditional Right to Shorten Maturity and Special Event Prepayment." The Company, as the holder of all of the Common Securities, will have the right at any time to terminate the Trust and cause a Like Amount of the Junior Subordinated Debentures to be distributed to the holders of the Trust Securities in liquidation of the Trust, subject to the Company having received an opinion of counsel to the effect that such distribution will not be a taxable event to holders of Capital Securities. Unless the Junior Subordinated Debentures are distributed to the holders of the Trust Securities, in the event of a liquidation of the Trust as described herein, after satisfaction of liabilities to creditors of the Trust as required by applicable law, the holders of the Capital Securities generally will be entitled to receive a Liquidation Amount of $1,000 per Capital Security plus accumulated Distributions thereon to the date of payment. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Liquidation of the Trust and Distribution of Exchange Junior Subordinated Debentures." ------------------------ The Trust is making the Exchange Offer of the Exchange Capital Securities in reliance on the position of the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the (iv) 5 (Continued from the previous page) "Commission") as set forth in certain interpretive letters addressed to third parties in other transactions. However, neither the Company nor the Trust has sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporate Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance of the Commission, and subject to the two immediately following sentences, the Company and the Trust believe that Exchange Capital Securities issued pursuant to this Exchange Offer in exchange for Old Capital Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Capital Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities. Any holder of Old Capital Securities who is an "affiliate" of the Company or the Trust or who intends to participate in the Exchange Offer for the purpose of distributing Exchange Capital Securities, or any broker-dealer who purchased Old Capital Securities from the Trust for resale pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other available exemption under the Securities Act, however, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Capital Securities in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Capital Securities unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Capital Securities acquired for its own account as a result of market-making or other trading activities and exchanges such Old Capital Securities for Exchange Capital Securities, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Capital Securities. Each holder of Old Capital Securities who wishes to exchange Old Capital Securities for Exchange Capital Securities in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company or the Trust, (ii) any Exchange Capital Securities to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities. In addition, the Company and the Trust may require such holder, as a condition to such holder's eligibility to participate in the Exchange Offer, to furnish to the Company and the Trust (or an agent thereof) in writing information as to the number of "beneficial owners" (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) on behalf of whom such holder holds the Old Capital Securities to be exchanged in the Exchange Offer. Each broker-dealer that receives Exchange Capital Securities for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Exchange Capital Securities for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Capital Securities. The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Company and the Trust believe that broker-dealers who acquired Old Capital Securities for their own accounts, as a result of market-making activities or other trading activities ("Participating Broker-Dealers"), may fulfill their prospectus delivery requirements with respect to the Exchange Capital Securities received upon exchange of such Old Capital Securities (other than Old Capital Securities which represent an unsold allotment from the original sale of the Old Capital Securities) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such (v) 6 (Continued from the previous page) Exchange Capital Securities. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the period referred to below in connection with resales of Exchange Capital Securities received in exchange for Old Capital Securities where such Old Capital Securities were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Capital Securities for a period ending 90 days after the Expiration Date (as defined herein) (subject to extension under certain limited circumstances described below) or, if earlier, when all such Exchange Capital Securities have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." However, a Participating Broker-Dealer who intends to use this Prospectus in connection with the resale of Exchange Capital Securities received in exchange for Old Capital Securities pursuant to the Exchange Offer must notify the Company or the Trust, or cause the Company or the Trust to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under "The Exchange Offer -- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of the Company or the Trust may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer -- Resales of Exchange Capital Securities." Each Participating Broker-Dealer who surrenders Old Capital Securities pursuant to the Exchange Offer will be deemed to have agreed that, upon receipt of notice from the Company or the Trust of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable) pursuant to this Prospectus until the Company or the Trust has amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Company or the Trust has given notice that the sale of the Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the case may be. If the Company or the Trust gives such notice to suspend the sale of the Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable), it shall extend the 90-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of Exchange Capital Securities by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the Exchange Capital Securities or to and including the date on which the Company or the Trust has given notice that the sale of Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the case may be. Prior to the Exchange Offer, there has been only a limited secondary market and no public market for the Old Capital Securities. The Exchange Capital Securities will be a new issue of securities for which there currently is no market. Although the Initial Purchaser has informed the Company and the Trust that it currently intends to make a market in the Exchange Capital Securities, it is not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Capital Securities. The Company and the Trust currently do not intend to apply for listing of the Exchange Capital Securities on any securities exchange or for inclusion in the Nasdaq Stock Market ("NASDAQ"). (vi) 7 (Continued from the previous page) The Company and the Trust have agreed to keep the Registration Statement, of which this Prospectus is a part, effective for a period of 30 calendar days (or longer if required by applicable law or to allow Participating Broker-Dealers to satisfy their prospectus delivery requirements) after notice of the Exchange Offer is mailed to holders of the Old Securities. Any Old Capital Securities not tendered and accepted in the Exchange Offer will remain outstanding and will be entitled to all the same rights and will be subject to the same limitations applicable thereto under the Trust Agreement (except for those rights in respect of the Exchange Offer). Following consummation of the Exchange Offer, the holders of Old Capital Securities will continue to be subject to all of the existing restrictions upon transfer thereof and neither the Company nor the Trust will have any further obligation to such holders (other than under certain limited circumstances) to provide for registration under the Securities Act of the Old Capital Securities held by them. To the extent that Old Capital Securities are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Old Capital Securities could be adversely affected. See "Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities." THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. Old Capital Securities may be tendered for exchange on or prior to 5:00 p.m., New York City time, on July 24, 1997 (such time on such date being hereinafter called the "Expiration Date"), unless the Exchange Offer is extended by the Company or the Trust (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). Tenders of Old Capital Securities may be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum Liquidation Amount of Old Capital Securities being tendered for exchange. The Exchange Offer is, however, subject to certain events and conditions which may be waived by the Company or the Trust and to the terms and provisions of the Registration Rights Agreement. Old Capital Securities may be tendered in the Exchange Offer for exchange in whole or in part in any integral multiples of $1,000 Liquidation Amount (one Capital Security) notwithstanding the requirement, applicable to all other transfers of Old Capital Securities, of a minimum transfer amount of $100,000 in Liquidation Amount. For purposes of tenders of Old Capital Securities in the Exchange Offer, the requirement for minimum transfers of $100,000 Liquidation Amount will be waived. The Company has agreed to pay all expenses of the Exchange Offer. See "The Exchange Offer -- Fees and Expenses." Holders of the Old Capital Securities whose Old Capital Securities are accepted for exchange will not receive Distributions on such Old Capital Securities and will be deemed to have waived the right to receive any Distributions on such Old Capital Securities accumulated from and including January 31, 1997. Accordingly, holders of Exchange Capital Securities as of the record date for the payment of Distributions on August 1, 1997 will be entitled to receive Distributions accumulated from and including January 31, 1997. See "The Exchange Offer -- Distributions on Exchange Capital Securities." Neither the Company nor the Trust will receive any cash proceeds from the issuance of the Exchange Capital Securities offered hereby. No dealer-manager is being used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMP- (vii) 8 (Continued from the previous page) TION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ------------------------ FOR NORTH CAROLINA RESIDENTS ONLY: THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THE OFFERING OF THE SECURITIES MADE HEREBY NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ------------------------ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. (viii) 9 TABLE OF CONTENTS
PAGE ---- Available Information................................................................. 1 Incorporation of Certain Documents by Reference....................................... 1 Prospectus Summary.................................................................... 3 Risk Factors.......................................................................... 10 Use of Proceeds....................................................................... 17 Consolidated Ratios of Earnings to Fixed Charges...................................... 17 Accounting Treatment.................................................................. 17 Capitalization........................................................................ 18 Selected Financial Data............................................................... 19 Trenwick Group Inc. .................................................................. 20 Trenwick Capital Trust I.............................................................. 20 The Exchange Offer.................................................................... 21 Description of Exchange Securities.................................................... 30 Description of Exchange Capital Securities.......................................... 30 Description of Exchange Junior Subordinated Debentures.............................. 42 Description of Exchange Guarantee................................................... 50 Description of Old Securities......................................................... 52 Relationship Among the Exchange Capital Securities, the Exchange Junior Subordinated Debentures and the Exchange Guarantee............................................... 52 Certain Federal Income Tax Consequences............................................... 54 ERISA Considerations.................................................................. 58 Plan of Distribution.................................................................. 59 Legal Matters......................................................................... 60 Experts............................................................................... 60
(ix) 10 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can also be obtained at prescribed rates by writing to the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. If available, such reports and other information may also be accessed through the Commission's electronic data gathering, analysis and retrieval system ("EDGAR") via electronic means, including the Commission's web site on the Internet (http://www.sec.gov). In addition, the Company's common stock, $.10 par value per share ("Common Stock"), is listed on the NASDAQ National Market and such material also is available for inspection at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. No separate financial statements of the Trust have been included herein. The Company and the Trust do not consider that such financial statements would be material to holders of the Capital Securities because the Trust is a newly formed special purpose entity, has no operating history or independent operations and is not engaged in and does not propose to engage in any activity other than holding as trust assets the Junior Subordinated Debentures, issuing the Trust Securities and engaging in incidental activities. See "Trenwick Capital Trust I" and "Description of Exchange Securities." The Trust is not currently subject to the information reporting requirements of the Exchange Act. The Trust will become subject to such requirements upon the effectiveness of the Registration Statement, although it intends to seek and expects to receive exemptions therefrom. This Prospectus constitutes a part of a registration statement on Form S-4 (the "Registration Statement") filed by the Company and the Trust with the Commission under the Securities Act. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company, the Trust and the Exchange Securities. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission are incorporated into this Prospectus by reference: (a) Annual Report on Form 10-K for the year ended December 31, 1996; (b) Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarter ended March 31, 1997; and (c) Current Reports on Form 8-K dated January 24, 1997, January 28, 1997 and January 31, 1997. Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the termination of the offering of the Exchange Securities offered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part of this Prospectus from the date of filing of such document. 11 Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein or in any Prospectus Supplement modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. As used herein, the terms "Prospectus" and "herein" mean this Prospectus including the documents incorporated or deemed to be incorporated herein by reference, as the same may be amended, supplemented or otherwise modified from time to time. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein do not purport to be complete, and where reference is made to the particular provisions of such contract or other document, such provisions are qualified in all respects by reference to all of the provisions of such contract or other document. The Company will provide without charge to any person to whom this Prospectus is delivered, on the written or oral request of such person, a copy of any or all of the foregoing documents incorporated by reference herein (other than exhibits not specifically incorporated by reference into the texts of such documents). Requests for such documents should be directed to: Trenwick Group Inc., Metro Center, One Station Place, Stamford, Connecticut 06902, Attention: Jane T. Wiznitzer, Vice President -- Legal Affairs and Secretary. Telephone requests may be directed to (203) 353-5500. 2 12 PROSPECTUS SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information and financial statements included and incorporated by reference in this Prospectus. TRENWICK GROUP INC. Trenwick Group Inc. is a holding company whose operating subsidiary, Trenwick America Reinsurance Corporation ("Trenwick America Re"), provides treaty and facultative reinsurance to insurers of property and casualty risks in the United States. Trenwick America Re's business is primarily obtained through brokers and reinsurance intermediaries. The major portion of the reinsurance it writes is automobile liability, professional liability and general liability. Reinsurance is provided both on an excess of loss and quota share basis. In addition to underwriting reinsurance on its own account, Trenwick America Re participates in specialized segments of the reinsurance market through strategic alliances with leaders in those segments. Over the five-year period ending December 31, 1996, the combined ratio of the Company's reinsurance operations, computed on the basis of generally accepted accounting principles, substantially improved from 112.3% in 1992 to 95.8% in 1996. Trenwick America Re is licensed or otherwise authorized to conduct reinsurance business in every state and the District of Columbia. Trenwick America Re is rated "A+ (Superior)" by A.M. Best Company, an independent insurance industry rating organization, and its claims-paying ability is rated "A+ (Good)" by Standard & Poor's Rating Services. A.M. Best ratings are primarily based upon factors relevant to policyholders and are not directed toward the protection of investors. TRENWICK CAPITAL TRUST I The Trust is a statutory business trust formed under Delaware law pursuant to (i) the Declaration of Trust executed by the Company as Sponsor and Chase Manhattan Bank Delaware, as Delaware Trustee, and (ii) the filing of a certificate of trust with the Delaware Secretary of State on January 21, 1997. The Trust's business and affairs are conducted by the Issuer Trustees: the Property Trustee, the Delaware Trustee, and the three individual Administrative Trustees who are officers of the Company. The Trust exists for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii) effecting the Exchange Offer or filing a Shelf Registration Statement, (iii) using the proceeds from the sale of the Trust Securities to acquire the Junior Subordinated Debentures issued by the Company, (iv) making Distributions to holders of the Trust Securities as provided in the Trust Agreement and (v) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Securities). Accordingly, the Junior Subordinated Debentures will be the sole assets of the Trust, and payments under the Junior Subordinated Debentures will be the sole revenue of the Trust. All of the Common Securities are owned by the Company. THE EXCHANGE OFFER The Exchange Offer......... Up to $110,000,000 aggregate Liquidation Amount of Exchange Capital Securities are being offered in exchange for a like aggregate Liquidation Amount of Old Capital Securities. Old Capital Securities may be tendered in the Exchange Offer for exchange in whole or in part in any integral multiples of $1,000 Liquidation Amount (one Capital Security) notwithstanding the requirement, applicable to all other transfers of Old Capital Securities, of a minimum transfer amount of $100,000 in Liquidation Amount. For purposes of tenders of Old Capital Securities in the Exchange Offer, the requirement for minimum transfers of $100,000 Liquidation Amount will be waived. The Company and the Trust are making the Exchange Offer to satisfy their obligations under the Registration Rights Agreement relating to the Old Capital Securities. For a description of the procedures for tendering Old Capital Securities, see "The Exchange Offer -- Procedures for Tendering Old Capital Securities." 3 13 Expiration Date............ 5:00 p.m., New York City time, on July 24, 1997, unless the Exchange Offer is extended by the Company or the Trust (in which case the Expiration Date will be the latest date and time to which the Exchange Offer is extended). See "The Exchange Offer -- Terms of the Exchange Offer." Conditions to the Exchange Offer...................... The Exchange Offer is subject to certain conditions, which may be waived by the Company and the Trust in their sole discretion. The Exchange Offer is not conditioned upon any minimum Liquidation Amount of Old Capital Securities being tendered. See "The Exchange Offer -- Conditions to the Exchange Offer." Offer...................... The Company and the Trust reserve the right in their sole and absolute discretion, subject to applicable law, at any time and from time to time, to (i) delay the acceptance of the Old Capital Securities for exchange, (ii) terminate the Exchange Offer if certain specified conditions have not been satisfied, (iii) extend the Expiration Date of the Exchange Offer and retain all Old Capital Securities tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Old Capital Securities to withdraw their tendered Old Capital Securities, or (iv) waive any condition or otherwise amend the terms of the Exchange Offer in any respect. See "The Exchange Offer -- Terms of the Exchange Offer." Withdrawal Rights.......... Tenders of Old Capital Securities may be withdrawn at any time on or prior to the Expiration Date by delivering a written notice of such withdrawal to the Exchange Agent in conformity with certain procedures set forth below under "The Exchange Offer -- Withdrawal Rights." Procedures for Tendering Old Capital Securities..... Tendering holders of Old Capital Securities must complete and sign a Letter of Transmittal in accordance with the instructions contained therein and forward the same by mail, facsimile or hand delivery, together with any other required documents, to the Exchange Agent, either with the Old Capital Securities to be tendered or in compliance with the specified procedures for guaranteed delivery of Old Capital Securities. Certain brokers, dealers, commercial banks, trust companies and other nominees may also effect tenders by book-entry transfer. Holders of Old Capital Securities registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such person promptly if they wish to tender Old Capital Securities pursuant to the Exchange Offer. See "The Exchange Offer -- Procedures for Tendering Old Capital Securities." Letters of Transmittal and certificates representing Old Capital Securities should not be sent to the Company or the Trust. Such documents should only be sent to the Exchange Agent. Resales of Exchange Capital Securities................. The Company and the Trust are making the Exchange Offer in reliance on the position of the staff of the Division of Corporation Finance of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, neither the Company nor the Trust has sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer 4 14 as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance of the Commission, and subject to the two immediately following sentences, the Company and the Trust believe that Exchange Capital Securities issued pursuant to this Exchange Offer in exchange for Old Capital Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Capital Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities. However, any holder of Old Capital Securities who is an "affiliate" of the Company or the Trust or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Capital Securities, or any broker-dealer who purchased the Old Capital Securities from the Trust for resale pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Capital Securities in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Capital Securities unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Capital Securities acquired for its own account as a result of market-making or other trading activities and exchanges such Old Capital Securities for Exchange Capital Securities, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Capital Securities. Each holder of Old Capital Securities who wishes to exchange Old Capital Securities for Exchange Capital Securities in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company or the Trust, (ii) any Exchange Capital Securities to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities. Each broker-dealer that receives Exchange Capital Securities for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Capital Securities for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Capital Securities. The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the 5 15 Company and the Trust believe that Participating Broker-Dealers who acquired Old Capital Securities for their own accounts as a result of market-making activities or other trading activities may fulfill their prospectus delivery requirements with respect to the Exchange Capital Securities received upon exchange of such Old Capital Securities (other than Old Capital Securities which represent an unsold allotment from the original sale of the Old Capital Securities) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such Exchange Capital Securities. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Capital Securities received in exchange for Old Capital Securities where such Old Capital Securities were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement and to the limitations described below under "The Exchange Offer -- Resales of Exchange Capital Securities," the Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Capital Securities for a period ending 90 days after the Expiration Date (subject to extension under certain limited circumstances) or, if earlier, when all such Exchange Capital Securities have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of the Company or the Trust may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer -- Resales of Exchange Capital Securities." Effect of Not Accepting the Exchange Offer............. Old Capital Securities which are not tendered in the Exchange Offer will continue to have all the rights presently accruing to them except the right to an increased Distribution rate on the Old Capital Securities in certain events if the Company and the Trust do not or cannot fulfill certain obligations under the Registration Rights Agreement (which obligations will be satisfied upon the consummation of the Exchange Offer). See "Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities." The Old Capital Securities will vote as a single class with Exchange Capital Securities. However, the Old Capital Securities will continue to be subject to restrictions on transfer and, except for limited exceptions for certain broker-dealers, will have no registration rights. To the extent that Old Capital Securities are not tendered and accepted in the Exchange Offer, a holder's ability to freely sell untendered Old Capital Securities could be adversely affected. Exchange Agent............. The exchange agent with respect to the Exchange Offer is The Chase Manhattan Bank (the "Exchange Agent"). The applicable addresses, and telephone and facsimile numbers, of the Exchange Agent are set forth in "The Exchange Offer -- Exchange Agent" and the Letter of Transmittal. 6 16 Use of Proceeds............ Neither the Company nor the Trust will receive any cash proceeds from the issuance of the Exchange Capital Securities offered hereby. See "Use of Proceeds." Certain Federal Income Tax Consequences; ERISA Considerations............. Holders of Old Capital Securities should review the information set forth under "Certain Federal Income Tax Consequences" and "ERISA Considerations" prior to tendering Old Capital Securities in the Exchange Offer. THE EXCHANGE SECURITIES Securities Offered......... Up to 110,000 of the Trust's Exchange Capital Securities (Liquidation Amount of $1,000 per Exchange Capital Security) which have been registered under the Securities Act. The Exchange Capital Securities will be issued, and the Old Capital Securities were issued, under the Trust Agreement. The Exchange Capital Securities and any Old Capital Securities which remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding Liquidation Amount thereof have taken certain actions or exercised certain rights under the Trust Agreement. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Voting Rights; Amendment of the Trust Agreement." The terms of the Exchange Capital Securities are identical in all material respects to the terms of the Old Capital Securities, except that the Exchange Capital Securities have been registered under the Securities Act and will not be subject to the $100,000 minimum Liquidation Amount transfer restriction and certain other restrictions on transfer applicable to the Old Capital Securities and will not provide for any increase in the Distribution rate thereon which is payable on the Old Capital Securities if the Company or the Trust do not or cannot fulfill certain obligations under the Registration Rights Agreement (which obligations will be satisfied upon the consummation of the Exchange Offer). See "The Exchange Offer -- Purpose of the Exchange Offer," "Description of Exchange Securities" and "Description of Old Securities." Distribution Dates......... February 1 and August 1 of each year, commencing August 1, 1997. Extension Periods.......... So long as no Debenture Event of Default has occurred and is continuing, distributions on the Exchange Capital Securities will be deferred for the duration of any Extension Period elected by the Company with respect to the payment of interest on the Exchange Junior Subordinated Debentures. No Extension Period will exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity. The Company has no current intention to exercise its right to defer payment of interest on the Junior Subordinated Debentures. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Option to Extend Interest Payment Date" and "Certain Federal Income Tax Consequences -- Interest Income and Original Issue Discount." Ranking.................... The Exchange Capital Securities will rank pari passu, and payments thereon will be made pro rata, with the Old Capital Securities and the 7 17 Common Securities except, with respect to the Common Securities, in certain circumstances described under "Description of Exchange Securities -- Description of Exchange Capital Securities -- Subordination of Common Securities." The Exchange Junior Subordinated Debentures will rank pari passu with the Old Junior Subordinated Debentures and all other junior subordinated debentures issued by the Company (collectively, with the Old Junior Subordinated Debentures, the "Other Debentures") which may be issued and sold (if at all) to other trusts established or to be established by the Company, in each case similar to the Trust (the "Other Trusts"), and will be unsecured and subordinate and junior in right of payment to all Senior Indebtedness to the extent and in the manner set forth in the Indenture. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures." The Exchange Guarantee will rank pari passu with the Old Guarantee and all other guarantees issued by the Company with respect to capital securities issued or to be issued by Other Trusts (collectively, the "Other Guarantees"). The Guarantee and the Common Guarantee will be (i) subordinate and junior in right of payment to all other liabilities of the Company; (ii) pari passu with (A) the most senior preferred or preference stock now or hereafter issued by the Company, and (B) any guarantee now or hereafter entered into by the Company in respect of any capital securities or common securities of any Other Trusts; and (iii) senior to the Company's Common Stock. None of the Indenture, the Guarantee or the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Indebtedness, that may be incurred by the Company. See "Description of Exchange Securities -- Description of Exchange Guarantee -- Status of Exchange Guarantee." Redemption................. The Trust Securities are subject to mandatory redemption in a Like Amount, (i) in whole but not in part, on the Stated Maturity upon repayment of the Junior Subordinated Debentures, (ii) in whole but not in part, at any time contemporaneously with the optional prepayment of the Junior Subordinated Debentures by the Company upon the occurrence and continuation of a Special Event and (iii) in whole or in part, on or after February 1, 2007 contemporaneously with the optional prepayment by the Company of the Junior Subordinated Debentures, in each case at the applicable Redemption Price. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Redemption." Ratings.................... The Old Capital Securities are rated "BBB" by Standard & Poor's Ratings Services and "baa3" by Moody's Investors Service and the Exchange Capital Securities are expected to be rated similarly. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawn at any time by the assigning rating organization. Absence of Market for the Exchange Capital Securities................. The Exchange Capital Securities will be a new issue of securities for which there currently is no market. Although Lehman Brothers, the initial purchaser of the Old Capital Securities (the "Initial Purchaser"), has informed the Company and the Trust that it currently intends to make a market in the Exchange Capital Securities, the Initial Purchaser 8 18 is not obligated to do so, and any such market making may be discontinued at any time by the Initial Purchaser without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Capital Securities. The Trust and the Company do not intend to apply for listing of the Old Capital Securities or the Exchange Capital Securities on any securities exchange or for quotation through NASDAQ. See "Plan of Distribution." 9 19 RISK FACTORS Prospective investors should carefully review the information included and incorporated by reference in this Prospectus or in any Prospectus Supplement and should particularly consider the following matters. RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES The obligations of the Company under the Junior Subordinated Debentures will be unsecured and rank subordinate and junior in right of payment to all Senior Indebtedness. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise (and thus the ability of holders of the Capital Securities to benefit indirectly from such distribution) is subject to the prior claims of creditors of that subsidiary, including its reinsureds, except to the extent that the Company may itself be recognized as a creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries, and holders of Junior Subordinated Debentures should look only to the assets of the Company for payments on the Junior Subordinated Debentures. At March 31, 1997 and December 31, 1996, the Company's subsidiaries had total liabilities of $625.3 million and $586.0 million, respectively. The Guarantee and the Common Guarantee will be (i) subordinate and junior in right of payment to all other liabilities of the Company; (ii) pari passu with (A) the most senior preferred or preference stock now or hereafter issued by the Company, and (B) any guarantee now or hereafter entered into by the Company in respect of the capital securities or common securities of any Other Trusts; and (iii) senior to the Company's Common Stock. None of the Indenture, the Guarantee or the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Indebtedness, that may be incurred by the Company. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Subordination" and "Description of Exchange Securities -- Description of Exchange Guarantee -- Status of Exchange Guarantee." The ability of the Trust to pay amounts due on the Capital Securities is solely dependent upon the Company making payments on the Junior Subordinated Debentures as and when required. HOLDING COMPANY STRUCTURE; RESTRICTIONS ON DIVIDENDS The Company is an insurance holding company whose principal asset is the capital stock of Trenwick America Re, which it owns through its wholly-owned subsidiary Trenwick America Corporation. The Company's principal source of funds, including funds available to pay interest and principal on the Junior Subordinated Debentures or make payments with respect to its capital stock, is cash dividends from Trenwick America Re. Accordingly, the Company's ability to pay interest and principal on the Junior Subordinated Debentures is dependent on the receipt of such dividends. The payment of dividends by Trenwick America Re is subject to limits imposed by the insurance laws and regulations of the State of Connecticut, its state of incorporation and domicile. Under Connecticut insurance laws and regulations, the maximum amount of shareholder dividends or other distributions that Trenwick America Re may declare or pay to the Company within any twelve month period, without the permission of the Connecticut Insurance Commissioner, is limited to the greater of 10% of policyholder surplus at December 31 of the preceding year, or 100% of net income, excluding realized capital gains, for the twelve month period ending December 31 of the preceding year, both determined in accordance with statutory accounting practices. For the purpose of computing the limitation, carryforward provisions apply with respect to net income realized in the two previous calendar years which has not already been paid out as dividends. The maximum amount of dividends which can be paid by Trenwick America Re in 1997 without regulatory approval is $62,901,000. OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS So long as no Debenture Event of Default (as defined herein) shall have occurred and be continuing, the Company will have the right under the Indenture to defer payments of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 10 consecutive semi-annual periods 10 20 with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity. As a consequence of any such deferral, semi-annual Distributions on the Capital Securities by the Trust will be deferred (and the amount of Distributions to which holders of the Capital Securities are entitled will accumulate additional Distributions thereon at the rate of 8.82% per annum, compounded semi-annually, but not exceeding the interest rate then accruing on the Junior Subordinated Debentures) from the relevant payment date for such Distributions during any such Extension Period. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 10 consecutive semi-annual periods or to extend beyond the Stated Maturity Date. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid on the Junior Subordinated Debentures (together with interest thereon at the annual rate of 8.82%, compounded semi-annually, to the extent permitted by applicable law), the Company may elect to begin a new Extension Period, subject to the above requirements. There is no limitation on the number of times that the Company may elect to begin an Extension Period. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Distributions" and "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Option to Extend Interest Payment Date." Should the Company exercise its right to defer payments of interest on the Junior Subordinated Debentures, each holder of Trust Securities will be required to accrue income (as original issue discount ("OID")) in respect of the deferred stated interest allocable to its Trust Securities for United States federal income tax purposes, which will be allocated but not distributed to holders of Trust Securities. As a result, each such holder of Capital Securities will recognize income for United States federal income tax purposes in advance of the receipt of cash and will not receive the cash related to such income from the Trust if the holder disposes of the Capital Securities prior to the record date for the payment of Distributions thereafter. See "Certain Federal Income Tax Consequences -- Interest Income and Original Issue Discount" and "-- Sales of Capital Securities." Should the Company elect to exercise its right to defer payments of interest on the Junior Subordinated Debentures in the future, the market price of the Capital Securities is likely to be affected. A holder that disposes of its Capital Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Capital Securities. In addition, merely as a result of the existence of the Company's right to defer payments of interest on the Junior Subordinated Debentures, the market price of the Capital Securities may be more volatile than the market prices of other securities on which OID accrues and that are not subject to such deferrals. CONDITIONAL RIGHT TO SHORTEN MATURITY AND SPECIAL EVENT REDEMPTION If a Tax Event (as defined below) occurs, then the Company will have the right, prior to the termination of the Trust, either (i) to shorten the Stated Maturity of the Junior Subordinated Debentures to the minimum extent required, but not less than 20 years from the date of original issuance thereof, such that in the written opinion of counsel experienced in such matters delivered to the Company, after shortening the maturity, interest paid on the Junior Subordinated Debentures will 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 Junior Subordinated Debentures, as described below. Prospective investors should be aware that the Company's exercise of its right to shorten the maturity of the Junior Subordinated Debentures will be a taxable event to holders of the Capital Securities if the Junior Subordinated Debentures are treated as equity for purposes of United States federal income taxation before the maturity is shortened. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Conditional Right to Shorten Maturity and Special Event Redemption" and "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Conditional Right to Shorten Maturity and Special Event Prepayment." If a Tax Event or an Investment Company Event (as defined below) occurs, then the Company will have the right, within 90 days following the occurrence of such Tax Event or Investment Company Event, as the case may be, to prepay the Junior Subordinated Debentures in whole (but not in part) in the manner set forth 11 21 under "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Conditional Right to Shorten Maturity and Special Event Prepayment," and therefore to cause a mandatory redemption of the Capital Securities prior to the Stated Maturity (the circumstances under which the Company has the right to so prepay the Exchange Junior Subordinated Debentures in connection with a Tax Event being referred to herein as a "Conditional Tax Redemption Event"). Each of a Conditional Tax Redemption Event or an Investment Company Event is sometimes referred to herein as a "Special Event." A "Tax Event" means the receipt by the Company and the Trust of an opinion of counsel to the Company 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 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 the date of the original issuance of the Capital Securities, 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) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Junior Subordinated Debentures, (ii) interest payable by the Company on the Junior Subordinated Debentures is not, or within 90 days of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges (each of the circumstances referred to in clauses (i), (ii) and (iii) being referred to herein as an "Adverse Tax Consequence"). An "Investment Company Event" means that the Company shall have received an opinion of an independent counsel experienced in practice under the Investment Company Act of 1940, as amended (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 insubstantial risk that the Trust is or will be considered an "investment company" which is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after the date of the original issuance of the Capital Securities. EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES The Company, as the holder of all of the outstanding Common Securities, will have the right at any time to terminate the Trust and cause a Like Amount of Junior Subordinated Debentures to be distributed to the holders of the Trust Securities in liquidation of the Trust, subject to the Company's having received an opinion by independent tax counsel experienced in such matters 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 to holders of Capital Securities. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Liquidation of the Trust and Distribution of Exchange Junior Subordinated Debentures." POSSIBLE TAX LAWS AFFECTING THE CAPITAL SECURITIES On February 6, 1997, as part of the Clinton Administration's Fiscal 1998 Budget Proposal, the Treasury Department proposed legislation (the "Proposed Legislation") which would, among other things, generally deny corporate issuers a deduction for interest in respect of debt obligations, such as the Junior Subordinated Debentures, issued on or after the date "of first committee action," if such debt obligations have a maximum term in excess of 15 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. In addition, the Proposed Legislation would generally deny corporate issuers a deduction for interest in respect of certain debt obligations, such as the Junior Subordinated Debentures, issued after the date "of first committee action," if such debt obligations have a weighted average maturity of more than 40 years. The Proposed Legislation has not yet been introduced by any member of the 105th Congress. If Congress were to enact any other proposed legislation, and if such enactment gave rise to a Tax Event, the Company would be 12 22 permitted to cause a redemption of the Trust Securities at the Special Event Prepayment Price by electing to prepay the Exchange Junior Subordinated Debentures at the Special Event Prepayment Price. See "Certain Federal Income Tax Consequences -- Proposed Tax Legislation." POSSIBLE ADVERSE EFFECT ON MARKET PRICES There can be no assurance as to the market prices for the Exchange Capital Securities or the Exchange Junior Subordinated Debentures distributed to the holders of Old Securities if a termination of the Trust were to occur. Accordingly, the Exchange Capital Securities or the Exchange Junior Subordinated Debentures may trade at a discount from the price that the investor paid to purchase the Exchange Capital Securities offered hereby. Because holders of Exchange Capital Securities may receive Exchange Junior Subordinated Debentures in liquidation of the Trust and because Distributions are otherwise limited to payments on the Exchange Junior Subordinated Debentures, prospective investors of Exchange Capital Securities are also making an investment decision with regard to the Exchange Junior Subordinated Debentures and should carefully review all the information regarding the Exchange Junior Subordinated Debentures contained herein. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures." RIGHTS UNDER THE GUARANTEE The Chase Manhattan Bank will act as Guarantee Trustee and will hold the Exchange Guarantee for the benefit of the holders of the Exchange Capital Securities. The Chase Manhattan Bank will also act as Property Trustee and as Debenture Trustee under the Indenture. Chase Manhattan Bank Delaware will act as Delaware Trustee under the Trust Agreement. The Old Guarantee guarantees, and the Exchange Guarantee will guarantee, as the case may be, to the holders of the Capital Securities the following payments, to the extent not paid by the Trust: (i) any accumulated and unpaid Distributions required to be paid on the Capital Securities, to the extent that the Trust has funds on hand legally available therefor at such time, (ii) the applicable Redemption Price with respect to any Capital Securities called for redemption, to the extent that the Trust has funds on hand legally available therefor at such time, and (iii) upon a voluntary or involuntary termination and liquidation of the Trust (unless the Junior Subordinated Debentures are distributed to holders of the Capital Securities), the lesser of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid Distributions to the date of payment, to the extent that the Trust has funds on hand legally available therefor at such time and (b) the amount of assets of the Trust remaining available for distribution to holders of the Capital Securities upon a termination and liquidation of the Trust. The holders of a majority in Liquidation Amount of the Exchange Capital Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Exchange Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee. Any holder of the Exchange Capital Securities may institute a legal proceeding directly against the Company to enforce its rights under the Exchange Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. If the Company defaults on its obligation to pay amounts payable under the Exchange Junior Subordinated Debentures, the Trust will not have sufficient funds for the payment of Distributions or amounts payable on liquidation of the Trust or redemption of the Exchange Capital Securities or otherwise, and, in such event, holders of the Exchange Capital Securities will not be able to rely upon the Exchange Guarantee for payment of such amounts. Instead, in the event a Debenture Event of Default shall have occurred and be continuing and such event is attributable to the failure of the Company to pay principal of (or premium, if any) or interest on the Exchange Junior Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Exchange Capital Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of (or premium, if any) or interest on such Exchange Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Capital Securities of such holder (a "Direct Action"). Notwithstanding any payments made to a holder of Exchange Capital Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of (and premium, if any) and interest on the Exchange Junior Subordinated Debentures, and the Company shall be subrogated to the rights of the holder of such Exchange Capital Securities with respect to payments on the Exchange 13 23 Capital Securities to the extent of any payments made by the Company to such holder in any Direct Action. Except as described herein, holders of Exchange Capital Securities will not be able to exercise directly any other remedy available to the holders of the Exchange Junior Subordinated Debentures or to assert directly any other rights in respect of the Exchange Junior Subordinated Debentures. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders of Exchange Capital Securities," "-- Debenture Events of Default" and "Description of Exchange Securities -- Description of Exchange Guarantee." The Trust Agreement provides that each holder of Exchange Capital Securities by acceptance thereof agrees to the provisions of the Indenture. LIMITED VOTING RIGHTS Holders of Exchange Capital Securities will generally have limited voting rights relating only to the modification of the Exchange Capital Securities, the termination or liquidation of the Trust, and the exercise of the Trust's rights as holder of Exchange Junior Subordinated Debentures. Holders of Exchange Capital Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, and such voting rights are vested exclusively in the holder of the Common Securities except upon the occurrence of certain events described herein. The Property Trustee, the Administrative Trustees and the Company may amend the Trust Agreement without the consent of holders of Exchange Capital Securities to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust even if such action adversely affects the interests of such holders. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Voting Rights; Amendment of the Trust Agreement" and "-- Removal of Issuer Trustees." CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES The Old Capital Securities have not been registered under the Securities Act or any state securities laws and therefore may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in compliance with certain other conditions and restrictions. Old Capital Securities which remain outstanding after consummation of the Exchange Offer will continue to bear a legend reflecting such restrictions on transfer. In addition, upon consummation of the Exchange Offer, holders of Old Capital Securities which remain outstanding will not be entitled to any rights to have such Old Capital Securities registered under the Securities Act or to any similar rights under the Registration Rights Agreement (subject to certain limited exceptions). The Company and the Trust do not intend to register under the Securities Act any Old Capital Securities which remain outstanding after consummation of the Exchange Offer (subject to such limited exceptions, if applicable). To the extent that Old Capital Securities are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Old Capital Securities could be adversely affected. The Exchange Capital Securities and any Old Capital Securities which remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding Liquidation Amount thereof have taken certain actions or exercised certain rights under the Trust Agreement. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Voting Rights; Amendment of the Trust Agreement." The Registration Rights Agreement provides, among other things, that, if an Exchange Offer Registration Statement or a Shelf Registration Statement (if required to be filed) is not declared effective by the Commission on or prior to July 25, 1997, Additional Interest shall accrue on the principal amount of the Junior Subordinated Debentures affected thereby, and Additional Distributions will accumulate on the Liquidation Amount of the Trust Securities affected thereby, commencing July 28, 1997, at a rate of 0.25% per annum of the Liquidation Amount of such Old Capital Securities for the period from the occurrence of such event until such time as the Exchange Offer Registration Statement or any required Shelf Registration Statement is declared effective. In addition, if the Exchange Offer is not consummated on or prior to the 30th day after the date on which the Exchange Offer Registration Statement is declared effective, Additional Interest shall accrue on the principal amount of the Junior Subordinated Debentures affected thereby, and 14 24 Additional Distributions will accumulate on the Liquidation Amount of the Trust Securities affected thereby until the Exchange Offer is consummated. Upon the consummation of the Exchange Offer, the Trust and the Company will have satisfied their obligations under the Registration Rights Agreement and holders of Old Capital Securities will not be entitled to any such additional Distributions thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances with respect to certain broker-dealers. See "Description of Old Securities." ABSENCE OF PUBLIC MARKET The Old Capital Securities were issued to, and the Company believes the Old Capital Securities are currently owned by, a relatively small number of beneficial owners. The Old Capital Securities have not been registered under the Securities Act and will be subject to restrictions on transferability if they are not exchanged for the Exchange Capital Securities. Although the Exchange Capital Securities generally may be resold or otherwise transferred by the holders (who are not affiliates of the Company or the Trust) without compliance with the registration requirements under the Securities Act, they will constitute a new issue of securities with no established trading market. Old Capital Securities may be transferred by the holders thereof only in blocks having a Liquidation Amount of not less than $100,000 (100 Old Capital Securities). Exchange Capital Securities may be transferred by the holders thereof in blocks having a Liquidation Amount of $1,000 (one Exchange Capital Security) or integral multiples thereof. The Company and the Trust have been advised by the Initial Purchaser that the Initial Purchaser presently intends to make a market in the Exchange Capital Securities. However, the Initial Purchaser is not obligated to do so and any market-making activity with respect to the Exchange Capital Securities may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer. Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Capital Securities or the Old Capital Securities or as to the liquidity of or the trading market for the Exchange Capital Securities or the Old Capital Securities. If an active public market does not develop, the market price and liquidity of the Exchange Capital Securities may be adversely affected. If a public trading market develops for the Exchange Capital Securities, future trading prices will depend on many factors, including, among other things, prevailing interest rates, the Company's results and the market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the Exchange Capital Securities may trade at a discount. Notwithstanding the registration of the Exchange Capital Securities in the Exchange Offer, holders who are affiliates of the Company or the Trust may publicly offer for sale or resell the Exchange Capital Securities only in compliance with the provisions of Rule 144 under the Securities Act or pursuant to another effective registration statement. Each broker-dealer that receives Exchange Capital Securities for its own account in exchange for Old Capital Securities, where such Old Capital Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Capital Securities. See "Plan of Distribution." FLUCTUATION AND UNCERTAINTY OF PROPERTY AND CASUALTY REINSURANCE INDUSTRY RESULTS The results of companies in the property and casualty reinsurance industry historically have been subject to significant fluctuations and uncertainties. The industry's profitability can be affected significantly by volatile and unpredictable developments (including catastrophes); changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers' and reinsurers' liability develop; fluctuations in interest rates and other changes in the investment environment which affect returns on invested capital; and inflationary pressures that affect the size of losses. The demand for property and casualty reinsurance can also vary significantly, generally rising as the overall level of economic activity increases and falling as such activity decreases. The property and casualty 15 25 reinsurance industry historically has been cyclical, and the industry as a whole has been in a softening market since the late 1980s primarily due to premium rate competition, which has resulted in lower underwriting profitability. The Company's results of operations may be adversely affected by these fluctuations and uncertainties. UNCERTAINTY REGARDING ADEQUACY OF LOSS RESERVES The Company maintains loss reserves to cover its estimated ultimate liability for losses and loss adjustment expenses with respect to reported and unreported claims incurred as of the end of each accounting period. Reserves do not represent an exact calculation of liability, but instead represent estimates, generally involving actuarial projections at a given time, of what the Company expects the ultimate settlement and administration of claims will cost based on its assessment of facts and circumstances then known, estimates of future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by both internal and external events, such as changes in ceding companies' claims handling procedures, economic inflation, judicial trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may be significant reporting lags between the occurrence of the reinsured event and the time it is actually reported to the reinsurer. Reserve estimates are continually refined in a regular ongoing process as experience develops and further claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which such estimates are changed. Because establishment of reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that currently established reserves will prove adequate in light of subsequent actual experience. The inherent uncertainties of estimating loss reserves are generally greater for casualty coverages than for property coverages, due primarily to the longer period of time that typically elapses before a definitive determination of ultimate loss can be made, changing theories of legal liability involving certain types of claims and changing political climates. 16 26 USE OF PROCEEDS Neither the Company nor the Trust will receive any cash proceeds from the issuance of the Exchange Capital Securities offered hereby. In consideration for issuing the Exchange Capital Securities in exchange for Old Capital Securities as described in this Prospectus, the Trust will receive Old Capital Securities in like Liquidation Amount. The Old Capital Securities surrendered in exchange for the Exchange Capital Securities will be retired and cancelled. The proceeds to the Trust (without giving effect to expenses of the offering payable by the Company) from the offering of the Old Capital Securities were $110,000,000. All of the proceeds from the sale of Old Capital Securities were invested by the Trust in the Junior Subordinated Debentures. The Company used approximately $46,997,000 of the net proceeds from the sale of the Old Junior Subordinated Debentures to redeem its 6% Convertible Debentures due December 15, 1999 (the "Convertible Debentures") at a redemption price equal to 102.57% of the aggregate principal amount of Convertible Debentures so redeemed, plus accrued and unpaid interest thereon to the date of redemption. Of the $103,500,000 aggregate principal amount of Convertible Debentures which were outstanding on January 31, 1997, $45,819,000 principal amount were redeemed and $57,681,000 principal amount were converted into an aggregate of 1,783,926 shares of the Company's Common Stock, par value $.10 share.* The amount of any remaining net proceeds are to be used for general corporate purposes, which may include investments in and advances to subsidiaries, the financing of growth and expansion, the financing of possible future acquisitions, stock repurchases and other corporate purposes. CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES The following table sets forth the historical consolidated ratios of earnings to fixed charges of the Company for the three months ended March 31, 1997 and for the five years ended December 31, 1996:
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, - ------------------ ------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 1992 - ------------------ -------------- -------------- -------------- -------------- -------------- 6.0 7.4 6.6 4.4 5.2 11.2
The consolidated ratios of earnings to fixed charges represent the number of times fixed charges (interest expense and one-third of all rent expense, considered to represent an appropriate interest factor, charged to income) are covered by income before income taxes, extraordinary item, cumulative effect of accounting change and fixed charges. ACCOUNTING TREATMENT The financial statements of the Trust (the sole assets of which are the 8.82% Junior Subordinated Debentures due February 1, 2037 of Trenwick Group Inc.) are reflected in the Company's consolidated financial statements with the Capital Securities shown as "Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely Junior Subordinated Debentures of Trenwick." Disclosures about the Capital Securities, the Guarantee and the Junior Subordinated Debentures will be included in the notes to the consolidated financial statements. The Company will record Distributions payable on the Capital Securities as an expense in its consolidated statement of earnings. - --------------- *All share and per share information reflects a 3 for 2 stock split, paid on April 15, 1997. 17 27 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of March 31, 1997 and December 31, 1996.
MARCH 31, DECEMBER 31, 1997 1996 -------- ------------ (IN THOUSANDS) Convertible debentures............................... $ -- $ 103,500 -------- -------- Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely Junior Subordinated Debentures of Trenwick*.......................................... 110,000 -- -------- -------- Preferred stock, $.10 par value, 1,000,000 shares authorized; none outstanding....................... -- -- -------- -------- Common stockholders' equity:** Common stock, $.10 par value, 22,500,000 shares authorized; 11,936,442 and 10,087,826 shares outstanding..................................... 1,194 1,009 Additional paid-in capital......................... 153,406 94,423 Retained earnings.................................. 165,411 159,512 Net unrealized appreciation of securities available for sale, net of income taxes................... 3,635 11,789 Deferred compensation under stock award plan....... (1,172) (980) -------- -------- Total common stockholders' equity.................. $322,474 $ 265,753 -------- -------- Total capitalization............................ $432,474 $ 369,253 ======== ========
- --------------- *As described herein, the proceeds from the sale of the Old Capital Securities were used to purchase $110,000,000 aggregate principal amount of the Old Junior Subordinated Debentures. **All share and per share information reflects a 3 for 2 stock split, paid on April 15, 1997. 18 28 SELECTED FINANCIAL DATA The data below should be read in connection with the financial information included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly Report on Form 10-Q and Form 10-Q/A for the quarter ended March 31, 1997. Results for the quarter ended March 31, 1997 are not necessarily indicative of results which may be expected for any other interim period or for the year as a whole.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ----------------------- ------------------------------------------------------------ 1997 1996 1996 1995 1994 1993 1992 ---------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Net premiums written.............. $ 59,558 $ 58,883 $226,364 $197,162 $139,635 $101,392 $ 81,883 ======= ======= ======== ======== ======== ======== ======== Net premiums earned............... $ 53,914 $ 47,691 $211,069 $177,394 $132,683 $ 93,180 $ 81,831 Net investment income............. 11,729 9,869 41,226 36,828 33,932 34,954 30,859 Net realized investment gains (losses)........................ 1,915 50 299 368 (196) 1,842 181 Service fees...................... -- -- -- -- -- -- 206 ------- ------- -------- -------- -------- -------- -------- Total revenues.................... $ 67,558 $ 57,610 $252,594 $214,590 $166,419 $129,976 $113,077 ======= ======= ======== ======== ======== ======== ======== Income before extraordinary item............................ $ 9,801 $ 8,182 $ 33,848 $ 29,841 $ 20,282 $ 23,739 $ 18,539 Extraordinary loss on debt redemption net of income tax.... 1,037 -- -- -- -- -- -- ------- ------- -------- -------- -------- -------- -------- Net income........................ $ 8,764 $ 8,182 $ 33,848 $ 29,841 $ 20,282 $ 23,739 $ 18,539 ======= ======= ======== ======== ======== ======== ======== PER SHARE DATA Primary earnings: Income before extraordinary item.............................. $ 0.89 $ 0.80 $ 3.30 $ 2.96 $ 2.03 $ 2.32 $ 1.84 Extraordinary loss................ (0.10) -- -- -- -- -- -- ------- ------- -------- -------- -------- -------- -------- Net income........................ $ 0.79 $ 0.80 $ 3.30 $ 2.96 $ 2.03 $ 2.32 $ 1.84 ======= ======= ======== ======== ======== ======== ======== Fully diluted earnings (assuming conversion of dilutive convertible securities): Income before extraordinary item............................ $ 0.81 $ 0.69 $ 2.83 $ 2.53 $ 1.85 $ 2.08 $ 1.84 Extraordinary loss................ (0.06) -- -- -- -- -- -- ------- ------- -------- -------- -------- -------- -------- Net income........................ $ 0.75 $ 0.69 $ 2.83 $ 2.53 $ 1.85 $ 2.08 $ 1.84 ======= ======= ======== ======== ======== ======== ======== Dividends per common share........ $ .24 $ .21 $ .83 $ .75 $ .67 $ .5 $ .51 ======= ======= ======== ======== ======== ======== ======== BALANCE SHEET DATA Investments and cash.............. $ 825,487 $675,874 $754,210 $653,704 $551,784 $546,303 $500,359 Total assets...................... 1,021,062 850,323 920,804 820,930 727,245 700,407 652,473 Unpaid claims and claims expenses........................ 481,974 427,158 467,177 411,874 389,298 354,582 351,897 Convertible debentures............ -- 103,500 103,500 103,500 103,500 103,500 103,500 Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely Junior Subordinated Debentures of Trenwick........................ 110,000 -- -- -- -- -- -- Total common stockholders' equity.......................... 322,474 239,338 265,753 240,776 188,213 206,763 169,373 Shares of common stock outstanding..................... 11,936 9,902 10,088 9,886 9,660 9,874 9,765 Book value per common share....... $ 27.02 $ 24.17 $ 26.34 $ 24.36 $ 19.48 $ 20.94 $ 17.35 CERTAIN GAAP FINANCIAL RATIOS Combined ratio.................... 96.7% 95.3% 95.8% 95.6% 103.2% 102.5% 112.3% Net premiums written to surplus ratio........................... N/A N/A 0.85:1 0.82:1 0.74:1 0.49:1 0.48:1 Unpaid claims and claims expenses to surplus ratio................ 1.49:1 1.78:1 1.76:1 1.71:1 2.07:1 1.71:1 2.08:1
- --------------- All share and per share information reflects a 3 for 2 stock split, paid on April 15, 1997. 19 29 TRENWICK GROUP INC. Trenwick Group Inc. is a holding company whose operating subsidiary, Trenwick America Reinsurance Corporation ("Trenwick America Re"), provides treaty and facultative reinsurance to insurers of property and casualty risks in the United States. Trenwick America Re's business is primarily obtained through brokers and reinsurance intermediaries. The major portion of the reinsurance it writes is automobile liability, professional liability and general liability. Reinsurance is provided both on an excess of loss and quota share basis. In addition to underwriting reinsurance on its own account, Trenwick America Re participates in specialized segments of the reinsurance market through strategic alliances with leaders in those segments. Over the five-year period ending December 31, 1996, the combined ratio of the Company's reinsurance operations, computed on the basis of generally accepted accounting principles, substantially improved from 112.3% in 1992 to 95.8% in 1996. Trenwick America Re is licensed or otherwise authorized to conduct reinsurance business in every state and the District of Columbia. Trenwick America Re is rated "A+ (Superior)" by A.M. Best Company, an independent insurance industry rating organization, and its claims-paying ability is rated "A+ (Good)" by Standard & Poor's Rating Services. A.M. Best ratings are primarily based upon factors relevant to policyholders and are not directed toward the protection of investors. TRENWICK CAPITAL TRUST I The Trust is a statutory business trust formed under Delaware law pursuant to (i) the Declaration of Trust dated as of January 21, 1997 executed by the Company as Sponsor and Chase Manhattan Bank Delaware as Delaware Trustee, and (ii) the filing of a certificate of trust with the Delaware Secretary of State on January 21, 1997. The Trust exists for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii) effecting the Exchange Offer or filing a Shelf Registration Statement, (iii) using the proceeds from the sale of Trust Securities to acquire Junior Subordinated Debentures, (iv) making Distributions to holders of the Trust Securities as provided in the Trust Agreement and (v) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Securities). Accordingly, the Junior Subordinated Debentures will be the sole assets of the Trust, and payments under the Junior Subordinated Debentures will be the sole revenues of the Trust. All of the Common Securities are owned by the Company. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Exchange Capital Securities, except that upon the occurrence and continuance of an event of default under the Trust Agreement resulting from a Debenture Event of Default, the rights of the Company as holder of the Common Securities to payments in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Capital Securities. See "Description of Exchange Securities -- Description of Exchange Capital Securities -- Subordination of Common Securities." The Company has acquired Common Securities in a Liquidation Amount equal to 3% of the total capital of the Trust. The Trust has a term of 45 years, but may terminate earlier as provided in the Trust Agreement. The Trust's business and affairs are conducted by its trustees, each appointed by the Company as holder of the Common Securities. The trustees for the Trust are The Chase Manhattan Bank as the Property Trustee, Chase Manhattan Bank Delaware as the Delaware Trustee, and three individual trustees as the Administrative Trustees who are employees or officers of or affiliated with the Company (collectively, the "Issuer Trustees"). The Chase Manhattan Bank, as Property Trustee, acts as sole indenture trustee under the Trust Agreement. The Chase Manhattan Bank also acts as indenture trustee under the Guarantee and the Indenture. See "Description of Exchange Securities -- Description of Exchange Guarantee" and "-- Description of Exchange Junior Subordinated Debentures." The holder of the Common Securities of the Trust or, if an Event of Default under the Trust Agreement has occurred and is continuing, the holders of a majority in Liquidation Amount of the Capital Securities will be entitled to appoint, remove or replace the Property Trustee and/or the Delaware Trustee. In no event will the holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees; such voting rights will be vested exclusively in the holder of the Common Securities. The duties and obligations of each Issuer Trustee are governed by the Trust Agreement. The Company will pay all fees, expenses, debts and obligations (other than the Trust Securities) related to the Trust and the offering of the Capital Securities and will pay, directly or indirectly, all 20 30 ongoing costs, expenses and liabilities of the Trust. The principal executive office of the Trust is Trenwick Capital Trust I, c/o Trenwick Group Inc., Metro Center, One Station Place, Stamford, CT 06902. THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the sale of the Old Capital Securities, the Company and the Trust entered into the Registration Rights Agreement with the Initial Purchaser, pursuant to which the Company and the Trust agreed to file and to use their reasonable best efforts to cause to become effective with the Commission a registration statement with respect to the exchange of the Old Capital Securities for other capital securities with terms identical in all material respects to the terms of the Old Capital Securities. A copy of the Registration Rights Agreement has been filed as an Exhibit to the Registration Statement of which this Prospectus is a part. The Exchange Offer is being made to satisfy the contractual obligations of the Company and the Trust under the Registration Rights Agreement. The form and terms of the Exchange Capital Securities are the same as the form and terms of the Old Capital Securities except that the Exchange Capital Securities have been registered under the Securities Act and will not be subject to the $100,000 minimum Liquidation Amount transfer restriction and certain other restrictions on transfer applicable to the Old Capital Securities. The Exchange Capital Securities will not provide, as do the Old Capital Securities, for the accrual of Additional Interest on the Junior Subordinated Debentures affected thereby, or for the accumulation of Additional Distributions on the Trust Securities affected thereby, if the Exchange Offer Registration Statement is not declared effective or the Exchange Offer is not consummated, or any required Shelf Registration Statement is not declared effective. Upon the consummation of the Exchange Offer, the Company and the Trust will have satisfied their obligations under the Registration Rights Agreement and holders of Old Capital Securities will not be entitled to any such additional Distributions thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances with respect to certain broker-dealers. See "Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities" and "Description of Old Securities." The Exchange Offer is not being made to, nor will the Trust accept tenders for exchange from, holders of Old Capital Securities in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Unless the context requires otherwise, the term "holder" with respect to the Exchange Offer means any person in whose name the Old Capital Securities are registered on the books of the Trust or any other person who has obtained a properly completed bond power from such holder, or any person whose Old Capital Securities are held of record by The Depository Trust Company ("DTC") who desires to deliver such Old Capital Securities by book-entry transfer at DTC. Pursuant to the Exchange Offer, the Company will exchange as soon as practicable after the date hereof the Old Guarantee for the Exchange Guarantee and the Old Junior Subordinated Debentures, in an amount corresponding to the Old Capital Securities accepted for exchange, for a like aggregate principal amount of the Exchange Junior Subordinated Debentures. The Exchange Guarantee and Exchange Junior Subordinated Debentures have been registered under the Securities Act. TERMS OF THE EXCHANGE OFFER The Trust hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, to exchange up to $110,000,000 aggregate Liquidation Amount of 21 31 Exchange Capital Securities for a like aggregate Liquidation Amount of Old Capital Securities properly tendered on or prior to the Expiration Date and not properly withdrawn in accordance with the procedures described below. The Trust will issue, promptly after the Expiration Date, an aggregate Liquidation Amount of up to $110,000,000 of Exchange Capital Securities in exchange for a like principal amount of outstanding Old Capital Securities tendered and accepted in connection with the Exchange Offer. Old Capital Securities may be tendered in the Exchange Offer for exchange in whole or in part in any integral multiples of $1,000 Liquidation Amount (one Old Capital Security) notwithstanding the requirement, applicable to all other transfers of Capital Securities, of a minimum transfer amount of $100,000 in Liquidation Amount. For purposes of tenders of Old Capital Securities in the Exchange Offer, the requirement for minimum transfers of $100,000 Liquidation Amount will be waived. The Exchange Offer is not conditioned upon any minimum Liquidation Amount of Old Capital Securities being tendered. As of the date of this Prospectus, $110,000,000 aggregate Liquidation Amount of Old Capital Securities is outstanding. Holders of Old Capital Securities do not have any appraisal or dissenters' rights in connection with the Exchange Offer. Old Capital Securities which are not tendered for or are tendered but not accepted in connection with the Exchange Offer will remain outstanding and be entitled to the benefits of the Trust Agreement, but will not be entitled to any further registration rights under the Registration Rights Agreement, except under limited circumstances with respect to certain broker-dealers. See "Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities" and "Description of Old Securities." If any tendered Old Capital Securities are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Capital Securities will be returned, without expense, to the tendering holder thereof promptly after the Expiration Date. Holders who tender Old Capital Securities in connection with the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Capital Securities in connection with the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "-- Fees and Expenses." NEITHER THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS. The term "Expiration Date" means 5:00 p.m., New York City time, on July 24, 1997 unless the Exchange Offer is extended by the Company or the Trust (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). The Company and the Trust have no present expectation that the Expiration Date will be extended. The Company and the Trust expressly reserve the right in their sole and absolute discretion, subject to applicable law, at any time and from time to time, to (i) delay the acceptance of the Old Capital Securities for exchange, (ii) terminate the Exchange Offer (whether or not any Old Capital Securities have theretofore been accepted for exchange) if the Trust determines, in its sole and absolute discretion, that any of the events or conditions referred to under "-- Conditions to the Exchange Offer" have occurred or exist or have not been satisfied, (iii) extend the Expiration Date of the Exchange Offer and retain all Old Capital Securities tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Old Capital Securities to withdraw their tendered Old Capital Securities as described under "-- Withdrawal Rights," and (iv) waive any 22 32 condition or otherwise amend the terms of the Exchange Offer in any respect. If the Exchange Offer is amended in a manner determined by the Company and the Trust to constitute a material change, or if the Company and the Trust waive a material condition of the Exchange Offer, the Company and the Trust will promptly disclose such amendment by means of a Prospectus supplement that will be distributed to the holders of the Old Capital Securities, and the Company and the Trust will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. Any such delay in acceptance, extension, termination or amendment will be followed promptly by oral or written notice thereof to the Exchange Agent and by making a public announcement thereof, and such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company and the Trust may choose to make any public announcement and subject to applicable law, the Company and the Trust shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to an appropriate news agency. ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES Upon the terms and subject to the conditions of the Exchange Offer, the Trust will exchange, and will issue to the Exchange Agent, Exchange Capital Securities for Old Capital Securities validly tendered and not withdrawn promptly after the Expiration Date. In all cases, delivery of Exchange Capital Securities in exchange for Old Capital Securities tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) Old Capital Securities or a book-entry confirmation of a book-entry transfer of Old Capital Securities into the Exchange Agent's account at DTC, including an Agent's Message if the tendering holder has not delivered a Letter of Transmittal, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees or (in the case of a book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and (iii) any other documents required by the Letter of Transmittal. The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of Old Capital Securities into the Exchange Agent's account at DTC. The term "Agent's Message" means a message transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgement from the tendering Participant (as defined herein), which acknowledgement states that such Participant has received and agrees to be bound by the Letter of Transmittal and that the Trust and the Company may enforce such Letter of Transmittal against such Participant. Subject to the terms and conditions of the Exchange Offer, the Trust will be deemed to have accepted for exchange, and thereby exchanged, Old Capital Securities validly tendered and not withdrawn as, if and when the Trust gives oral or written notice to the Exchange Agent of the Trust's acceptance of such Old Capital Securities for exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent for the Trust for the purpose of receiving tenders of Old Capital Securities, Letters of Transmittal and related documents, and as agent for tendering holders for the purpose of receiving Old Capital Securities, Letters of Transmittal and related documents and transmitting Exchange Capital Securities to validly tendering holders. Such exchange will be made promptly after the Expiration Date. If for any reason whatsoever, acceptance for exchange or the exchange of any Old Capital Securities tendered pursuant to the Exchange Offer is delayed (whether before or after the Trust's acceptance for exchange of Old Capital Securities) or the Trust extends the Exchange Offer or is unable to accept for exchange or exchange Old Capital Securities tendered pursuant to the Exchange Offer, then, without prejudice to the Trust's rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Capital Securities and such Old Capital Securities may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under "-- Withdrawal Rights." Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a holder of Old Capital Securities will warrant and agree in the Letter of Transmittal that it has full power and authority to tender, 23 33 exchange, sell, assign and transfer Old Capital Securities, that the Trust will acquire good, marketable and unencumbered title to the tendered Old Capital Securities, free and clear of all liens, restrictions, charges and encumbrances, and the Old Capital Securities tendered for exchange are not subject to any adverse claims or proxies. The holder also will warrant and agree that it will, upon request, execute and deliver any additional documents deemed by the Trust or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment, and transfer of the Old Capital Securities tendered pursuant to the Exchange Offer. PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES VALID TENDER. Except as set forth below, for Old Capital Securities to be validly tendered pursuant to the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees or (in the case of a book-entry tender) an Agent's Message in lieu of the Letter of Transmittal and any other required documents, must be received by the Exchange Agent at one of its addresses set forth under "-- Exchange Agent," on or prior to the Expiration Date and (i) tendered Old Capital Securities must be received by the Exchange Agent, or (ii) such Old Capital Securities must be tendered pursuant to the procedures for book-entry transfer set forth below and a book-entry confirmation, including an Agent's Message if the tendering holder has not delivered a Letter of Transmittal must be received by the Exchange Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed delivery procedures set forth below must be complied with. If less than all of the Old Capital Securities are tendered, a tendering holder should fill in the amount of Old Capital Securities being tendered in the appropriate box on the Letter of Transmittal or so indicate in an Agent's Message in lieu of the Letter of Transmittal. The entire amount of Old Capital Securities delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER. The Exchange Agent will establish an account with respect to the Old Capital Securities at DTC for purposes of the Exchange Offer no later than two (2) business days after the date of this Prospectus. Any financial institution that is a participant in DTC's book-entry transfer facility system may make a book-entry delivery of the Old Capital Securities by causing DTC to transfer such Old Capital Securities into the Exchange Agent's account at DTC in accordance with DTC's procedures for transfers. However, although delivery of Old Capital Securities may be effected through book-entry transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message in lieu of a Letter of Transmittal and any other required documents, must in any case be delivered to and received by the Exchange Agent at its address set forth under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure set forth below must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not be endorsed and signature guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate for the Old Capital Securities is registered in a name other than that of the person surrendering the certificate or (b) such holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b) above, such certificates for Old Capital Securities must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the Letter of Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15 under 24 34 the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association (an "Eligible Institution"), unless surrendered on behalf of such Eligible Institution. See Instruction 1 to the Letter of Transmittal. GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities pursuant to the Exchange Offer and the certificates for such Old Capital Securities are not immediately available or time will not permit all required documents to reach the Exchange Agent on or prior to the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such Old Capital Securities may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with: (a) such tenders are made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form accompanying the Letter of Transmittal, is received by the Exchange Agent, as provided below, on or prior to the Expiration Date; and (c) the certificates (or a book-entry confirmation) representing all tendered Old Capital Securities, in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, are received by the Exchange Agent within three (3) NASDAQ trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by facsimile or mail to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such notice. Notwithstanding any other provision hereof, the delivery of Exchange Capital Securities in exchange for Old Capital Securities tendered and accepted for exchange pursuant to the Exchange Offer will in all cases be made only after timely receipt by the Exchange Agent of Old Capital Securities, or of a book-entry confirmation with respect to such Old Capital Securities, and a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof), together with any required signature guarantees and any other documents required by the Letter of Transmittal. Accordingly, the delivery of Exchange Capital Securities might not be made to all tendering holders at the same time, and will depend upon when Old Capital Securities, book-entry confirmations with respect to Old Capital Securities and other required documents are received by the Exchange Agent. The Trust's acceptance for exchange of Old Capital Securities tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering holder and the Trust upon the terms and subject to the conditions of the Exchange Offer. DETERMINATION OF VALIDITY. All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tendered Old Capital Securities will be determined by the Company and the Trust, in their sole discretion, whose determination shall be final and binding on all parties. The Company and the Trust reserve the absolute right, in their sole and absolute discretion, to reject any and all tenders determined by them not to be in proper form or the acceptance of which, or exchange for, may, in the opinion of counsel to the Company and the Trust, be unlawful. The Company and the Trust also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer as set forth under "-- Conditions to the Exchange Offer" or any condition or irregularity in any tender of Old Capital Securities of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The interpretation by the Company and the Trust of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. No tender of Old Capital Securities will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Company, the Trust, any affiliates or assigns of the Company or the 25 35 Trust, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in tenders or incur any liability for failure to give any such notification. If any Letter of Transmittal, endorsement, bond power, power of attorney, or any other document required by the Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company and the Trust, proper evidence satisfactory to the Company and the Trust, in their sole discretion, of such person's authority to so act must be submitted. A beneficial owner of Old Capital Securities that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian is urged to contact such entity promptly if such beneficial holder wishes to participate in the Exchange Offer. RESALES OF EXCHANGE CAPITAL SECURITIES The Trust is making the Exchange Offer for the Exchange Capital Securities in reliance on the position of the staff of the Division of Corporation Finance of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, neither the Company nor the Trust sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance of the Commission, and subject to the two immediately following sentences, the Company and the Trust believe that Exchange Capital Securities issued pursuant to this Exchange Offer in exchange for Old Capital Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Capital Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities. However, any holder of Old Capital Securities who is an "affiliate" of the Company or the Trust or who intends to participate in the Exchange Offer for the purpose of distributing Exchange Capital Securities, or any broker-dealer who purchased Old Capital Securities from the Trust for resale pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Capital Securities in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Capital Securities unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Capital Securities acquired for its own account as a result of market-making or other trading activities and exchanges such Old Capital Securities for Exchange Capital Securities, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Capital Securities. Each holder of Old Capital Securities who wishes to exchange Old Capital Securities for Exchange Capital Securities in the Exchange Offer will be required to represent that (i) such holder is not an "affiliate" of the Company or the Trust, (ii) any Exchange Capital Securities to be received by such holder are being acquired in the ordinary course of its business, (iii) such holder has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Capital Securities. In addition, the Company and the Trust may require such holder, as a condition to such holder's eligibility to participate in the Exchange Offer, to furnish to the Company and the Trust (or an agent thereof) in writing information as to the number of "beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the Capital Securities to be exchanged in the Exchange Offer. Each broker-dealer that receives Exchange Capital Securities for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Capital Securities for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the 26 36 requirements of the Securities Act in connection with any resale of such Exchange Capital Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Company and the Trust believe that Participating Broker-Dealers who acquired Old Capital Securities for their own accounts as a result of market-making activities or other trading activities may fulfill their prospectus delivery requirements with respect to the Exchange Capital Securities received upon exchange of such Old Capital Securities (other than Old Capital Securities which represent an unsold allotment from the original sale of the Old Capital Securities) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such Exchange Capital Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the period referred to below in connection with resales of Exchange Capital Securities received in exchange for Old Capital Securities where such Old Capital Securities were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Capital Securities for a period ending 90 days after the Expiration Date (subject to extension under certain limited circumstances described below) or, if earlier, when all such Exchange Capital Securities have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." A Participating Broker-Dealer who intends to use this Prospectus in connection with the resale of Exchange Capital Securities received in exchange for Old Capital Securities pursuant to the Exchange Offer must notify the Company or the Trust, or cause the Company or the Trust to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under "-- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of the Company or the Trust may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each Participating Broker-Dealer who surrenders Old Capital Securities pursuant to the Exchange Offer will be deemed to have agreed that, upon receipt of notice from the Company or the Trust of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable) pursuant to this Prospectus until the Company or the Trust has amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Company or the Trust has given notice that the sale of the Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the case may be. If the Company or the Trust gives such notice to suspend the sale of the Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable), it shall extend the 90-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of Exchange Capital Securities by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the Exchange Capital Securities or to and including the date on which the Company or the Trust has given notice that the sale of Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the case may be. 27 37 WITHDRAWAL RIGHTS Except as otherwise provided herein, tenders of Old Capital Securities may be withdrawn at any time on or prior to the Expiration Date. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth under "-- Exchange Agent" on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Old Capital Securities to be withdrawn, the aggregate principal amount of Old Capital Securities to be withdrawn, and (if certificates for such Old Capital Securities have been tendered) the name of the registered holder of the Old Capital Securities as set forth on the Old Capital Securities, if different from that of the person who tendered such Old Capital Securities. If Old Capital Securities have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Old Capital Securities, the tendering holder must submit the serial numbers shown on the particular Old Capital Securities to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Old Capital Securities tendered for the account of an Eligible Institution. If Old Capital Securities have been tendered pursuant to the procedures for book-entry transfer set forth in "-- Procedures for Tendering Old Capital Securities," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Capital Securities, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old Capital Securities may not be rescinded. Old Capital Securities properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described above under "-- Procedures for Tendering Old Capital Securities." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Trust, in its sole discretion, whose determination shall be final and binding on all parties. Neither the Company, the Trust, any affiliates or assigns of the Company or the Trust, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Old Capital Securities which have been tendered but which are withdrawn will be returned to the holder thereof promptly after withdrawal. DISTRIBUTIONS ON EXCHANGE CAPITAL SECURITIES Holders of Old Capital Securities whose Old Capital Securities are accepted for exchange will not receive Distributions on such Old Capital Securities and will be deemed to have waived the right to receive any Distributions on such Old Capital Securities accumulated from and including January 31, 1997. Accordingly, holders of Exchange Capital Securities as of the record date for the payment of Distributions on August 1, 1997 will be entitled to Distributions accumulated from and including January 31, 1997. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Company and the Trust will not be required to accept for exchange, or to exchange, any Old Capital Securities for any Exchange Capital Securities, and, as described below, may terminate the Exchange Offer (whether or not any Old Capital Securities have theretofore been accepted for exchange) or may waive any conditions to or amend the Exchange Offer, if any of the following conditions have occurred or exists or have not been satisfied: (a) there shall occur a change in the current interpretation by the staff of the Commission which permits the Exchange Capital Securities issued pursuant to the Exchange Offer in exchange for Old Capital Securities to be offered for resale, resold and otherwise transferred by holders thereof (other than broker-dealers and any such holder which is an "affiliate" of the Company or the Trust within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Capital Securities are acquired in 28 38 the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Capital Securities; or (b) any law, statute, rule or regulation shall have been adopted or enacted which, in the judgment of the Company or the Trust, would reasonably be expected to impair its ability to proceed with the Exchange Offer; or (c) a stop order shall have been issued by the Commission or any state securities authority suspending the effectiveness of the Registration Statement or proceedings shall have been initiated or, to the knowledge of the Company or the Trust, threatened for that purpose or any governmental approval has not been obtained, which approval the Company or the Trust shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. (d) the Company shall have received an opinion of counsel, rendered by a law firm experienced in such matters, to the effect that, as a result of the consummation of the Exchange Offer there is more than an insubstantial risk that (x) the Trust would be subject to United States federal income tax with respect to income received or accrued on the Junior Subordinated Debentures, (y) interest payable by the Company on the Junior Subordinated Debentures would not be deductible by the Company, in whole or in part, for United States federal income purposes, or (z) the Trust would be subject to more than a de minimis amount of other taxes, duties or other governmental charges, in which case the Company and the Trust may, in lieu of consummating of the Exchange Offer, file a Shelf Registration Statement in accordance with the Registration Rights Agreement. If the Company or the Trust determines in its sole and absolute discretion that any of the foregoing events or conditions has occurred or exists or has not been satisfied, it may, subject to applicable law, terminate the Exchange Offer (whether or not any Old Capital Securities have theretofore been accepted for exchange) or may waive any such condition or otherwise amend the terms of the Exchange Offer in any respect. If such waiver or amendment constitutes a material change to the Exchange Offer, the Company or the Trust will promptly disclose such waiver or amendment by means of a Prospectus supplement that will be distributed to the registered holders of the Old Capital Securities and will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. EXCHANGE AGENT The Chase Manhattan Bank has been appointed as Exchange Agent for the Exchange Offer. Delivery of the Letters of Transmittal and any other required documents, questions, requests for assistance, and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent as follows: BY REGISTERED OR CERTIFIED MAIL, HAND OR OVERNIGHT DELIVERY: ------------------------------------------------------------ The Chase Manhattan Bank 55 Water Street, Room 234 North Building New York, New York 10041 Attention: Sharon Lewis Confirm by Telephone: --------------------- (212) 638-0454 Facsimile Transmissions: ------------------------ (Eligible Institutions Only) (212) 638-7380 Delivery of this instrument to an address other than as set forth above or transmission of instructions via facsimile other than as set forth above, will not constitute a valid delivery. 29 39 FEES AND EXPENSES The Company has agreed to pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and related documents to the beneficial owners of Old Capital Securities, and in handling or tendering for their customers. Holders who tender their Old Capital Securities for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, Exchange Capital Securities are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Capital Securities tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Capital Securities in connection with the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Neither the Company nor the Trust will make any payment to brokers, dealers or other nominees soliciting acceptances of the Exchange Offer. DESCRIPTION OF EXCHANGE SECURITIES DESCRIPTION OF EXCHANGE CAPITAL SECURITIES Pursuant to the terms of the Trust Agreement, the Trust has issued the Old Capital Securities and the Common Securities and will issue the Exchange Capital Securities. The Exchange Capital Securities will represent preferred beneficial interests in the Trust and the holders of the Exchange Capital Securities and the Old Capital Securities will be entitled to a preference over the Common Securities in certain circumstances with respect to Distributions and amounts payable on redemption of the Trust Securities or liquidation of the Trust. See "--Subordination of Common Securities." The Trust Agreement has been qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). This summary of all of the material provisions of the Exchange Capital Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Trust Agreement, including the definitions therein of certain terms. A copy of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL The Capital Securities (including the Old Capital Securities and the Exchange Capital Securities) are limited to $110,000,000 aggregate Liquidation Amount at any one time outstanding. The Capital Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities except as described under "-- Subordination of Common Securities." Legal title to the Junior Subordinated Debentures will be held by the Property Trustee in trust on behalf of the Trust for the benefit of the holders of the Capital Securities and Common Securities. The Exchange Guarantee will not guarantee payment of Distributions or amounts payable on redemption of the Exchange Capital Securities or liquidation of the Trust when the Trust does not have funds on hand legally available for such payments. See "-- Description of Exchange Guarantee." DISTRIBUTIONS Distributions on the Exchange Capital Securities will be cumulative, will accrue from January 31, 1997 (the date of original issuance of the Old Capital Securities) or from the latest date to which distributions thereon have been duly paid or provided for at the annual rate of 8.82% of the principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 1997, to the holders of the Exchange Capital Securities on the relevant record dates. The record dates will be the fifteenth day preceding the relevant Distribution Date (as defined below). The amount of Distributions 30 40 payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in a period. In the event that any date on which Distributions are payable on the Exchange Capital Securities is not a Business Day (as defined below), then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect to any such delay), in each case with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). A "Business Day" shall mean 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 remain closed. So long as no Debenture Event of Default shall have occurred and be continuing, the Company will have the right under the Indenture to defer the payment of interest on the Exchange Junior Subordinated Debentures at any time or from time to time for a period not exceeding 10 consecutive semi-annual periods with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity. Upon any such election, semi-annual Distributions on the Exchange Capital Securities will be deferred by the Trust during any such Extension Period. Distributions to which holders of the Exchange Capital Securities are entitled during any such Extension Period will accumulate additional Distributions thereon at the rate per annum of 8.82% thereof, compounded semi-annually from the relevant Distribution Date, 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 a period, but not exceeding the interest rate then accruing on the Exchange Junior Subordinated Debentures. The term "Distributions," as used herein, shall include any such additional Distributions. Prior to the termination of any such Extension Period, and so long as no Debenture Event of Default has occurred and is continuing, the Company may further extend the Extension Period provided that no Extension Period may exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity. Upon the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, the Company may elect to begin a new Extension Period. The Company must give the Property Trustee, the Administrative Trustees and the Debenture Trustee notice of its election of any such Extension Period at least five Business Days prior to the earlier of (i) the date the Distributions on the Capital Securities would have been payable except for the election to begin or extend such Extension Period or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or to holders of such Exchange Capital Securities of the record date or the date such Distributions are payable but in any event not less than five (5) Business Days prior to such record date. There is no limitation on the number of times that the Company may elect to begin an Extension Period. See "-- Description of Exchange Junior Subordinated Debentures -- Option to Extend Interest Payment Date" and "Certain Federal Income Tax Consequences -- Interest Income and Original Issue Discount." 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, 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 Exchange Junior Subordinated Debentures or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company (including Other Guarantees) if such guarantee ranks pari passu with, or junior in right of payment to, the Exchange Junior Subordinated Debentures (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, (d) as a 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 31 41 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. Although the Company may in the future exercise its right to defer payments of interest on the Exchange Junior Subordinated Debentures, the Company has no such current intention. The revenue of the Trust available for distribution to holders of the Exchange Capital Securities will be limited to payments under the Exchange Junior Subordinated Debentures held by the Trust. See "-- Description of Exchange Junior Subordinated Debentures -- General." If the Company does not make interest payments on the Exchange Junior Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Exchange Capital Securities. The payment of Distributions (if and to the extent the Trust has funds on hand legally available for the payment of such Distributions) will be guaranteed by the Company on a limited basis as set forth herein under "-- Description of Exchange Guarantee." CONDITIONAL RIGHT TO SHORTEN MATURITY AND SPECIAL EVENT REDEMPTION 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 Exchange Junior Subordinated Debentures to the minimum extent required, but not less than 20 years from the date of original issuance thereof, such that, in the written opinion of counsel experienced in such matters delivered to the Company, after shortening the maturity, interest paid on the Exchange Junior Subordinated Debentures will 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 Exchange Junior Subordinated Debentures, as described below. If a Tax Event or an Investment Company Event occurs, then the Company shall have the right, within 90 days following the occurrence of such Tax Event or Investment Company Event, as the case may be, to prepay the Exchange Junior Subordinated Debentures in whole (but not in part) in the manner and at the price determined as set forth under "-- Description of Exchange Junior Subordinated Debentures -- Conditional Right to Shorten Maturity and Special Event Prepayment," and therefore to cause a mandatory redemption of the Exchange Capital Securities prior to the Stated Maturity (the circumstances under which the Company has the right to so prepay the Exchange Junior Subordinated Debentures in connection with a Tax Event being referred to herein as a "Conditional Tax Redemption Event"). Each of a Conditional Tax Redemption Event or an Investment Company Event are sometimes referred to herein as a "Special Event." REDEMPTION Upon the repayment on the Stated Maturity or prepayment prior to the Stated Maturity of the Exchange Junior Subordinated Debentures, the proceeds from such repayment or prepayment shall be applied by the Property Trustee to redeem a Like Amount (as defined below) of the Trust Securities, upon not less than 30 nor more than 60 days' notice of a date of redemption (the "Redemption Date"), at the applicable Redemption Price, which shall be equal to (i) in the case of the repayment of the Exchange Junior Subordinated Debentures on the Stated Maturity, the Maturity Redemption Price (equal to the principal of, and accrued and unpaid interest on, the Exchange Junior Subordinated Debentures), (ii) in the case of the optional prepayment of the Exchange Junior Subordinated Debentures upon the occurrence and continuation of a Special Event, the Special Event Redemption Price (equal to the Special Event Prepayment Price in respect of the Exchange Junior Subordinated Debentures) and (iii) in the case of the optional prepayment of the Exchange Junior Subordinated Debentures other than as contemplated in clause (ii) above, the Optional Redemption Price (equal to the Optional Prepayment Price in respect of the Exchange Junior Subordinated Debentures). See "-- Description of Exchange Junior Subordinated Debentures -- Optional Prepayment" and "-- Conditional Right to Shorten Maturity and Special Event Prepayment." "Like Amount" means (i) with respect to a redemption of the Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Exchange Junior Subordinated Debentures to be paid in 32 42 accordance with their terms and (ii) with respect to a distribution of Exchange Junior Subordinated Debentures upon the liquidation of the Trust, Exchange Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Exchange Junior Subordinated Debentures are distributed. The Company will have the option to prepay the Exchange Junior Subordinated Debentures, (i) in whole or in part, on or after February 1, 2007, at the applicable Optional Prepayment Price and (ii) in whole but not in part, at any time, upon the occurrence of a Special Event, at the Special Event Prepayment Price. LIQUIDATION OF THE TRUST AND DISTRIBUTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES The Company, as the holder of all of the outstanding Common Securities, will have the right at any time to dissolve the Trust and cause a Like Amount of the Exchange Junior Subordinated Debentures to be distributed to the holders of the Trust Securities in liquidation of the Trust, subject to the Company's having received an opinion by independent tax counsel experienced in such matters 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 to holders of Exchange Capital Securities. The Trust shall automatically dissolve upon the first to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the Company; (ii) the distribution of a Like Amount of the Exchange Junior Subordinated Debentures to the holders of the Trust Securities, if the Company, as Sponsor, has given a written direction to the Property Trustee to terminate the Trust (which direction is optional and, except as described above, wholly within the discretion of the Company, as the holder of all of the outstanding Common Securities); (iii) redemption of all of the Trust Securities as described under "-- Redemption"; (iv) expiration of the term of the Trust; and (v) the entry of an order for the dissolution of the Trust by a court of competent jurisdiction. If a dissolution occurs as described in clause (i), (ii), (iv) or (v) above, the Trust shall be liquidated by the Administrative Trustees as expeditiously as the Administrative Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to the holders of the Trust Securities a Like Amount of the Exchange Junior Subordinated Debentures, unless such distribution is determined by the Property Trustee not to be practicable, in which event such holders will be entitled to receive out of the assets of the Trust legally available for distribution to holders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the aggregate of the Liquidation Amount plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If such Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Capital Securities and the Common Securities shall be paid on a pro rata basis, except that if a Debenture Event of Default has occurred and is continuing, the Capital Securities shall have a priority over the Common Securities. See "-- Subordination of Common Securities." If an early dissolution occurs as described in clause (v) above, the Exchange Junior Subordinated Debentures will be subject to optional prepayment, in whole but not in part, on or after February 1, 2007. If the Company elects not to prepay the Junior Subordinated Debentures prior to maturity in accordance with their terms and either elects not to or is unable to liquidate the Trust and distribute the Junior Subordinated Debentures to holders of the Trust Securities, the Trust Securities will remain outstanding until the repayment of the Junior Subordinated Debentures on the Stated Maturity. After the liquidation date is fixed for any distribution of Junior Subordinated Debentures to holders of the Trust Securities, (i) the Trust Securities will no longer be deemed to be outstanding, (ii) each registered global certificate, if any, representing Trust Securities and held by DTC or its nominee will receive a registered global certificate or certificates representing the Junior Subordinated Debentures to be delivered upon such distribution and (iii) any certificates representing Trust Securities not held by DTC or its nominee will be deemed to represent Exchange Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Trust Securities, and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on such Trust Securities until such certificates are presented to the 33 43 Administrative Trustees or their agent for cancellation, whereupon the Company will issue to such holder, and the Debenture Trustee will authenticate, a certificate representing such Junior Subordinated Debentures. See "-- Form, Denomination, Book-Entry Procedures and Transfer." There can be no assurance as to the market prices for the Exchange Capital Securities or the Exchange Junior Subordinated Debentures that may be distributed in exchange for the Trust Securities if a dissolution and liquidation of the Trust were to occur. Accordingly, the Capital Securities that an investor may purchase, or the Junior Subordinated Debentures that the investor may receive on dissolution and liquidation of the Trust, may trade at a discount to the price that the investor paid to purchase the Capital Securities offered hereby. REDEMPTION PROCEDURES If applicable, Trust Securities shall be redeemed at the applicable Redemption Price with the proceeds from the contemporaneous repayment or prepayment of the Exchange Junior Subordinated Debentures. Any redemption of Trust Securities shall be made and the applicable Redemption Price shall be payable on the Redemption Date only to the extent that the Trust has funds legally available for the payment of such applicable Redemption Price. See also "-- Subordination of Common Securities." If the Trust gives a notice of redemption in respect of the Exchange Capital Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to the extent funds are legally available, with respect to the Exchange Capital Securities held by DTC or its nominees, the Property Trustee will deposit irrevocably with DTC funds sufficient to pay the applicable Redemption Price with respect to the Exchange Capital Securities held by DTC or its nominee. See "-- Form, Denomination, Book-Entry Procedures and Transfer." With respect to the Exchange Capital Securities held in certificated form, the Property Trustee, to the extent funds are legally available, will irrevocably deposit with the paying agent for the Exchange Capital Securities funds sufficient to pay the applicable Redemption Price and will give such paying agent irrevocable instructions and authority to pay the applicable Redemption Price to the holders thereof upon surrender of their certificates evidencing the Exchange Capital Securities. See "-- Payment and Paying Agency." Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date shall be payable to the holders of such Exchange Capital Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of the Exchange Capital Securities will cease, except the right of the holders of the Exchange Capital Securities to receive the applicable Redemption Price, but without interest on such Redemption Price, and the Exchange Capital Securities will cease to be outstanding. In the event that any Redemption Date of Exchange Capital Securities is not a Business Day, then the applicable Redemption Price payable on such date will be paid on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the applicable Redemption Price is improperly withheld or refused and not paid either by the Trust or by the Company pursuant to the Exchange Guarantee as described under "-- Description of Exchange Guarantee," (i) Distributions on the Exchange Capital Securities will continue to accumulate at the then applicable rate, from the Redemption Date originally established by the Trust to the date such applicable Redemption Price is actually paid, and (ii) the actual payment date will be the Redemption Date for purposes of calculating the applicable Redemption Price. Subject to applicable law (including, without limitation, United States federal securities law), the Company or its subsidiaries may at any time and from time to time purchase outstanding Exchange Capital Securities by tender, in the open market or by private agreement. If less than all of the Capital Securities and Common Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such Trust Securities to be redeemed shall generally be allocated pro rata among the Capital Securities and Common Securities based upon the relative Liquidation Amounts of such classes. 34 44 Notice of any redemption will be mailed at least 30 days but not more than 60 days prior to the Redemption Date to each holder of Trust Securities at its registered address. Unless the Company defaults in payment of the applicable Prepayment Price on, or in the repayment of, the Junior Subordinated Debentures, on and after the Redemption Date Distributions will cease to accrue on the Trust Securities called for redemption. SUBORDINATION OF COMMON SECURITIES Payment of Distributions on, and the Redemption Price of, the Capital Securities and Common Securities, as applicable, shall be made pro rata based on the Liquidation Amount of the Capital Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution on, or applicable Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of the Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Capital Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the applicable Redemption Price the full amount of such Redemption Price, shall have been made or provided for, and all funds available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions on, or Redemption Price of, the Capital Securities then due and payable. In the case of any Event of Default (as defined below), the Company as holder of the Common Securities will be deemed to have waived any right to act with respect to such Event of Default until the effect of such Event of Default shall have been cured, waived or otherwise eliminated. Until any such Event of Default has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the holders of the Capital Securities and not on behalf of the Company as holder of the Common Securities, and only the holders of the Capital Securities will have the right to direct the Property Trustee to act on their behalf. EVENTS OF DEFAULT; NOTICE The occurrence of a Debenture Event of Default (see "-- Description of Exchange Junior Subordinated Debentures -- Debenture Events of Default") constitutes an "Event of Default" under the Trust Agreement. Within ninety days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit notice of such Event of Default to the holders of the Capital Securities, the Administrative Trustees and the Company as Sponsor, unless such Event of Default shall have been cured or waived. The Company as Sponsor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Capital Securities shall have a preference over the Common Securities as described under "-- Liquidation of the Trust and Distribution of Exchange Junior Subordinated Debentures" and "-- Subordination of Common Securities." REMOVAL OF ISSUER TRUSTEES Unless a Debenture Event of Default shall have occurred and be continuing, any Issuer Trustee may be removed at any time by the holder of the Common Securities. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Capital Securities. In no event will the holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of the Common Securities. No resignation or removal of an Issuer Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement. 35 45 MERGER OR CONSOLIDATION OF ISSUER TRUSTEES Any company into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person may be merged or converted or with which it may be consolidated, or any company resulting from any merger, conversion or consolidation to which such Issuer Trustee shall be a party, or any company succeeding to all or substantially all the corporate trust business of such Issuer Trustee, shall be the successor of such Issuer Trustee under the Trust Agreement, provided such company shall be otherwise qualified and eligible. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or sell, convey, transfer or lease its properties and assets as an entirety, or substantially as an entirety, to any company or other Person, except as described below. The Trust may, at the request of the Company, as the holder of all of the outstanding Common Securities, with the consent of the Administrative Trustees but without the consent of the Property Trustee, the Delaware Trustee or the holders of the Capital Securities, merge with or into, consolidate, amalgamate, or be replaced by or sell, 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 either (a) expressly assumes all of the obligations of the Trust with respect to the Trust Securities or (b) substitutes for the Trust Securities other securities having substantially the same terms as the Trust Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Trust Securities rank with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Company expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee with respect to the Junior Subordinated Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Capital Securities are then listed or quoted, if any, (iv) such merger, consolidation, amalgamation, replacement, sale, 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, consolidation, amalgamation, replacement, sale, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (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, consolidation, amalgamation, replacement, sale, conveyance, transfer or lease, the Company has received an opinion from independent counsel to the Trust experienced in such matters to the effect that (a) such merger, consolidation, amalgamation, replacement, sale, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than any dilution of such holders' interests in the new entity), and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the Investment Company Act, (viii) the Company or any permitted successor or assignee owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee and (ix) the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by or sell, 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, replacement, sale, conveyance, transfer or lease would cause the Trust or the successor entity not to be classified as a grantor trust for United States federal income tax purposes. VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT Except as provided below and under "-- Removal of Issuer Trustees," "-- Mergers, Consolidations, Amalgamation or Replacements of the Trust" and "Description of Exchange Guarantee -- Amendments and 36 46 Assignment" and as otherwise required by law and the terms of the Trust Securities and the Trust Agreement, the holders of the Exchange Capital Securities will have no voting rights. The Trust Agreement may be amended from time to time by the Company, 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 Trust Securities (i) to cure any ambiguity, correct or supplement any provisions in the Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement, which shall not be inconsistent with the other provisions of the Trust Agreement, (ii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an "investment company" under the Investment Company Act, or (iii) to qualify or maintain qualification of the Trust Agreement 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 Trust Securities. Any amendments of the Trust Agreement pursuant to the foregoing shall become effective when notice thereof is sent to the holders of the Trust Securities. The Trust Agreement may be amended by the Issuer Trustees and the Company, as the holder of all of the outstanding Common Securities, with the consent of holders representing a majority (based upon Liquidation Amount) of the outstanding Trust Securities and upon receipt by the Issuer Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Issuer Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status as an "investment company" under the Investment Company Act, provided that, without the consent of each holder of Trust Securities, the Trust Agreement may not be amended (i) to change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) to restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. So long as any Junior Subordinated Debentures are held by the Property Trustee for the benefit of the holders of the Trust Securities, the Issuer Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or execute any trust or power conferred on such Debenture Trustee with respect to the Junior Subordinated Debentures, (ii) waive certain past defaults under the Indenture, (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Junior Subordinated Debentures or (iv) consent to any amendment, modification or termination of the Indenture or the Junior Subordinated Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of a majority in Liquidation Amount of all outstanding Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Junior Subordinated Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior approval of each holder of the Capital Securities. The Issuer Trustees shall not revoke any action previously authorized or approved by a vote of the holders of the Capital Securities except by subsequent vote of such holders. The Property Trustee shall notify each holder of Capital Securities of any notice of default with respect to the Junior Subordinated Debentures. In addition to obtaining the foregoing approvals of such holders of the Capital Securities, prior to taking any of the foregoing actions, the Issuer Trustees shall obtain an opinion of counsel experienced in such matters to the effect there is no more than an insubstantial risk that the Trust would not be classified for United States federal income tax purposes as a grantor trust on account of such action. Any required approval of holders of Exchange Capital Securities may be given at a meeting of such holders convened for such purpose or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which holders of Exchange Capital Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of Exchange Capital Securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of Exchange Capital Securities will be required for the Trust to redeem and cancel the Exchange Capital Securities in accordance with the Trust Agreement. 37 47 Notwithstanding that holders of the Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Company, the Issuer Trustees or any affiliate of the Company or any Issuer Trustees, shall, for purposes of such vote or consent, be treated as if they were not outstanding. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Capital Securities. In no event will the holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of all the outstanding Common Securities. FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER The Exchange Capital Securities initially will be represented by one or more Exchange Capital Securities certificates in registered, global form (collectively, the "Global Capital Securities"). The Global Capital Securities will be deposited upon issuance with the Property Trustee as custodian for DTC, in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Capital Securities may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Capital Securities may not be exchanged for Capital Securities in certificated form except in the limited circumstances described below. See "-- Exchange of Book-Entry Capital Securities for Certificated Capital Securities." Other Exchange Capital Securities will be issued only in registered, certificated (i.e., non-global) form. Other Exchange Capital Securities may not be exchanged for beneficial interests in any Exchange Global Capital Securities except in the limited circumstances described below. See "-- Exchange of Certificated Capital Securities for Book-Entry Capital Securities." Transfer of beneficial interests in the Global Capital Securities will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and CEDEL), which may change from time to time. Depositary Procedures DTC has advised the Trust and the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchaser), banks, trust companies, clearing companies and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Trust and the Company that, pursuant to procedures established by it, (i) upon deposit of the Global Capital Securities, DTC will credit the accounts of Participants with portions of the Liquidation Amount of the Global Capital Securities equal to the respective Liquidation Amounts of Old Capital Securities accepted for exchange in the Exchange Offer and (ii) ownership of such interests in the Global Capital Securities will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Capital Securities). 38 48 Investors in the Global Capital Securities may hold their interests therein directly through DTC if they are Participants, or indirectly through organizations (including Euroclear and CEDEL) which are Participants. All interests in a Global Capital Security, including those held through Euroclear or CEDEL, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or CEDEL may also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in certificated form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Capital Security to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Capital Security to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Capital Securities, see "-- Exchange of Book-Entry Capital Securities for Certificated Capital Securities", and "-- Exchange of Certificated Capital Securities for Book-Entry Capital Securities" below. Except as described below, owners of interests in the Global Capital Securities will not have Capital Securities registered in their name, will not receive physical delivery of Capital Securities in certificated form and will not be considered the registered owners or holders thereof under the Trust Agreement for any purpose. Payments in respect of the Global Capital Securities registered in the name of DTC or its nominee will be payable by the Property Trustee to DTC or its nominee in its capacity as the registered holder under the Trust Agreement. Under the terms of the Trust Agreement, the Property Trustee will treat the persons in whose names the Capital Securities, including the Global Capital Securities, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Property Trustee nor any agent thereof has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Capital Securities, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Capital Securities or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Trust and the Company that its current practice, upon receipt of any payment in respect of securities such as the Capital Securities, is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in Liquidation Amount of beneficial interests in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of Capital Securities will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Property Trustee, the Trust or the Company. Neither the Trust or the Company nor the Property Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Capital Securities, and the Trust or the Company and the Property Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Except for trades involving only Euroclear and CEDEL participants, interests in the Global Capital Securities will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Capital Securities described herein, crossmarket transfers between the Participants in DTC, on the one hand, and Euroclear or CEDEL participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of 39 49 Euroclear or CEDEL, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Capital Securities in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and CEDEL participants may not deliver instructions directly to the depositaries for Euroclear or CEDEL. Because of time zone differences, the securities account of a Euroclear or CEDEL participant purchasing an interest in a Global Capital Security from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL participant, during the securities settlement processing day (which must be a business day for Euroclear and CEDEL) immediately following the settlement date of DTC. Cash received in Euroclear or CEDEL as a result of sales of interest in a Global Capital Security by or through a Euroclear or CEDEL participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following DTC's settlement date. DTC has advised the Trust and the Company that it will take any action permitted to be taken by a holder of Exchange Capital Securities only at the direction of one or more Participants to whose account with DTC interests in the Global Capital Securities are credited and only in respect of such portion of the Liquidation Amount of the Capital Securities as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Trust Agreement, DTC reserves the right to exchange the Global Capital Securities for Exchange Capital Securities in certificated form and to distribute such Exchange Capital Securities to its Participants. The information in this section concerning DTC, Euroclear and CEDEL and their book-entry systems, has been obtained from sources that the Trust and the Company believe to be reliable, but neither the Trust nor the Company takes responsibility for the accuracy thereof. Neither the Trust or the Company nor the Property Trustee will have any responsibility for the performance by DTC, Euroclear or CEDEL or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Exchange of Book-Entry Capital Securities for Certificated Capital Securities A Global Capital Security is exchangeable for Exchange Capital Securities in registered certificated form if (i) DTC (x) notifies the Trust that it is unwilling or unable to continue as depositary for the Global Capital Security and the Trust thereupon fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company in its sole discretion elects to cause the issuance of the Exchange Capital Securities in certificated form or (iii) there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default under the Trust Agreement. In addition, beneficial interests in a Global Capital Security may be exchanged for certificated Exchange Capital Securities upon request but only upon at least 20 days prior written notice given to the Property Trustee by or on behalf of DTC in accordance with customary procedures. In all cases, certificated Exchange Capital Securities delivered in exchange for any Global Capital Security or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). Exchange of Certificated Capital Securities for Book-Entry Capital Securities Other Capital Securities, which will be issued in certificated form, may not be exchanged for beneficial interests in any Global Capital Security unless such exchange occurs in connection with a transfer of such other Capital Securities and the transferor first delivers to the Property Trustee a written certificate (in the 40 50 form provided in the Trust Agreement) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Capital Securities. PAYMENT AND PAYING AGENCY The clearing agency for the Exchange Capital Securities (the "Clearing Agency") shall initially be DTC. Payments in respect of the Exchange Capital Securities held in global form shall be made to the Clearing Agency, which shall credit the relevant accounts at the Clearing Agency on the applicable Distribution Dates or, in respect of the Exchange Capital Securities that are not held by the Clearing Agency, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the register. The paying agent for the Exchange Capital Securities (the "Paying Agent") shall initially be the Property Trustee. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Property Trustee and the Company. In the event that the Property Trustee shall no longer be the Paying Agent, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company acceptable to the Administrative Trustees) to act as Paying Agent. REGISTRAR AND TRANSFER AGENT The Property Trustee will act as registrar and transfer agent for the Exchange Capital Securities. Registration of transfers of the Exchange Capital Securities will be effected without charge by or on behalf of the Trust, subject to payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. The Trust will not be required to register or cause to be registered the transfer of the Exchange Capital Securities after they have been called for redemption. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, other than during the occurrence and continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Trust Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and is continuing and the Property Trustee is required to decide between alternative causes of action, construe ambiguous provisions in the Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of the Capital Securities or the Common Securities are entitled under the Trust Agreement to vote, then the Property Trustee shall take such action as is directed by the Company and, if not so directed, shall take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct. The Property Trustee currently provides commercial banking and other services to the Company. MISCELLANEOUS The Administrative Trustees are authorized and directed to conduct the affairs of and to operate the Trust in such a way that the Trust (i) will not be deemed to be an "investment company" required to be registered under the Investment Company Act, (ii) will continue to be classified for United States federal income tax purposes as a grantor trust, and (iii) will cooperate with the Company to ensure that the Junior Subordinated Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. In this connection, the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of the Trust or the Trust Agreement, that the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes, as long as such action does not materially adversely affect the interests of the holders of the Trust Securities. Holders of the Trust Securities have no preemptive or similar rights. 41 51 The Trust may not borrow money, issue debt, execute mortgages or pledge any of its assets. DESCRIPTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES The Old Junior Subordinated Debentures were issued and the Exchange Junior Subordinated Debentures will be issued under the Indenture. The Indenture has been qualified under the Trust Indenture Act. This summary of certain terms and provisions of the Junior Subordinated Debentures and the Indenture does not purport to be complete, and where reference is made to particular provisions of the Indenture, such provisions, including the definitions of certain terms, some of which are not otherwise defined herein, are qualified in their entirety by reference to all of the provisions of the Indenture and those terms made a part of the Indenture by the Trust Indenture Act. GENERAL Concurrently with the issuance of the Old Trust Securities, the Trust invested the proceeds thereof, together with the consideration paid by the Company for the Common Securities, in Junior Subordinated Debentures issued by the Company. Pursuant to the Exchange Offer, the Company will exchange Exchange Junior Subordinated Debentures, in an amount corresponding to the Old Capital Securities accepted for exchange, for a like aggregate principal amount of the Old Junior Subordinated Debentures as soon as practicable after the date hereof. Interest on the Exchange Junior Subordinated Debentures will be cumulative, and will accrue from January 31, 1997 (the date of original issuance of the Old Junior Subordinated Debentures) or from the latest date to which interest thereon has been duly paid or provided for at the annual rate of 8.82% of the principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year (each, an "Interest Payment Date"), commencing August 1, 1997, to the person in whose name each Exchange Junior Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the fifteenth day preceding the relevant payment date. It is anticipated that, until the liquidation, if any, of the Trust, each Exchange Junior Subordinated Debenture will be held in the name of the Property Trustee in trust for the benefit of the holders of the Trust Securities. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period less than 6 months, the actual months elapsed and the actual days elapsed in a partial month in a period. In the event that any date on which interest is payable on the Exchange Junior Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally payable. Accrued interest that is not paid on the applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at the rate per annum of 8.82% thereof, compounded semiannually. The term "interest", as used herein, shall include semi-annual interest payments, interest on semi-annual interest payments not paid on the applicable Interest Payment Date and Additional Sums (as defined below), as applicable. The Exchange Junior Subordinated Debentures will be issued in denominations of $1,000 and integral multiples thereof. The Exchange Junior Subordinated Debentures will mature on February 1, 2037. The Exchange Junior Subordinated Debentures will rank pari passu with Old Junior Subordinated Debentures and with all Other Debentures and will be unsecured and subordinate and junior in right of payment to the extent and in the manner set forth in the Indenture to all Senior Indebtedness. See "-- Subordination." Because the Company is a nonoperating holding company, the right of the Company to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise (and thus the ability of holders of the Exchange Capital Securities to benefit indirectly from such distribution), is subject to the prior claims of creditors of that subsidiary, except to the extent that the Company may itself be recognized as a creditor of that subsidiary. Accordingly, the Exchange Junior Subordinated Debentures will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries, and holders of Exchange Junior Subordinated Debentures should look only to the assets of the Company for payments on the Exchange Junior Subordinated Debentures. In addition, since the Company's operating subsidiary is a reinsurance company subject to regulatory control by the Connecticut Insurance Department, the ability of such subsidiary to pay dividends to the Company without prior regulatory approval 42 52 is limited by applicable laws and regulations. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Indebtedness. See "-- Subordination." FORM, REGISTRATION AND TRANSFER If the Exchange Junior Subordinated Debentures are distributed to the holders of the Trust Securities, the Exchange Junior Subordinated Debentures may be represented by one or more global certificates registered in the name of Cede & Co. as the nominee of DTC. The depositary arrangements for such Exchange Junior Subordinated Debentures are expected to be substantially similar to those in effect for the Exchange Capital Securities. For a description of DTC and the terms of the depositary arrangements relating to payments, transfers, voting rights, redemptions and other notices and other matters, see "-- Description of Exchange Capital Securities -- Form, Denomination, Book-Entry Procedures and Transfer." PAYMENT AND PAYING AGENTS Payment of principal, interest or premium, if any, on Exchange Junior Subordinated Debentures will be made at the office of the Debenture Trustee in The City of New York or at the office of such Paying Agent or Paying Agents as the Company may designate from time to time, except that at the option of the Company payment of any interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register for Exchange Junior Subordinated Debentures or (ii) by transfer to an account maintained by the Person entitled thereto as specified in such register, provided that proper transfer instructions have been received by the relevant Record Date. Payment of any interest on any Exchange Junior Subordinated Debenture will be made to the Person in whose name such Exchange Junior Subordinated Debenture is registered at the close of business on the Record Date for such interest, except in the case of defaulted interest. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent. Any moneys deposited with the Debenture Trustee or any Paying Agent, or then held by the Company in trust, for the payment of the principal, interest or premium, if any, on any Exchange Junior Subordinated Debenture and remaining unclaimed for two years after such principal, interest or premium, if any, has become due and payable shall, at the request of the Company, be repaid to the Company and the holder of such Exchange Junior Subordinated Debenture shall thereafter look, as a general unsecured creditor, only to the Company for payment thereof. OPTION TO EXTEND INTEREST PAYMENT DATE So long as no Debenture Event of Default has occurred and is continuing, the Company will have the right under the Indenture at any time during the term of the Exchange Junior Subordinated Debentures to defer the payment of interest at any time or from time to time for a period not exceeding 10 consecutive semi-annual periods with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity. At the end of such Extension Period, the Company must pay all interest then accrued and unpaid (together with interest thereon at the annual rate of 8.82%, compounded semi-annually, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Exchange Junior Subordinated Debentures (and holders of Exchange Capital Securities while Exchange Capital Securities are outstanding) will be required to include the accruals of such interest in gross income for United States federal income tax purposes (as original issue discount) prior to the receipt of cash attributable to such interest. See "Certain Federal Income Tax Consequences -- Interest Income and Original Issue Discount." 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 Exchange Junior Subordinated Debentures or (iii) make any guarantee payments with respect 43 53 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 Exchange Junior Subordinated Debentures (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for, or purchase shares of, common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, (d) as a 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. Prior to the termination of any such Extension Period, and so long as no Debenture Event of Default has occurred and is continuing, the Company may further extend the Extension Period, provided that no Extension Period may exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity. Upon the termination of any such Extension Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must give the Property Trustee, the Administrative Trustees and the Debenture Trustee notice of its election of any Extension Period (or an extension thereof) at least five Business Days prior to the earlier of (i) the date the Distributions on the Trust Securities would have been payable except for the election to begin or extend such Extension Period or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or to holders of Capital Securities of the record date or the date such Distributions are payable, but in any event not less than five Business Days prior to such record date. The Property Trustee shall give notice of the Company's election to begin or extend a new Extension Period to the holders of the Capital Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period. OPTIONAL PREPAYMENT The Exchange Junior Subordinated Debentures will be prepayable, in whole or in part, at the option of the Company on or after February 1, 2007, at a prepayment price (the "Optional Prepayment Price") equal to the outstanding principal amount of the Exchange Junior Subordinated Debentures to be prepaid, plus accrued and unpaid interest thereon to the date of prepayment and any Additional Sums (as defined in "-- Conditional Right to Shorten Maturity and Special Event Prepayment"). CONDITIONAL RIGHT TO SHORTEN MATURITY AND SPECIAL EVENT PREPAYMENT 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 Junior Subordinated Debentures to the minimum extent required, but not less than 20 years from the date of original issuance thereof, such that in the written opinion of counsel experienced in such matters delivered to the Company, after shortening the maturity, interest paid on the Junior Subordinated Debentures will be deductible for federal income tax purposes or (ii) to prepay the Junior Subordinated Debentures as described below. If a Special Event (as defined below) shall occur and be continuing, the Company may, at its option, prepay the Junior Subordinated Debentures in whole (but not in part) at any time within 90 days of the occurrence of such Special Event, at a prepayment price (the "Special Event Prepayment Price") equal to the greater of (i) 100% of the principal amount of such Junior Subordinated Debentures or (ii) the sum, as determined by a Quotation Agent, of the present values of the remaining scheduled payments of principal and interest thereon to February 1, 2007, the first date on which the Junior Subordinated Debentures are subject to optional prepayment, in each case discounted to the prepayment date on a semiannual basis (assuming a 44 54 360-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 Adjusted Treasury Rate, plus, in each case, accrued and unpaid interest thereon to the date of prepayment and any Additional Sums (as defined herein). A "Special Event" means a Conditional Tax Redemption Event (as defined under "-- Description of Exchange Capital Securities -- Conditional Right to Shorten Maturity and Special Event Redemption") or an Investment Company Event, as the case may be. "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) 1.25% if such prepayment date occurs on or prior to February 1, 1998 and (ii) 0.50% in all other cases. "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term to the Stated Maturity of the Junior Subordinated Debentures to be prepaid that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Junior Subordinated Debentures. "Quotation Agent" means: (i) Lehman Brothers Inc. 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 Debenture Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any prepayment date, (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 Debenture Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Quotations. "Reference Treasury Dealer Quotations" means, with respect to each Quotation Agent and any prepayment date, the average, as determined by the Debenture Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted to the Debenture Trustee by such Quotation Agent at 5:00 p.m., New York City time, on the third Business Day preceding such prepayment date. "Additional Sums" as hereinafter used means the additional amounts as may be necessary in order that the amount of Distributions then due and payable by the Trust on the outstanding Capital Securities and Common Securities shall not be reduced as a result of any additional taxes, duties and other governmental charges to which the Trust has become subject as a result of a Tax Event. Notice of any prepayment will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Exchange Junior Subordinated Debentures to be prepaid at its registered address. Unless the Company defaults in payment of the prepayment price, on and after the prepayment date, interest ceases to accrue on such Exchange Junior Subordinated Debentures called for prepayment. If the Trust is required to pay any additional taxes, duties or other governmental charges as a result of a Tax Event, the Company will pay as additional amounts on the Exchange Junior Subordinated Debentures the Additional Sums. 45 55 RESTRICTIONS ON CERTAIN PAYMENTS; COVENANTS AS TO THE TRUST The Company will covenant that if, at any time, (1) there shall have occurred any event of which the Company has actual knowledge that (x) is, or with the giving of notice or the lapse of time, or both, would be, a Debenture Event of Default and (y) in respect of which the Company shall not have taken reasonable steps to cure, (2) the Company shall be in default with respect to its payment of any obligations under the Guarantee and the Junior Subordinated Debentures are held by the Trust or (3) the Company shall have given notice of its election of an Extension Period as provided in the Indenture and shall not have rescinded such notice, and such Extension Period, or any extension thereof, shall have commenced, then the Company will not, and will 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 or repurchase or redeem any debt securities of the Company (including Other Debentures) that rank pari passu with or junior in right of payment to the Exchange Junior Subordinated Debentures or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company (including under Other Guarantees) if such guarantee ranks pari passu with or junior in right of payment to the Junior Subordinated Debentures (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a 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 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). The Company's covenants will not prevent its subsidiaries from declaring and paying cash distributions with respect to capital stock of the subsidiaries or from making payments with respect to debt securities of the subsidiaries. The Company has covenanted in the Indenture that, for so long as the Exchange Junior Subordinated Debentures are issued to the Trust or a trustee of the Trust, the Company will (i) directly or indirectly maintain ownership of all of the outstanding Common Securities of the Trust, provided that certain successors which are permitted pursuant to the Indenture may succeed to the Company's ownership of the Common Securities, and (ii) to use its reasonable efforts to cause the Trust (a) to remain a business trust, except in connection with a distribution of Capital Securities, the redemption of all of the Trust Securities or certain mergers, consolidations or amalgamations each as permitted by the Trust Agreement, and (b) consistent with the terms and provisions of the Trust Agreement, to continue to be classified as a grantor trust and not as an association taxable as a Company for United States federal income tax purposes and (iii) use its reasonable efforts to cause each holder to be treated as owning an individual beneficial interest in the Capital Securities. MODIFICATION OF INDENTURE From time to time the Company and the Debenture Trustee may, without the consent of the holders of Junior Subordinated Debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies (provided that any such action does not materially adversely affect the interest of the holders of the Junior Subordinated Debentures) and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting the Company and the Debenture Trustee, with the consent of the holders of a majority in principal amount of Junior Subordinated Debentures, to modify the Indenture in a manner affecting the rights of the holders of Junior Subordinated Debentures; provided, that no such modification may, without the consent of the holders of each outstanding Junior Subordinated Debenture so affected, (i) change the Stated 46 56 Maturity, or reduce the principal amount of the Junior Subordinated Debentures, or reduce the rate or extend the time of payment of interest thereon or (ii) reduce the percentage of principal amount of Junior Subordinated Debentures, the holders of which are required to consent to any such modification of the Indenture. DEBENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events with respect to the Junior Subordinated Debentures constitutes a "Debenture Event of Default" (whatever the reason for such Debenture Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) failure for 30 days to pay any interest on the Exchange Junior Subordinated Debentures or any Other Debentures, when due (subject to the deferral of any due date in the case of an Extension Period); or (ii) failure to pay any principal of or premium, if any, on the Exchange Junior Subordinated Debentures or any Other Debentures when due whether at maturity, upon redemption, by declaration of acceleration of maturity or otherwise; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to the Company from the Debenture Trustee or the holders of at least 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of the Company. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures may declare the principal due and payable immediately upon a Debenture Event of Default (other than an Event of Default resulting from bankruptcy, insolvency or a reorganization involving the Company). If an Event of Default results from bankruptcy, insolvency or a reorganization involving the Company, the Debentures shall become due and payable without any further action or notice. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures may annul such declaration and waive the default if the default (other than the nonpayment of the principal of the Junior Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures affected thereby may, on behalf of the holders of all the Junior Subordinated Debentures, waive any past default, except a default in the payment of principal, interest or premium, if any, (unless such default has been cured and a sum sufficient to pay all matured installments of interest, premium, if any, and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Junior Subordinated Debenture. ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF EXCHANGE CAPITAL SECURITIES If a Debenture Event of Default shall have occurred and be continuing and shall be attributable to the failure of the Company to pay principal of or premium, if any, or interest on the Junior Subordinated Debentures on the due date, a holder of Capital Securities may institute a Direct Action. The Company may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Capital Securities. If the right to bring a Direct Action is removed following the Exchange Offer, the Trust may become subject to the reporting obligations under the Exchange Act. Notwithstanding any payments made to a holder of Exchange Capital Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of or premium, if any, or interest on the Exchange Junior Subordinated Debentures, and the Company shall be subrogated to the rights of the holder of such Capital Securities with respect to payments on the Exchange Capital Securities to the extent of any payments made by the Company to such holder in any Direct Action. 47 57 The holders of the Exchange Capital Securities will not be able to exercise directly any remedies, other than those set forth in the preceding paragraph, available to the holders of the Exchange Junior Subordinated Debentures unless there shall have been an Event of Default under the Trust Agreement. See "-- Description of Exchange Capital Securities -- Events of Default; Notice." CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS The Indenture provides that the Company shall not consolidate with or merge into any other Person or sell, convey, transfer or lease its properties as an entirety, or substantially as an entirety, to any Person, (whether or not affiliated with the Company) unless: (i) the Company is the surviving Person or the Person formed by or surviving such consolidation or merger 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 or the District of Columbia, and such successor Person expressly assumes the Company's obligations on the Junior Subordinated Debentures; (ii) immediately after giving effect to such consolidation, merger, sale, conveyance, transfer or lease, no Debenture Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, shall have occurred and be continuing; and (iii) certain other conditions as prescribed in the Indenture are met. The general provisions of the Indenture do not afford holders of the Junior Subordinated Debentures protection in the event of a highly leveraged or other transaction involving the Company that may adversely affect holders of the Exchange Junior Subordinated Debentures. SATISFACTION AND DISCHARGE The Indenture provides that when, among other things, all Exchange Junior Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at maturity within one year or are to be called for prepayment within one year, and the Company deposits or causes to be deposited with the Debenture Trustee funds, in trust, for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on the Exchange Junior Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation, for the principal and premium, if any, and interest to the date of the deposit or to the Stated Maturity, as the case may be, then the Indenture will cease to be of further effect (except as to the Company's obligations to pay all other sums due pursuant to the Indenture and to provide the officers' certificates and opinions of counsel described therein), and the Company will be deemed to have satisfied and discharged the Indenture. SUBORDINATION In the Indenture, the Company has covenanted and agreed that any Exchange Junior Subordinated Debentures issued thereunder will be subordinate and junior in right of payment to all Senior Indebtedness to the extent provided in the Indenture. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding of the Company, the holders of Senior Indebtedness will first be entitled to receive payment in full before the holders of Junior Subordinated Debentures will be entitled to receive or retain any payment in respect thereof. In the event of the acceleration of the maturity of the Junior Subordinated Debentures, the holders of all Senior Indebtedness outstanding at the time of such acceleration will first be entitled to receive payment in full before the holders of Junior Subordinated Debentures will be entitled to receive or retain any payment in respect of the Junior Subordinated Debentures. No payments on account of principal or premium, if any, or interest in respect of the Junior Subordinated Debentures may be made if there shall have occurred and be continuing a default in any payment with respect to Senior Indebtedness, or an event of default with respect to any Senior Indebtedness resulting in the acceleration of the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default. 48 58 "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 Trenwick Capital Trust or a trustee of such trust and (b) any other trust, or a trustee of such trust, 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. "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. By reason of such subordination, in the event of an insolvency, creditors of the Company who are holders of Senior Indebtedness, as well as certain general creditors of the Company, may recover more, ratably, than the holders of the Junior Subordinated Debentures. Additionally, the Company currently conducts substantially all of its operations through a subsidiary, and the holders of Junior Subordinated Debentures will be structurally subordinated to the creditors of such subsidiary. The Company relies primarily on dividends from such subsidiary to meet its obligations for payment of its corporate expenses and principal and interest on its outstanding debt obligations. See "Risk Factors -- Ranking of Subordinated Obligations under the Guarantee and the Junior Subordinated Debentures." The Indenture places no limitation on the amount of additional Senior Indebtedness that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Indebtedness. GOVERNING LAW The Indenture and the Exchange Junior Subordinated Debentures will 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. INFORMATION CONCERNING THE DEBENTURE TRUSTEE Following the Exchange Offer and the qualification of the Indenture under the Trust Indenture Act, the Debenture Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Exchange Junior Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Debenture Trustee is not required to 49 59 expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Debenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Debenture Trustee currently provides commercial banking and other services to the Company. DESCRIPTION OF EXCHANGE GUARANTEE The Old Guarantee was executed and delivered by the Company concurrently with the issuance by the Trust of the Old Capital Securities for the benefit of the holders from time to time of the Old Capital Securities. Upon consummation of the Exchange Offer, the Old Guarantee will be exchanged by the Company for the Exchange Guarantee for the benefit of the holders from time to time of the Exchange Capital Securities. To the extent that Old Capital Securities are not tendered and accepted pursuant to the Exchange Offer for Exchange Capital Securities, the Company will continue to provide the holders of Old Capital Securities with the guarantees set forth under the Old Guarantee. The Chase Manhattan Bank will act as trustee ("Guarantee Trustee") under the Exchange Guarantee. The Exchange Guarantee has been qualified under the Trust Indenture Act. This summary description of all the material provisions of the Exchange Guarantee does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Exchange Guarantee, including the definitions therein of certain terms, and the Trust Indenture Act. The Guarantee Trustee will hold the Exchange Guarantee for the benefit of the holders of the Exchange Capital Securities. GENERAL The Company will fully, irrevocably and unconditionally agree to pay in full on a subordinated basis, to the extent set forth herein, the Guarantee Payments (as defined below) to the holders of the Exchange Capital Securities, as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert other than the defense of payment. The following payments with respect to the Exchange Capital Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee Payments"), will be subject to the Exchange Guarantee: (i) any accumulated and unpaid Distributions required to be paid on Exchange Capital Securities, to the extent that the Trust has funds on hand legally available therefor at such time, (ii) the applicable Redemption Price with respect to Exchange Capital Securities called for redemption, to the extent that the Trust has funds on hand legally available therefor at such time, or (iii) upon a voluntary or involuntary termination and liquidation of the Trust (other than in connection with the distribution of Exchange Junior Subordinated Debentures to the holders of the Exchange Capital Securities in exchange for Exchange Capital Securities as provided in the Trust Agreement), the lesser of (a) the Liquidation Distribution and (b) the amount of assets of the Trust remaining available for distribution to holders of Exchange Capital Securities to the extent the Trust has funds on hand legally available therefor at such time. The Company's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Company to the holders of the Exchange Capital Securities or by causing the Trust to pay such amounts to such holders. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent the Company may itself be recognized as a creditor of that subsidiary. Accordingly, the Company's obligations under the Exchange Guarantee will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries, and claimants should look only to the assets of the Company for payments thereunder. See "-- Description of Exchange Junior Subordinated Debentures -- General." The Exchange Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Indebtedness, whether under the Indenture, any other indenture that the Company has entered into or may enter into in the future or otherwise. The Company will, through the Exchange Guarantee, the Trust Agreement, the Exchange Junior Subordinated Debentures and the Indenture, taken together, fully, irrevocably and unconditionally guarantee all of the Trust's obligations under the Exchange Capital Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the 50 60 combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the Trust's obligations under the Exchange Capital Securities. See "Relationship Among the Exchange Capital Securities, the Exchange Junior Subordinated Debentures and the Exchange Guarantee." STATUS OF EXCHANGE GUARANTEE The Exchange Guarantee will constitute an unsecured obligation of the Company. The Exchange Guarantee and the Common Guarantee will be (i) subordinate and junior in right of payment to all other liabilities of the Company; (ii) pari passu with (A) the most senior preferred or preference stock now or hereafter issued by the Company, and (B) any guarantee now or hereafter entered into by the Company, in respect of any capital securities or common securities of any Other Trusts; and (iii) senior to the Company's common stock. The Exchange Guarantee will constitute a guarantee of payment and not of collection (i.e., the guaranteed party may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against any other person or entity). The Exchange Guarantee will be held for the benefit of the holders of the Capital Securities. The Exchange Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by the Trust or upon distribution to the holders of the Exchange Capital Securities of the Exchange Junior Subordinated Debentures. The Exchange Guarantee does not place a limitation on the amount of additional Senior Indebtedness that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Indebtedness. AMENDMENTS AND ASSIGNMENT Except with respect to any changes that do not materially adversely affect the rights of holders of the Exchange Capital Securities (in which case no consent of holders will be required), the Exchange Guarantee may not be amended without the prior approval of the holders of a majority of the Liquidation Amount of such outstanding Exchange Capital Securities. The manner of obtaining any such approval will be as set forth under "-- Description of the Exchange Capital Securities -- Voting Rights; Amendment of the Trust Agreement." All guarantees and agreements contained in the Exchange Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the holders of the Exchange Capital Securities then outstanding. EVENTS OF DEFAULT An event of default under the Exchange Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of a majority in Liquidation Amount of the Exchange Capital Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Exchange Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Exchange Guarantee. Any holder of the Exchange Capital Securities may institute a legal proceeding directly against the Company to enforce its rights under the Exchange Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. The Company, as guarantor, will be required to file annually with the Guarantee Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Exchange Guarantee. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, other than during the continuance of a default by the Company in performance of the Exchange Guarantee, will undertake to perform only such duties as are specifically set forth in the Exchange Guarantee and, during the continuance of such a default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Guarantee Trustee will be under no obligation to exercise any of the powers vested in it by the Exchange Guarantee at the request of any holder of the Exchange Capital Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. 51 61 The Guarantee Trustee currently provides commercial banking and other services to the Company. TERMINATION OF THE EXCHANGE GUARANTEE The Exchange Guarantee will terminate and be of no further force and effect upon full payment of the applicable Redemption Price of the Exchange Capital Securities, upon full payment of the Liquidation Amount payable upon liquidation of the Trust or upon distribution of Exchange Junior Subordinated Debentures to the holders of the Capital Securities. The Exchange Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Exchange Capital Securities must restore payment of any sums paid under the Exchange Capital Securities or the Exchange Guarantee. GOVERNING LAW The Exchange Guarantee will 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. DESCRIPTION OF OLD SECURITIES The information contained in this section is relevant to holders of Old Securities whose Old Securities are not to be tendered and accepted for exchange by the Expiration Date of the Exchange Offer. See "Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities." The terms of the Old Securities are identical in all material respects to the Exchange Securities, except that (i) the Old Securities have not been registered under the Securities Act, are subject to certain restrictions on transfer and are entitled to certain rights under the Registration Rights Agreement (which rights will terminate upon consummation of the Exchange Offer, except under limited circumstances), (ii) the Old Securities contain a $100,000 minimum Liquidation Amount transfer restriction and certain other restrictions on transfer applicable to Old Capital Securities, (iii) the Old Capital Securities provide for additional Distributions which will terminate as set forth below, (iv) the Old Junior Subordinated Debentures contain a $100,000 minimum principal amount transfer restriction and (v) the Old Junior Subordinated Debentures provide for additional interest which will terminate as set forth below. The Registration Rights Agreement provides that, if an Exchange Offer Registration Statement or a Shelf Registration Statement (if required to be filed) is not declared effective by the Commission on or prior to July 25, 1997, Additional Interest shall accrue on the principal amount of the Junior Subordinated Debentures affected thereby, and Additional Distributions will accumulate on the Liquidation Amount of the Trust Securities affected thereby commencing July 28, 1997, at the rate of 0.25% per annum of the Liquidation Amount of the Old Capital Securities, for the period from the occurrence of such event until such time the Exchange Offer Registration Statement or any required Shelf Registration Statement is declared effective. In addition, if the Exchange Offer is not consummated on or prior to the 30th day after the date on which the Exchange Offer Registration Statement is declared effective, Additional Interest shall accrue on the principal amount of the Junior Subordinated Debentures affected thereby and Additional Distributions will accumulate on the Liquidation Amount of the Trust Securities affected thereby, until the Exchange Offer is consummated. Upon the completion of the Exchange Offer, the Company and the Trust will have satisfied their obligations under the Registration Rights Agreement and the Old Securities will not be entitled to any such additional interest or Distributions. Accordingly, holders of Old Capital Securities should review the information set forth under "Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities" and "Description of Exchange Securities." RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE EXCHANGE JUNIOR SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE FULL AND UNCONDITIONAL GUARANTEE Payments of Distributions and other amounts due on the Exchange Capital Securities (to the extent the Trust has funds on hand legally available for the payment of such Distributions) will be irrevocably guaranteed by the Company as and to the extent set forth under "Description of Exchange Securities -- Description of Exchange Guarantee." Taken together, the Company's obligations under the Exchange Junior Subordinated Debentures, the Indenture, the Trust Agreement and the Exchange Guarantee will provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of Distributions and other amounts due on the 52 62 Exchange Capital Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the Trust's obligations under the Exchange Capital Securities. If and to the extent that the Company does not make the required payments on the Exchange Junior Subordinated Debentures, the Trust will not have sufficient funds to make the related payments, including Distributions, on the Exchange Capital Securities. The Exchange Guarantee will not cover any such payment when the Trust does not have sufficient funds on hand legally available therefor. In such event, the remedy of a holder of Exchange Capital Securities is to institute a Direct Action. The obligations of the Company under the Exchange Guarantee will be subordinate and junior in right of payment to all Senior Indebtedness. SUFFICIENCY OF PAYMENTS As long as payments of interest and other payments are made when due on the Exchange Junior Subordinated Debentures, such payments will be sufficient to cover Distributions and other payments due on the Exchange Capital Securities, primarily because: (i) the aggregate principal amount or Prepayment Price of the Exchange Junior Subordinated Debentures will be equal to the sum of the Liquidation Amount or Redemption Price, as applicable, of the Exchange Capital Securities and Common Securities; (ii) the interest rate and interest and other payment dates on the Exchange Junior Subordinated Debentures will match the Distribution rate and Distribution and other payment dates for the Trust Securities; (iii) the Company shall pay for all and any costs, expenses and liabilities of the Trust except the Trust's obligations to holders of Trust Securities under such Trust Securities; and (iv) the Trust Agreement provides that the Trust is not authorized to engage in any activity that is not consistent with the limited purposes thereof. ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES A holder of any Exchange Capital Security may institute a legal proceeding directly against the Company to enforce its rights under the Exchange Guarantee without first instituting a legal proceeding against the Guarantee Trustee, the Trust or any other person or entity. A default or event of default under any Senior Indebtedness would not constitute a default or Event of Default under the Trust Agreement. However, in the event of payment defaults under, or acceleration of, Senior Indebtedness, the subordination provisions of the Indenture provide that no payments may be made in respect of the Exchange Junior Subordinated Debentures until such Senior Indebtedness has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on Exchange Junior Subordinated Debentures would constitute an Event of Default under the Trust Agreement. LIMITED PURPOSE OF THE TRUST The Exchange Capital Securities will represent preferred beneficial interests in the Trust. The Trust exists for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii) effecting the Exchange Offer or filing a Shelf Registration Statement, (iii) using the proceeds from the sale of Trust Securities to acquire the Junior Subordinated Debentures, (iv) making Distributions to holders of the Trust Securities as provided in the Trust Agreement and (v) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Securities). A principal difference between the rights of a holder of an Exchange Capital Security and a holder of Exchange Junior Subordinated Debenture is that a holder of a Exchange Junior Subordinated Debenture will be entitled to receive from the Company the principal amount of (and premium, if any) and interest on Exchange Junior Subordinated Debentures held, while a holder of Exchange Capital Securities is entitled to receive Distributions from the Trust (or, in certain circumstances, from the Company under the Exchange Guarantee) if and to the extent the Trust has funds on hand legally available for the payment of such Distributions. RIGHTS UPON DISSOLUTION Unless the Exchange Junior Subordinated Debentures are distributed to holders of the Trust Securities, upon any voluntary or involuntary termination and liquidation of the Trust, the holders of the Trust Securities will be entitled to receive, out of assets held by the Trust, the Liquidation Distribution in cash. See 53 63 "Description of Exchange Securities -- Description of Exchange Capital Securities -- Liquidation of the Trust and Distribution of Exchange Junior Subordinated Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of the Company, the Property Trustee, as holder of the Exchange Junior Subordinated Debentures, would be a subordinated creditor of the Company, subordinated in right of payment to all Senior Indebtedness as set forth in the Indenture, but entitled to receive payment in full of principal (and premium, if any) and interest, before any stockholders of the Company receive payments or distributions. Since the Company will be the guarantor under the Exchange Guarantee and will agree to pay for all costs, expenses and liabilities of the Trust (other than the Trust's obligations to the holders of its Trust Securities), the positions of a holder of Exchange Capital Securities and a holder of Exchange Junior Subordinated Debentures relative to stockholders of the Company in the event of liquidation or bankruptcy of the Company are expected to be substantially the same. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL In the opinion of Baker & McKenzie, tax counsel to the Company and the Trust ("Tax Counsel"), the following is a summary of the material United States federal income tax consequences of the exchange of Old Securities for Exchange Securities, and the purchase, ownership and disposition of Exchange Capital Securities held as capital assets by a holder. This summary does not deal with special classes of holders such as banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that hold or will hold the Capital Securities as a position in a "straddle," as part of a "synthetic security" or "hedge," as part of a "conversion transaction" or other integrated investment, or as other than a capital asset. This summary also does not address the tax consequences to persons that have a functional currency other than the U.S. dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Capital Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Capital Securities. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder, the administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. An opinion of Tax Counsel is not binding on the Internal Revenue Service (the "IRS") or the courts. Prospective investors should note that no rulings have been or are expected to be sought from the IRS and no assurance can be given that the IRS will not take contrary positions. Moreover, no assurance can be given that any of the opinions expressed herein will not be challenged by the IRS or, if challenged, that such a challenge would not be successful. CLASSIFICATION OF THE TRUST In connection with the issuance of the Old Capital Securities, Tax Counsel rendered its opinion that, under then current law and assuming full compliance with the terms of the Trust Agreement and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Trust will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Capital Securities generally will be considered the owner of an undivided interest in the Junior Subordinated Debentures, and each holder will be required to include in its gross income any interest (or accrued original issue discount ("OID")) with respect to its allocable share of those Junior Subordinated Debentures. EXCHANGE OF CAPITAL SECURITIES The exchange of Old Capital Securities for Exchange Capital Securities should not be a taxable event to holders for United States federal income tax purposes because (a) the Exchange Capital Securities and Exchange Junior Subordinated Debentures should not be considered to differ materially in kind or extent from the Old Capital Securities and Old Junior Subordinated Debentures and (b) the exchange will occur by 54 64 operation of the terms of the Old Capital Securities and Old Junior Subordinated Debentures. If, however, the exchange of the Old Capital Securities for the Exchange Capital Securities were treated as an exchange for federal income tax purposes, such exchange should constitute a tax-free recapitalization for United States federal income tax purposes. Accordingly, the Exchange Capital Securities and Exchange Junior Subordinated Debentures should have the same issue price as the Old Capital Securities and Old Junior Subordinated Debentures, and a holder should have the same adjusted tax basis and holding period in the Exchange Capital Securities and Exchange Junior Subordinated Debentures as the holder had in the Old Capital Securities and Old Junior Subordinated Debentures immediately before the exchange. CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES In connection with the issuance of the Old Junior Subordinated Debentures, Tax Counsel rendered its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Old Junior Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT Under recently issued Treasury regulations (the "Regulations") applicable to debt instruments issued on or after August 13, 1996, a "remote" contingency that stated interest will not be timely paid will be ignored in determining whether a debt instrument is issued with OID. The Company believes that the likelihood of its exercising its option to defer payments of interest is "remote" since exercising that option would prevent the Company from declaring dividends on any class of its equity securities. Accordingly, the Company intends to take the position that the Junior Subordinated Debentures will not be considered to have been issued with OID and, accordingly, stated interest on the Junior Subordinated Debentures generally will be taxable to a holder as ordinary income at the time it is paid or accrued in accordance with such holder's method of accounting. Under the Regulations, if the Company were to exercise its option to defer payments of interest, the Junior Subordinated Debentures would at that time be treated as reissued with OID, and all stated interest on the Junior Subordinated Debentures would thereafter be treated as OID as long as the Junior Subordinated Debentures remain outstanding. In such event, all of a holder's taxable interest income with respect to the Junior Subordinated Debentures would thereafter be accounted for on an economic accrual basis regardless of such holder's method of tax accounting, and actual distributions of stated interest would not be reported as taxable income. Consequently, a holder of Capital Securities would be required to include in gross income OID even though the Company would not make actual cash payments during an Extension Period. Moreover, under the Regulations, if the option to defer the payment of interest was determined not to be "remote", the Junior Subordinated Debentures would be treated as having been originally issued with OID. In such event, all of a holder's taxable interest income with respect to the Junior Subordinated Debentures would be accounted for on an economic accrual basis regardless of such holder's method of tax accounting, and actual distributions of stated interest would not be reported as taxable income. The Regulations have not yet been addressed in any rulings or other interpretations by the IRS, and it is possible that the IRS could take a position contrary to the interpretation herein. Because income on the Capital Securities will constitute interest or OID, corporate holders of the Capital Securities will not be entitled to a dividends-received deduction with respect to any income recognized with respect to the Capital Securities. MARKET DISCOUNT AND BOND PREMIUM If a holder has acquired a Capital Security, other than upon original issue, for an amount less than its issue price, the Capital Security may be considered a "market discount bond." If a Capital Security is a market discount bond, a portion of the gain on the sale or redemption of the Capital Security (see "-- Sales of Capital Securities") equal to the amount of the market discount accrued with respect to the Capital Security 55 65 while it was held by the holder will be treated as interest income. In addition, interest on indebtedness incurred to purchase or carry the Capital Security that is a market discount bond, to the extent that it exceeds in any year the interest on the Capital Security to be included in the holder's income for that year, may not be fully deductible in that year. The foregoing market discount rules will not apply if the holder elects to include in income in each taxable year the portion of the market discount attributable to that year (accrued on either a straight line or constant interest rate basis) with respect to all market discount bonds acquired during or after the taxable year in which such election is made. This election may be revoked only with the consent of the IRS. If a holder has acquired a Capital Security, other than upon original issue, for an amount more than its stated redemption price at maturity, such holder may elect to amortize such bond premium on a yield to maturity basis. This election results in a deemed election to apply the same accrual principles to all of the holder's debt instruments with amortizable bond premium. This election may be revoked only with the consent of the IRS. RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST The Company will have the right at any time to liquidate the Trust and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Securities. Under current law, such a distribution, for United States federal income tax purposes, would be treated as a nontaxable event to each holder, and each holder would receive an aggregate tax basis in the Junior Subordinated Debentures equal to such holder's aggregate tax basis in its Capital Securities. A holder's holding period in the Junior Subordinated Debentures so received in liquidation of the Trust would include the period during which the Capital Securities were held by such holder. If, however, the Trust is characterized for United States federal income tax purposes as an association taxable as a corporation at the time of its dissolution, the distribution of the Junior Subordinated Debentures may constitute a taxable event to holders of Capital Securities and a holder's holding period in Junior Subordinated Debentures would begin on the date such Junior Subordinated Debentures were received. Under certain circumstances described herein (see "Description of Exchange Securities -- Description of Exchange Capital Securities"), the Junior Subordinated Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Capital Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Capital Securities, and a holder could recognize gain or loss as if it sold such redeemed Capital Securities for cash. See "-- Sales of Capital Securities." SALES OF CAPITAL SECURITIES A holder that sells Capital Securities will recognize gain or loss equal to the difference between its adjusted tax basis in the Capital Securities and the amount realized on the sale of such Capital Securities (other than with respect to accrued and unpaid interest which has not yet been included in income, which will be treated as ordinary income). A holder's adjusted tax basis in the Capital Securities generally will be its initial purchase price increased by OID (if any) previously includible in such holder's gross income to the date of disposition and decreased by payments (if any) received on the Capital Securities in respect of OID. Subject to the discussion under "Certain Federal Income Tax Consequences -- Market Discount and Bond Premium" such gain or loss generally will be a capital gain or loss and generally will be a long-term capital gain or loss if the Capital Securities have been held for more than one year. The Capital Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Junior Subordinated Debentures. A holder who uses the accrual method of accounting for tax purposes (and a cash method holder, if the Junior Subordinated Debentures are deemed to have been issued with OID) who disposes of his Capital Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Junior Subordinated Debentures through the date of disposition in income as ordinary income (i.e., interest or, possibly, OID), and to add such amount to his adjusted tax basis in his pro rata share of the underlying Junior Subordinated Debentures deemed disposed of. To the extent the selling price is less than the holder's adjusted 56 66 tax basis (which will include all accrued but unpaid interest) a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. PROPOSED TAX LEGISLATION On February 6, 1997, as part of the Clinton Administration's Fiscal 1998 Budget Proposal, the Treasury Department proposed legislation (the "Proposed Legislation") which would, among other things, generally deny corporate issuers a deduction for interest in respect of debt obligations, possibly including the Junior Subordinated Debentures, issued on or after the date "of first committee action," if such debt obligations have a maximum term in excess of 15 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. In addition, the Proposed Legislation would generally deny corporate issuers a deduction for interest in respect of certain debt obligations, possibly including the Junior Subordinated Debentures, issued after the date "of first committee action," if such debt obligations have a weighted average maturity of more than 40 years. The Proposed Legislation has not yet been introduced by any member of the 105th Congress. If Congress were to enact any other proposed legislation, and if such enactment gave rise to a Tax Event, the Company would be permitted to cause a redemption of the Trust Securities at the Special Event Prepayment Price by electing to prepay the Junior Subordinated Debentures at the Special Event Prepayment Price. See "Description of Exchange Securities -- Description of Exchange Junior Subordinated Debentures -- Conditional Right to Shorten Maturity and Special Event Prepayment." UNITED STATES ALIEN HOLDERS For purposes of this discussion, a "United States Alien Holder" is any corporation, individual, partnership, estate or trust that is not a U.S. Holder for United States federal income tax purposes and for whom the income, and gain or loss, from the Exchange Capital Securities would not be treated as effectively connected with a United States trade or business. A "U.S. Holder" is a holder of Capital Securities who or which is a citizen or individual resident (or is treated as a citizen or individual resident) of the United States for federal income tax purposes, a corporation or partnership created or organized (or treated as created or organized for federal income tax purposes) in or under the laws of the United States or any political subdivision thereof, or a trust or estate the income of which is includible in its gross income for federal income tax purposes without regard to its source. (For taxable years beginning after December 31, 1996 (or for the immediately preceding taxable year, if the trustee of a trust so elects), a trust is a U.S. Holder for federal income tax purposes if, and only if, (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States trustees have the authority to control all substantial decisions of the trust.) Under present United States federal income tax laws: (i) payments by the Trust or any of its paying agents to any holder of a Capital Security who or which is a United States Alien Holder will not be subject to United States federal withholding tax; provided that, (a) the beneficial owner of the Capital Security does not actually or constructively own 10 percent or more of the total combined voting power of all classes of stock of the Company entitled to vote, (b) the beneficial owner of the Capital Security is not a controlled foreign corporation that is related to the Company through stock ownership, and (c) either (A) the beneficial owner of the Capital Security certifies to the Trust or its agent, under penalties of perjury, that it is not a United States holder and provides its name and address or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution"), and holds the Capital Security in such capacity, certifies to the Trust or its agent, under penalties of perjury, that such statement has been received from the beneficial owner by it or by a Financial Institution between it and the beneficial owner and furnishes the Trust or its agent with a copy thereof; and (ii) a United States Alien Holder of a Capital Security will not be subject to United States federal withholding tax on any gain realized upon the sale or other disposition of a Capital Security. INFORMATION REPORTING TO HOLDERS Generally, income on the Capital Securities will be reported to holders on Forms 1099, which forms should be mailed to holders of Capital Securities by January 31 following each calendar year. 57 67 BACKUP WITHHOLDING Payments made on, and proceeds from the sale of, the Capital Securities may be subject to a "backup" withholding tax of 31 percent unless the holder complies with certain identification requirements. Any withheld amounts will be allowed as a credit against the holder's United States federal income tax, provided the required information is provided to the IRS. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. ERISA CONSIDERATIONS A fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (an "ERISA Plan") considering the exchange of Old Capital Securities for Exchange Capital Securities, or an acquisition of Exchange Capital Securities (or any interest therein) from a holder of such Exchange Capital Securities (or any interest therein) should consider the fiduciary standards of ERISA in the context of the ERISA Plan's particular circumstances before authorizing the investment in the Exchange Capital Securities (or any interest therein). Among other factors, the fiduciary should consider whether such an investment is in accordance with the documents governing the ERISA Plan and whether the investment is appropriate for the ERISA Plan in view of its overall investment policy and diversification of its portfolio. Certain provisions of ERISA and the Code prohibit ERISA Plans, as well as individual retirement accounts and Keogh plans subject to section 4975 of the Code (collectively, "Plans"), from engaging in certain transactions involving "plan assets" with parties that are "parties in interest" under ERISA or "disqualified persons" under the Code with respect to the Plan. The U.S. Department of Labor has issued a final regulation (the "Regulation") with regard to whether the underlying assets of an entity in which employee benefit plans acquire equity interests are deemed to be plan assets. Under such Regulation, for purposes of ERISA and section 4975 of the Code, the assets of the Trust would be deemed to be "plan assets" of a Plan whose assets were used to purchase Exchange Capital Securities (or any interest therein) if the Exchange Capital Securities (or any interest therein) were considered to be equity interests in the Trust and no exception to plan asset status were applicable under the Regulation. If the assets of the Trust were deemed to be plan assets of Plans that are holders of the Exchange Capital Securities (or any interest therein), a Plan's investment in the Exchange Capital Securities (or any interest therein) might be deemed to constitute a delegation under ERISA of the duty to manage plan assets by a fiduciary investing in Exchange Capital Securities (or any interest therein). In addition, the Company might be considered a "party in interest" or "disqualified person" with respect to Plans whose assets were used to acquire Exchange Capital Securities (or any interest therein). If this were the case, an investment in Exchange Capital Securities (or any interest therein) by a Plan might constitute or, in the course of the operation of the Trust, give rise to a prohibited transaction under ERISA or the Code. In particular, it is likely that, under such circumstances, a prohibited "extension of credit" to the Company would be considered to occur under ERISA and the Code. Because of the possibility that the assets of the Trust would be considered plan assets of Plans whose assets were invested in the Exchange Capital Securities (or any interest therein), and the likelihood that under such circumstances a prohibited extension of credit would occur, the Exchange Capital Securities (or any interest therein) may not be purchased or held by any Plan or any person investing "plan assets" of any Plan, 58 68 unless such purchaser or holder is eligible for the exemptive relief available under Prohibited Transaction Class Exemption ("PTCE") 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) or PTCE 84-14 (for certain transactions determined by independent qualified asset managers). The certificates representing the Exchange Capital Securities will bear a legend to the effect that either (a) the holder of the Exchange Capital Securities (or any interest therein) is not a Plan and is not purchasing such securities (or any interest therein) on behalf of or with "plan assets" of any Plan or (b) the holder's purchase and holding of the Exchange Capital Securities (or any interest therein) is eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. Such legend will also require each holder of a Exchange Capital Security (or any interest therein) to deliver to the transferee of such Exchange Capital Security (or interest therein) notice of such restriction. Due to the complexity of these rules and the penalties imposed upon persons involved in prohibited transactions, it is important that any person considering the purchase of Exchange Capital Securities (or interest therein) with Plan assets consult with its counsel regarding the consequences under ERISA and the Code of the acquisition and ownership of Exchange Capital Securities (or interest therein) and the availability of exemptive relief under the class exemptions listed above. In John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.Ct. 517 (1993), the Supreme Court ruled that assets held in an insurance company's general account may be deemed to be "plan assets" for ERISA purposes under certain circumstances. Employee benefit plans which are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) generally are not subject to ERISA's requirements. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Capital Securities for its own account in connection with the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Capital Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by Participating Broker-Dealers during the period referred to below in connection with resales of Exchange Capital Securities received in exchange for Old Capital Securities if such Old Capital Securities were acquired by such Participating Broker-Dealers for their own accounts as a result of market-making activities or other trading activities. The Company and the Trust have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Capital Securities for a period ending 90 days after the Expiration Date (subject to extension under certain limited circumstances described herein) or, if earlier, when all such Exchange Capital Securities have been disposed of by such Participating Broker-Dealer. However, a Participating BrokerDealer who intends to use this Prospectus in connection with the resale of Exchange Capital Securities received in exchange for Old Capital Securities pursuant to the Exchange Offer must notify the Company or the Trust, or cause the Company or the Trust to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under "The Exchange Offer -- Exchange Agent." See "The Exchange Offer -- Resales of Exchange Capital Securities." The Company or the Trust will not receive any cash proceeds from the issuance of the Exchange Capital Securities offered hereby. Exchange Capital Securities received by broker-dealers for their own accounts in connection with the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Capital Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Capital Securities. 59 69 Any broker-dealer that resells Exchange Capital Securities that were received by it for its own account in connection with the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Capital Securities may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of Exchange Capital Securities and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. LEGAL MATTERS The validity of the Exchange Guarantee and the Exchange Junior Subordinated Debentures will be passed upon for the Company and the Trust by Baker & McKenzie, New York, New York. Certain matters relating to United States federal income tax considerations will be passed upon for the Company and the Trust by Baker & McKenzie, New York, New York. Certain matters of Delaware law relating to the validity of the Exchange Capital Securities will be passed upon for the Company by Potter Anderson & Corroon, Wilmington, Delaware. EXPERTS The consolidated financial statements of the Company and subsidiaries incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, have been incorporated herein by reference in reliance upon the reports of Price Waterhouse LLP, independent accountants, given upon the authority of such firm as experts in accounting and auditing. 60 -----END PRIVACY-ENHANCED MESSAGE-----